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Fairness in Financial Markets: The Case of High Frequency Trading


Recent concern over “high frequency trading” (HFT) has called into question the fairness of the practice. What does it mean for a financial market to be “fair”? We first examine how high frequency trading is actually used. High frequency traders often implement traditional beneficial strategies such as market making and arbitrage, although computers can also be used for manipulative strategies as well. We then examine different notions of fairness. Procedural fairness can be viewed from the perspective of equal opportunity, in which all market participants are treated alike. The same rules apply to HFT as to other traders. Another approach to fairness is in the equality of outcomes. Many HFT strategies are beneficial to other market participants, so one cannot categorically denounce the practice as unfair. Other strategies, for both high and low frequency trading, are not. It is thus important to distinguish between the technology and the use of the technology to make judgments on fairness.

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  1. Public Law 111-203, HR 4173

  2. SEC (2010a, pp. 41).

  3. See Gatev et al. (2006) for a study of pairs trading.

  4. See Ferguson (1998) for more details on the Rothschilds.

  5. For a good discussion of technical analysis, see Lo et al. (2000).

  6. See Arnuk and Saluzzi (2009).

  7. See D’Antona (2012) for more information about the Pipeline Trading scandal.

  8. Section 9 of the Securities Exchange Act of 1934 bans various practices such as wash sales. Section 10b more generally bans “any manipulative or deceptive device or contrivance” as defined by the SEC. The entire text of the law can be found at

  9. Recently, the Financial Industry Regulatory Authority, FINRA, fined Trillium Brokerage Services LLC for engaging in such activity. See and for details.

  10. The event was allegedly set off by a large low frequency mutual fund that put in a very large sell order. The ensuing chaos caused data integrity problems that led many HFT firms to turn off their computers because they did not have confidence in the data they were receiving from the exchanges. This caused a lack of arbitrage, leading to crazy prices for many stocks and especially for ETFs. See SEC (2010b) for more details.

  11. See Rabin (1993) and Konow (2003) for more complete surveys.

  12. Subtitle C, Sect. 1031 of the Dodd–Frank law. For another attempt at implementing fairness in law, see Ledvinka (1979) for a statistical approach.


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Correspondence to James J. Angel.

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Angel, J.J., McCabe, D. Fairness in Financial Markets: The Case of High Frequency Trading. J Bus Ethics 112, 585–595 (2013).

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  • Fairness
  • Justice
  • High frequency trading
  • Financial markets
  • Manipulation