Donald MacKenzie Takes a Long Look at High-Frequency Trading and its History

Donald MacKenzie Interview
John Lothian

John Lothian

Executive Chairman and CEO

Scottish Professor’s Book Digs Into HFT and the Need for Speed

Donald MacKenzie, a professor of sociology at the University of Edinburgh, became fascinated with high-frequency trading 10 years ago, specifically about the alpha involved in speed. John Lothian News interviewed Professor Donald MacKenzie over Zoom about his new book “Trading at the Speed of Light; How Ultrafast Algorithms are Transforming Financial Markets,” published by Princeton University Press.

While MacKenzie expected to find people who were reluctant to reveal their special sauce, to his surprise he found lots of people who were willing to share  their knowledge. And he noted that signals that were common knowledge in the markets were the ones that were all about speed.

What surprised him most was that an algorithm’s reaction time was about 42 nanoseconds. 

The focus of his research was equities, futures,Treasuries and spot foreign exchange markets. 

He focused  most of his research on  proprietary trading shops in Europe and the United States, looking at firms in Chicago, New York, Amsterdam and London.

The firm he spent time researching about the start of modern high frequency trading was Automated Trading Desk, located in Charleston, South Carolina. They were working in the style of what is now HFT.

His book also covers co-location, which started around 2002 when an ECN (electronic communications network) named Island had trading firms move to its building to get closer to its matching engine.

He looks at microwave communications technology, as well as speed bumps and how they shape the trading playing field. 

He also explores spoofing and quote stuffing, which he claims are more about bad algos than malevolent intentions.

MacKenzie said he learned enough from his research to know he does not want to start an HFT firm, noting how expensive the business is and how many firms have gone out of business in recent years as the industry consolidates.

I asked him what advice he would share with the new SEC chairman, Gary Gensler. He focused his answer on the quality of price discovery and the positive impact that “jittery” trading technology can have. He also commented on dark pools.

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The video has been reported by John Lothian and edited and produced by Patrick Lothian.

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