Why Banning Algorithmic Trading Is Hard to Compare
Summary
The document considers whether countries or exchanges have banned algorithmic trading and whether such cases could support a comparison of markets. The responses report no known current exchange that operates only through traditional pit trading, making a clean comparison between markets that permit algorithms and markets that prohibit them difficult. One suggested proxy is to compare an exchange’s earlier, more human-driven era with its modern electronic market, though the exchange itself and its market structure have changed substantially over time.
A further point is that rules against algorithmic platforms may be difficult to enforce when electronic execution is available: participants could automate their trading through their own software. These observations are useful cautions for research design, but the document supplies no systematic country or exchange inventory, legal analysis, or empirical evidence. Historical comparisons would also be confounded by changes in technology, participants, and market structure, so they cannot isolate the effect of algorithmic trading without stronger controls.
Key ideas
- The responses identify no known exchange that still relies exclusively on pit trading.
- Comparing an exchange across eras is difficult because its structure and technology change over time.
- Electronic execution can make a ban on algorithmic trading platforms difficult to enforce.
- The document offers research-design cautions but no comprehensive list or empirical comparison.
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# Countries and/or exchanges which don't allow algo-trading # Countries and/or exchanges which don't allow algo-trading I am doing a research paper on the effect of algo-trading on capital markets. In order to do this, I plan to do an OLS comparison of Countries and Exchanges who ban algo-trading platforms and those who allow it. After some googling I have been unable to find such a list. Therefor, my question is this: What countries and/or exchanges have banned algo-trading platforms? ## Answer by chollida (score 3, accepted) https://quant.stackexchange.com/a/16286 The easy answer would be to look for exchanges that only have pit trading, ie people in a room that match up buyers and sellers. As far as I know no such exchange exists any more. In my opinion the best you are going to be able to do is to compare the NYSE now with the NYSE in 1998, which is to say you wont be able to do much of a comparison at all as the NYSE, or NASDAQ of 20 years ago has very little in common with the exchanges of today. I don't know what an "OLS comparison" is but a shot in the dark. Scott Patterson wrote a great book called DarkPools that illustrates how the markets changed from pit trading driven to computer driven. That might help you out. ## Answer by CJ B (score 1) https://quant.stackexchange.com/a/16284 I am not aware of any which have, but even given that a country had banned algo-trading, if the exchanges in that country still offered electronic execution (which is pretty much essential in this day and age), then market participants can build their own software to make their trades, they just might have to alter their strategy in such a way that it is not obvious that the trades are being executed automatically.
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