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Current Issue: Frequency Trading

With the recent events about GS with it frequency trading, I am just curious what kind of risks it posed from a Financial Risk Management prospective?

I am certain that market risks and systemic risks are to be considered. But to what degree?

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Freq trading is a super set of Flash trading. … If you think abt it, Flash trading is in a way front-running by milliseconds. That’s my friend is riskless… and unethical.

But Freq trading for most part create a great liquidity and its a significant portion of the volume we see on the screen now adays.

From the risk perspective, I dont think market risk or sys risk will pose a huge problem as the comp program will be in and out of a position within milli-seconds so the problem might be more to do with operational part of it…

Any Risk Gurus out there… what do you guys think ?

No doubt v.raghavan but then again what about counterparty risks when one does realised that there’s perhaps a glitch in the system? What then? Who’s gonna take the fall?