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Automated systems can identify company names, keywords and sometimes semantics to trade news before human traders can process it. In these strategies, computer scientists rely on speed to gain minuscule advantages in arbitraging price discrepancies in some particular security trading simultaneously on disparate markets.
Another aspect of low latency strategy has been the switch from fiber optic to microwave technology for long distance networking. Especially since , there has been a trend to use microwaves to transmit data across key connections such as the one between New York City and Chicago.
High-frequency trading strategies may use properties derived from market data feeds to identify orders that are posted at sub-optimal prices. Such orders may offer a profit to their counterparties that high-frequency traders can try to obtain.
Examples of these features include the age of an order  or the sizes of displayed orders. The effects of algorithmic and high-frequency trading are the subject of ongoing research. High frequency trading causes regulatory concerns as a contributor to market fragility. Members of the financial industry generally claim high-frequency trading substantially improves market liquidity,  narrows bid-offer spread , lowers volatility and makes trading and investing cheaper for other market participants.
An academic study  found that, for large-cap stocks and in quiescent markets during periods of "generally rising stock prices", high-frequency trading lowers the cost of trading and increases the informativeness of quotes; : They looked at the amount of quote traffic compared to the value of trade transactions over 4 and half years and saw a fold decrease in efficiency.
This makes it difficult for observers to pre-identify market scenarios where HFT will dampen or amplify price fluctuations. The growing quote traffic compared to trade value could indicate that more firms are trying to profit from cross-market arbitrage techniques that do not add significant value through increased liquidity when measured globally.
Economies of scale in electronic trading contributed to lowering commissions and trade processing fees, and contributed to international mergers and consolidation of financial exchanges. The speeds of computer connections, measured in milliseconds or microseconds, have become important. For example, in the London Stock Exchange bought a technology firm called MillenniumIT and announced plans to implement its Millennium Exchange platform  which they claim has an average latency of microseconds.
Off-the-shelf software currently allows for nanoseconds resolution of timestamps using a GPS clock with nanoseconds precision. The brief but dramatic stock market crash of May 6, was initially thought to have been caused by high-frequency trading. In the aftermath of the crash, several organizations argued that high-frequency trading was not to blame, and may even have been a major factor in minimizing and partially reversing the Flash Crash.
However, after almost five months of investigations, the U. Securities and Exchange Commission SEC and the Commodity Futures Trading Commission CFTC issued a joint report identifying the cause that set off the sequence of events leading to the Flash Crash  and concluding that the actions of high-frequency trading firms contributed to volatility during the crash.
In the Paris-based regulator of the nation European Union, the European Securities and Markets Authority , proposed time standards to span the EU, that would more accurately synchronize trading clocks "to within a nanosecond, or one-billionth of a second" to refine regulation of gateway-to-gateway latency time— "the speed at which trading venues acknowledge an order after receiving a trade request.
The fastest technologies give traders an advantage over other "slower" investors as they can change prices of the securities they trade. High-frequency trading comprises many different types of algorithms. High-frequency trading has been the subject of intense public focus and debate since the May 6, Flash Crash. In their joint report on the Flash Crash, the SEC and the CFTC stated that "market makers and other liquidity providers widened their quote spreads, others reduced offered liquidity, and a significant number withdrew completely from the markets"  during the flash crash.
Politicians, regulators, scholars, journalists and market participants have all raised concerns on both sides of the Atlantic. She said, "high frequency trading firms have a tremendous capacity to affect the stability and integrity of the equity markets.
Currently, however, high frequency trading firms are subject to very little in the way of obligations either to protect that stability by promoting reasonable price continuity in tough times, or to refrain from exacerbating price volatility.
In an April speech, Berman argued: I worry that it may be too narrowly focused and myopic. The Chicago Federal Reserve letter of October , titled "How to keep markets safe in an era of high-speed trading", reports on the results of a survey of several dozen financial industry professionals including traders, brokers, and exchanges.
The CFA Institute , a global association of investment professionals, advocated for reforms regarding high-frequency trading,  including:. Exchanges offered a type of order called a "Flash" order on NASDAQ, it was called "Bolt" on the Bats stock exchange that allowed an order to lock the market post at the same price as an order on the other side of the book [ clarification needed ] for a small amount of time 5 milliseconds.
This order type was available to all participants but since HFT's adapted to the changes in market structure more quickly than others, they were able to use it to "jump the queue" and place their orders before other order types were allowed to trade at the given price. Currently, the majority of exchanges do not offer flash trading, or have discontinued it.
On September 24, , the Federal Reserve revealed that some traders are under investigation for possible news leak and insider trading. However, the news was released to the public in Washington D. Octeg violated Nasdaq rules and failed to maintain proper supervision over its stock trading activities.
