High Frequency Trading and the UK Government’s Whitewash

The UK Government’s Foresight Project has just announced the results of its two-year investigation into electronic trading and markets. And the good news for hedgies is that they’ve decided that high-frequency trading is mostly safe!

Let the party continue!

And the bad news? None really.

That’s unless you believe government reports should be unbiased, independent, forward thinking, etc. etc.

One group of journalists from The Bureau of Investigative Journalism has observed that the Foresight panel, the “High Level Stakeholder Group” made up of senior individuals from relevant institutions, is not exactly unbiased. Their nice analysis is here.

The story I was told by one of the Bureau’s journalists was that anyone who was anti HFT was discreetly dropped from the investigation. For example…er, me! In the early days of the project, two years ago, I was asked to contribute…and then after hearing my views the Foresight team went strangely quiet on me. And it wasn’t just me, it turns out that lots of other people were also found to be surplus to requirements.

The list of members of the Stakeholder panel is here.

It’s not even subtle is it? The majority of those on the panel directly benefit from HFT.

The report takes the tired, old, shallow viewpoint about HFT adding liquidity, without delving any deeper. Yes, there’s lots of statistics in there. But excuse me for thinking that a panel with the name of ‘Foresight’ ought really to make some effort to look beyond the past into possible future scenarios. It may not be easy to estimate the probability of various scenarios but it’s not hard to figure out their effects. The project made little attempt in that direction.

I’m disappointed in many ways: Partly because I was dropped and so missed an opportunity to serve Queen and country; Partly because the result was not independent, resulting in precisely the outcome that the government wanted; Partly because few have picked up this rather important story. But mostly I’m disappointed because the rigging of the panel was so blatant, so arrogant in its execution, and so narcissistic the belief that they’d get away with it.

This Foresight report is already being quoted as the most important and most detailed analysis of computer trading ever. It is bound to have a major influence on the future of the financial markets. And it’s a complete whitewash.


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