Algorithmic Trading and Market Regulation

Abstract

This chapter examines the interaction between automated, algorithmic markets and fundamental legal concepts in securities regulation, an area to which policy-makers have devoted little attention. Recent advances in communication technology have facilitated the rapid rise of algorithmic trading and automated market mechanics. This chapter surveys eight framework notions critical to regulation and discusses how these might apply in an automated marketplace. Specifically, it examines reasonableness; strict liability; foreseeability; contribution; scienter; damage and harm; evidence and proof; and disclosure and information dissemination. This analysis reveals how deeply-held assumptions guiding regulatory law sit uneasily in today’s complicated and fast-paced markets.