Nasdaq determined the Getco subsidiary lacked reasonable oversight of its algo-driven high-frequency trading. Knight was found to have violated the SEC's market access rule, in effect since to prevent such mistakes.
Regulators stated the HFT firm ignored dozens of error messages before its computers sent millions of unintended orders to the market.
According to the SEC's order, for at least two years Latour underestimated the amount of risk it was taking on with its trading activities.
By using faulty calculations, Latour managed to buy and sell stocks without holding enough capital. The SEC noted the case is the largest penalty for a violation of the net capital rule.
In response to increased regulation, some   have argued that instead of promoting government intervention, it would be more efficient to focus on a solution that mitigates information asymmetries among traders and their backers. These exchanges offered three variations of controversial "Hide Not Slide"  orders and failed to accurately describe their priority to other orders. The SEC found the exchanges disclosed complete and accurate information about the order types "only to some members, including certain high-frequency trading firms that provided input about how the orders would operate".
The SEC stated that UBS failed to properly disclose to all subscribers of its dark pool "the existence of an order type that it pitched almost exclusively to market makers and high-frequency trading firms". UBS broke the law by accepting and ranking hundreds of millions of orders  priced in increments of less than one cent, which is prohibited under Regulation NMS.
The order type called PrimaryPegPlus enabled HFT firms "to place sub-penny-priced orders that jumped ahead of other orders submitted at legal, whole-penny prices". Nasdaq's disciplinary action stated that Citadel "failed to prevent the strategy from sending millions of orders to the exchanges with few or no executions.
This excessive messaging activity, which involved hundreds of thousands of orders for more than 19 million shares, occurred two to three times per day. Panther's computer algorithms placed and quickly canceled bids and offers in futures contracts including oil, metals, interest rates and foreign currencies, the U. Commodity Futures Trading Commission said.
The indictment stated that Coscia devised a high-frequency trading strategy to create a false impression of the available liquidity in the market, "and to fraudulently induce other market participants to react to the deceptive market information he created". The HFT firm Athena manipulated closing prices commonly used to track stock performance with "high-powered computers, complex algorithms and rapid-fire trades," the SEC said.
The regulatory action is one of the first market manipulation cases against a firm engaged in high-frequency trading. Reporting by Bloomberg noted the HFT industry is "besieged by accusations that it cheats slower investors. Advanced computerized trading platforms and market gateways are becoming standard tools of most types of traders, including high-frequency traders.
Broker-dealers now compete on routing order flow directly, in the fastest and most efficient manner, to the line handler where it undergoes a strict set of risk filters before hitting the execution venue s. Such performance is achieved with the use of hardware acceleration or even full-hardware processing of incoming market data , in association with high-speed communication protocols, such as 10 Gigabit Ethernet or PCI Express.
More specifically, some companies provide full-hardware appliances based on FPGA technology to obtain sub-microsecond end-to-end market data processing. Buy side traders made efforts to curb predatory HFT strategies. Brad Katsuyama , co-founder of the IEX , led a team that implemented THOR , a securities order-management system that splits large orders into smaller sub-orders that arrive at the same time to all the exchanges through the use of intentional delays.
This largely prevents information leakage in the propagation of orders that high-speed traders can take advantage of. The IEX speed bump—or trading slowdown—is microseconds , which the SEC ruled was within the 'immediately visible' parameter.
The slowdown promises to impede HST ability "often [to] cancel dozens of orders for every trade they make". Unlike the IEX fixed length delay that retains the temporal ordering of messages as they are received by the platform, the spot FX platforms' 'speed bumps' reorder messages so the first message received is not necessarily that processed for matching first.
In short, the spot FX platforms' speed bumps seek to reduce the benefit of a participant being faster than others, as has been described in various academic papers. From Wikipedia, the free encyclopedia. Financial market participants Credit unions Insurance companies Investment banks Investment funds Pension funds Prime brokers Trusts Finance Financial market Participants Corporate finance Personal finance Public finance Banks and banking Financial regulation Fund governance In financial markets, high-frequency trading HFT is a type of algorithmic trading characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools.
For other uses, see Ticker tape disambiguation. Spoofing finance and Layering finance. Retrieved 27 June Retrieved August 15, The New York Times. Retrieved September 10, The Wall Street Journal. Retrieved July 12, UK fighting efforts to curb high-risk, volatile system, with industry lobby dominating advice given to Treasury". Retrieved 2 January Transactions of the American Institute of Electrical Engineers.
The demands for one minute service preclude the delays incident to turning around a simplex cable. This demand is not a theoretical one, for without such service our brokers cannot take advantage of the difference in quotations on a stock on the exchanges on either side of the Atlantic. Retrieved Sep 10, Archived from the original PDF on 25 February Retrieved June 29, Up against a bandsaw".
To better achieve its objectives, the trade commission can create technical committees targeting direction and supervision of the work it engages in. It can also adopt internal operating regulations.
Proposals and decisions of the trade commission will be taken by a consensus of the representatives indicated by each member nation. Any disputes ensuing from the application, interpretation or compliance with the acts issued by the trade commission are referred to the Mercosur executive body, and should be resolved using the directives set forth in the Dispute Resolution System adopted under Southern Common Market.
The rules on litigation jurisdiction over contractual matters will apply to disputes arising from civil or commercial international contracts between private-law legal entities or individuals provided that: They are domiciled or headquartered in different member states: At least one of the parties to the contract is domiciled or headquartered in any member state and, additionally, has made a choice of jurisdiction in favor of a court in one of the member states.
In this case, there must be a reasonable connection between the jurisdiction chosen and the controversy. The scope of the application of the international jurisdiction guidelines over contractual matters excludes the following: Courts in member nations to whose jurisdiction the contracted parties have agreed to submit the matter in writing will have jurisdiction to settle controversies stemming from civil or commercial international contracts.
The jurisdiction can be agreed on at the time the contract is signed, during the life of the contract, or even when the dispute actually arises. The validity and effects of the choice of venue will be governed by the law of the member nations that normally have jurisdiction to hear the case, always resorting to the law most favorable to the validity of the contract.
Whether or not jurisdiction is chosen, such jurisdiction will be prorogated in favor of the courts of the member state where the proceedings are in fact filed, provided the respondent voluntarily allows this in an affirmative and unfeigned way.
Should the contracted parties not agree on courts competent to settle disputes, the member state chosen by the plaintiff of the case has jurisdiction—the court of the place where the contract is to be performed, the court of the domicile of the respondent, or the court of the domicile , or headquarters of the claimant when the latter can show that it has done its part.
For purposes of item i above the place of performance of the contract is the member state where the obligations on which the claim is based have been or should be performed, taking into consideration the following: For contracts involving certain specific items, the place where they existed at the time of contract signing; For contracts involving specific items according to their type, the place of domicile of the debtor at the time of contract signing; For contracts involving fungible items, the place of domicile of the debtor at the time of conclusion of the contract; and For service rendering contracts:.
In the event of there being a counterclaim based on any act or fact that served as the basis for the main proceeding, the courts hearing the main proceeding will be competent to hear any counterclaims that may arise. Based on the premise that education is a fundamental factor in the regional integration process, educational courses at the primary or junior high level, provided that they do not entail technical studies, will be recognized by member states as being on the same level for all member nations.
Likewise, to facilitate continuing education, course certificates issued by an institution accredited in one of the member states is valid in all other member states. Nontechnical primary and junior high level studies that have not been completed are accredited by any member state, thereby allowing course conclusion in another member nation.
Studies are completed using an equivalency table to determine the level achieved. A regional technical commission harmonizes mechanisms for accreditation across member nations, and resolves any situation not be covered by the equivalency table. This commission includes delegations from the ministries of education of each member nation, and meets whenever at least two member states think it necessary. Meeting sites are established on a rotating basis. Any disputes among member states as a result of application, construction, or noncompliance regarding provisions related to education are initially resolved by direct diplomatic negotiations.
Should the countries not reach an accord or only partially resolve the dispute, they resort to procedures set out in the dispute resolution system. Should the member nations enter into a bilateral convention or accord with provisions more favorable to their students, the member states in question can apply whichever provisions they consider most advantageous.
The member nations can have commercial free-trade zones, industrial free-trade zones, export processing zones, and special customs areas, all of which target providing merchandise marketed or produced in these areas with treatment different from that afforded in their respective customs territories.
He also said that "each Mercosur country should have a multiplicity of memberships. Mercosur must have joint international policies, an agreement on moderate protection from third parties and above all must have agreements with other trade blocks". The member states can assess merchandise from these areas with the common external tariff used for Mercosur merchandise, or, in the case of certain special products, the domestic tariff prevailing in each individual state.
In this way, the products from the free-trade zones can have the more favorable tax treatment established under Southern Common Market, given to the merchandise produced in the normal customs zones of each member state or, in the case of certain special products, can have the normal customs treatment prevailing in each nation.
Products coming from outside of Mercosur are highly taxed so that local companies do not feel the need to compete with large international companies. Products produced or marketed in the free-trade zones of each member nation will be eligible for the safeguard system whenever this entails an increase not provided for in imports, but capable of causing damages or threatened damages to the importer country.
In the event of the producing nation's granting special incentives for production from the free-trade zones that are not compatible with the corresponding guidelines established under the General Agreement on Tariffs and Trade GATT , the member nation can make any adjustments needed to return the situation to equilibrium.
The member nations agreed that any free-trade zones that in August were already in operation could operate normally under Mercosur, along with any that are set up in light of legal guidelines prevailing or in course in congress during this same time period.
This means that a member nation can no longer create new free-trade zones that are more privileged. Mercosur is an effective agreement for its members. The actual implementation of Mercosur will not affect the special Manaus , Brazil, and Tierra del Fuego , Argentina, free-trade zones organized in light of their special geographic situations.
These two free-trade zones may continue normal operations until It was established in this protocol that investments under Mercosur by investors resident or domiciled in the territory of any member state will be entitled to treatment no less favorable than that accorded by the other member state to national investors or nonmember states.
For the purposes of constructing the Colonia Protocol, investors are considered to be: Individuals who are citizens of any of the member nations or that reside there on a permanent basis or are domiciled there, with due regard for legislation prevailing in such territory; Legal entities organized pursuant to the legislation of one of the member nations that are headquartered there; and Legal entities organized in the territory where the investment is made, actually and directly or indirectly controlled by the legal entities or individuals mentioned above.
The term investment includes all types of assets such as: The nation receiving the investment cannot avail itself of unjustified or discriminatory means capable of restricting the investor's freedom to manage, maintain, use, enjoy and dispose of its investments. The member states are not however obligated to extend to investors in the other nations signatory to the Colonia Protocol the benefits of any treatment, preference or privilege resulting from international accords relating fully or partially to tax matters.
In addition, the member nations can temporarily establish a list of exceptions where the new treatment will not yet prevail. The member nations undertook to do nothing to nationalize or expropriate investments in their territories that pertain to investors from the signatory countries, unless such measures are taken based on public need. In such case, nothing discriminatory can be done, but everything must be implemented by due legal process.
Compensation for the investment holder that is expropriated or nationalized should be both adequate and effective, and made in advance, based on the real investment value determined at the time the decision is publicly announced by the proper authorities. This payment will be updated until actual payment, and the affected investor will receive interest. The original member state investors will be ensured free transfer of their investments and any earnings thereon.
These transfers can be made in freely convertible currency, using the exchange rate prevailing on the market pursuant to the procedures established by the member state receiving the investment. Member nations cannot adopt any exchange measures restricting free transfer of the funds invested or from activities exercised in their respective territories.
The development of Mercosur was arguably weakened by the collapse of the Argentine economy in and it has still seen internal conflicts over trade policy, between Brazil and Argentina, Argentina and Uruguay, Paraguay and Brazil, etc.
In addition, many obstacles must be addressed before the development of a common currency in Mercosur. In , Mercosur signed a cooperation agreement with the Andean Community of Nations trade bloc CAN and they published a joint letter of intent for future negotiations towards integrating all of South America. Key Role for Bolivia. It is the fourth-largest trading bloc after the European Union.
The working of Mercosur has not met with universal approval within interested countries. Chile has to a certain extent preferred to pursue bilateral agreements with trading partners, and there have been calls from Uruguayan politicians to follow this example. With the cooperation agreement with Mercosur, the Andean Community gained four new associate members: Argentina, Brazil, Paraguay, and Uruguay.
These four Mercosur members were granted associate membership by the Andean Council of Foreign Ministers meeting in an enlarged session with the Commission of the Andean Community on 7 July This move reciprocates the actions of Mercosur, which granted associate membership to all the Andean Community nations by virtue of the Economic Complementarity Agreements Free Trade Agreements signed between the CAN and individual Mercosur members. Mercosur signed free trade agreements with Israel in December ,  with Egypt in August ,  the State of Palestine in December  and Lebanon on December 18, In , Brazilian presidents, Dilma Rousseff and later Michel Temer , along with Argentine President Macri have placed pressure to negotiate a free trade agreement between Mercosur and the European Union and other Latin American nations.
Guyana and Suriname have signed a framework agreement with Mercosur in July From Wikipedia, the free encyclopedia. Pardo , Mestizo , etc.
Considering Mercosur as a single entity. Member states of Mercosur. This section does not cite any sources. Please help improve this section by adding citations to reliable sources. Unsourced material may be challenged and removed. July Learn how and when to remove this template message. This section needs additional citations for verification.
Please help improve this article by adding citations to reliable sources. International relations portal Business and economics portal. United Nations Development Programme. Retrieved 14 September Mercado Comum do Sul , Guarani: Retrieved 2 December Archived from the original on 30 January Retrieved 22 November Retrieved 23 November Archived from the original on 25 December Retrieved 25 December Retrieved November 23, Retrieved 27 November Retrieved 2 December — via Reuters.
Retrieved 10 September Archived from the original on 4 March Archived from the original on 8 May Archived from the original on 29 July Regionalist governance in the new political economy of development: Third World Quarterly Latin American corporate strategy under the new regionalism in Prakash, A.