Denmark’s Financial Supervisory Authority (FSA) today published a Report on algorithmic trading on NASDAQ Copenhagen, with the study mapping trading in securities carried out by computers on NASDAQ Copenhagen. The report also addresses the regulator’s intentions of supervising algorithmic trading, including the so-called high-frequency trading.
At present times, algorithmic trading accounts for approximately 50% of all trading on NASDAQ Copenhagen, the report shows, and high-frequency trading alone accounts for circa 15%.
The report points out the positive side of HFT and algo trading by showing that overall the extensive use of computerised trading has led to better liquidity on the market. Also, the regulator notes, there are no signs of major risks involved, such as major fluctuations in prices as a consequence of algorithmic trading.
Alike several other markets, NASDAQ Copenhagen has implemented automatic switches that aim to cut the risk of large price fluctuations as a result of e.g. misprogrammed algorithms or keying errors. Thus far, no market disruptions have been identified, such as “flash crash” resulting in steep price fluctuations due to (for example) misprogrammed algorithms.
The FSA’s review of trading data does not find extensive use of trading strategies which may be considered market abuse. However, given that the largest Danish shares are typically also traded on foreign stock exchanges, the regulator does not rule out that market abuse may occur in connection with algorithmic trading across the stock exchanges.
The regulator notes that algorithmic trading on NASDAQ Copenhagen is to a great degree carried out by enterprises which are not under Danish supervision. The supervision of algorithmic trading is hence largely based on the supervision of NASDAQ Copenhagen as a market place. New European Union regulation set to come into force in 2018 will introduce specific requirements for algorithmic traders, and it will be a requirement that HFT traders are supervised.
Further information is available here (Danish only).