Israel’s Central Bank Wants Increased Regulation on Algorithmic Trading

Traders Magazine Online News, August 15, 2018

John D'Antona Jr.

There will be no “Algos Gone Wild” in Israel’s stock markets if its regulator gets its way.

As first reported in Calcalist Tech, the country’s leading regulator, Bank of Israel, said it wants to review the need to restrict HFT in all financial assets traded on the exchange. Since HFTs employ algorithms and hyper fast computer technology, the move is in line with the country’s desire to reduce the risk of trading and exchange failures and manipulation.

Over 90% of the activities on the Tel Aviv Stock Exchange are algorithmically performed, according to a new research paper recently published by Israel’s central bank. While the number of algorithmic automated high-frequency trading (HFT) activities on the exchange is higher than most stock exchanges, the actual rate of transactions they execute, between 23% and 35%, is significantly lower than global standards, the report said.

While algorithmic trading can contribute to the trading quality, it adversely impacts slower, non-algorithmic traders, increases information asymmetry, and negatively impact asset liquidity, the bank concluded.

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