Research On The Impact Of High Frequency Trading On Market Microstructure And Suggestion For The Supervision Of High Frequency Trading

Fat Finger event happened on August 16th,2013, which due to system failure of Ever bright Securities’arbitrage system makes High Frequency Trading (HFT) the limelight of the market. HFT originated in United States and experienced rapid development recent years because of its great power of profitability. According to BCG’s forecast, the volume traded by HFT in both United States and Europe will exceed 60% till 2015, even Asia will exceed 20%. As for our country, HFT is still at the early stage of development due to trading mechanism.HFT improves market efficiency by providing the market with liquidity, narrowing Bid-Ask spread and reducing trading cost. But at the same time, it increases market fluctuation and even affects the fairness of the market. China Financial Futures Exchange released index futures contracts on April 16th,2010, which is suited for HFT. This article doing empirical analysis base on a statistical arbitrage strategy on stock index futures market to test the feasibility and profitability of HFT on our security market.Based on the empirical analysis of stock index futures market in our country by Garch model, we proved that the price volatility of futures contract has significant positive correlation with trading volume, HFT will aggravate price fluctuation while providing liquidity for the market.The rapid development of HFT is closely related to the change of American stock market microstructure, Many studies have shown that the speed of HFT has a negative impact on market fairness. Through the analysis of some trading strategies we found that the special instruction types used by high frequency traders can also be detrimental to the fairness of the market.HFT will widely used in our security market in the future, but we have no regulations or laws to supervise the behavior of HFT, Fat Finger event of Everbright Securities alarms the bell. Unite States has strengthened the supervision on HFT after Flash Crash. We summarized the latest trend for HFT supervision and provide some suggestions for the regulation on HFT of our country.