The regulation of high-frequency trading: A pragmatic view

High-frequency trading (HFT) has become a household term and a favourite topic for the financial media since the flash crash of May 2010. In this article, it is argued that the criticism directed at HFT is misplaced and based on a misconception of what HFT is all about. Specifically it is argued that HFT did not cause or exacerbate the flash crash, that it is not as profitable as it is typically portrayed to be, and that it is confused with other operations. Counterarguments are presented against the arguments put forward by the opponents of HFT. Although the case for a special regulation of HFT is weak, abusive practices such as 'front running' should be banned, whether they are associated with high-frequency or low-frequency traders. More importantly, however, there are more serious matters that regulators should be preoccupied with than traders who buy and sell frequently.