Abstract

The rise of High Frequency Trading in the United States and the rest of the world has changed the face of the financial system in India. A host of new consequences have emerged which couldn’t possibly have been foreseen earlier. Naturally the existing laws are incapable of dealing with issues relating to High Frequency Trading, when the existing laws were written its safe to assume that the authors did not have the value of a microsecond in mind, and it certainly couldn’t have occurred to them that the time taken by a human to blink his eye can be considered slow in the financial markets one day. These consequences were laid bare in the flash crash of 2010 in the US. The absence of laws to regulate High Frequency Trading and calculate the value of a microsecond to a trader has created an opaque market, made further opaque, by the traders themselves to secure their strategies and profits. Many of these strategies and methods have been researched in detail by certain journalists and authors and deemed to be predatory, foremost among them being American financial journalist Michael Lewis who laid bare the predatory tactics of the High Frequency Traders in his book “Flash Boys.” This article has been written to discuss the legality of High Frequency trading in the face of Indian front running regulations and to explore whether they provide sufficient protection to the average investor from predatory trade strategies exploiting advantages in speed and information asymmetries.

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