The definitive study of HFT?

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The long-running debate (at least it seems long) on high-frequency trading has become familiar to many.

On one hand, practitioners tout the liquidity benefits and the decline in trading costs that has yielded benefits for the entire marketplace. Critics point to the uncertainty created by little-understood quotation practices and point to the Flash Crash of May 2010 as a good example of what can go wrong. Now, a new study has been released, one that has been touted as the definitive word on the controversial practice, which seems to be spreading around the globe, despite the tough times these traders have endured in the United States.

The report, conducted by the British government, "is the product of the most comprehensive effort to date to understand the computerized trading firms that have come to dominate the financial markets," notes the New York Times.

It boiled down 50 studies from experts in more than 20 countries and found a synthesis that "largely rejected some of the most troubling accusations that have been made about the firms that practice high speed trading, or H.F.T., including charges that they have caused greater volatility in markets and manipulated stock prices…But the committee concluded that regulators had failed to gather enough data or build the expertise needed to allay a widespread assumption among professional investors that faster traders have an advantage and profit at the expense of ordinary investors."

The report did suggest that the practice can indeed exacerbate volatile market movements. Despite the ambitious efforts of this report, this will not be the final word, and critics have emerged. Some have argued that the report downplayed some major costs to investors. With that in mind, HFT is here to stay. What matter now is crafting a market structure that makes sense in light of these traders. This doesn't lessen the regulatory burdens to re-make the equity markets.

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- here's the article