High-frequency trading to be better regulated

The chief of Korea Exchange (KRX) said on Tuesday that algorithmic trading, or making investments using computerized trading programs, will face stronger regulation next year to raise the level of risk management system in the stock market.

“We will specify the definition of algorithmic trading to [better] cope with the diversified trading methods that operate on the technologically advanced system,” Jung Ji-won, the chief executive of the exchange, told reporters.

Artificial intelligence trading will be subject to mandatory registration at the exchange, the KRX chief added.

“Algo-trading” has become popular, particularly among large financial institutions, such as banks, insurers and hedge funds, that place large volumes of orders based on algorithmic trading strategies.

Despite the benefits from the advanced technology, computer-based trading may cause market confusion by making it difficult to track the legal responsibilities, such as those relating to erroneous orders.

In July, the Seoul branch of Merrill Lynch was fined 175 million won ($148,700) for its high-frequency algorithmic trading.

The KRX said the trading destabilized the local market and caused huge losses for retail investors.

High-frequency trading is not illegal, but it is a source of concern, as the chances are high that retail investors who follow their trading patterns end up losing money because they cannot keep up with the quick changes driven by algorithmic systems.

Yonhap