Regulation May Spell the End of High-Speed Quant Trading

Despite the money that Wall Street is spending on Washington lobbyists to try to neuter the Dodd-Frank Act, quantitative trading is going to face greater scrutiny in the coming years.

The days of quant trading may be winding down. Don't get me wrong -- trading using smart formulas crafted by math majors from elite universities who would likely laugh at my SAT scores will still rake in huge bucks on the Street. But the age of unfettered high-speed trading might be nothing more than a fond memory in just a few years.

HFT In the Crosshairs European regulators are just the latest to target high-frequency trading. In an effort to pick up where the original directive left off, MiFID II aims to finally drive real transparency into HFT. Download our December digital issue to learn more.

Not a week goes by without a new regulatory proposal aimed at slowing down supersonic traders. Industry participants no longer wonder "if" regulators will corral high-speed traders; they're asking, "When?" Despite the tons of money that Wall Street is spending on K Street lobbyists to try to neuter and defang the Dodd-Frank Act, the idea that quantitative trading is not going to face greater scrutiny in the coming years is pure fantasy.

In the December digital issue of Advanced Trading, we examine the European Commission's latest regulatory proposals, which update the Markets in Financial Instruments Directive. The updated directive, known as MiFID II, still is pending ratification by the E.U. Parliament and member states, but if passed, it will have a big impact on dark pools, derivatives and, you guessed it, high-frequency trading. Given the fact that the classic MiFID was intended to level the playing field in European markets, the idea that algorithmic traders should get a free pass is laughable.

Also in this digital edition, editor-at-large Ivy Schmerken breaks down the Pipeline fiasco -- if a dark pool were ever trying to prove the need for further transparency, Pipleline sure delivered. Meanwhile, associate editor Justin Grant explores the outlook for hedge funds in 2012 and looks at the tensions that exist between high-frequency traders and institutional players.

One thing about the coming year is certain: The rules are about to change.

Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio