CHICAGO Aug 27 Volatility in futures contracts
has remained largely stable in the face of increased
participation from high-speed and algorithmic traders often
blamed for roiling markets, according to a study issued on
The study, released by the Futures Industry Association,
examined volatility from roughly 2006 to 2011 in 15 futures
contracts traded on platforms run CME Group Inc,
IntercontinentalExchange Inc, Deutsche Boerse AG's
Eurex, and NYSE Euronext's Liffe. The
exchange operators sponsored the study.
It found there is "no evidence to suggest that realized
return volatility in electronically-traded futures markets has
changed through time."
High-frequency traders are often blamed for increasing
volatility because they use computer algorithms to dart in and
out of markets faster than the blink of an eye.
"We now have empirical evidence that volatility in the
futures markets has neither increased nor decreased once the
effects of macro-economic shocks are removed," said Walt Lukken,
president and chief executive officer of the futures
The association would not disclose the cost of the study.
Conducted by two professors from Vanderbilt University, its
release comes as the prevalence of high-frequency trading is
fueling concerns about the fairness of markets.
High-frequency trading accounted for more than 60 percent of
all futures volume in 2012 on U.S. exchanges, according to New
York industry researcher The Tabb Group.
Risks associated with the practice first drew wide attention
after the stock market's "flash crash" of 2010, when the Dow
Jones Industrial Average dropped about 700 points within
minutes. The fall was exacerbated by high-frequency traders
unloading their inventory of securities at the depth of the
CME Group, which owns the Chicago Board of Trade and New
York Mercantile Exchange, said the study issued on Tuesday
showed the benefits of high-frequency trading.
"This is an important study demonstrating, as many others
have already done, that high frequency trading does not increase
volatility, but rather serves as an important provider of
liquidity for the marketplace," CME spokeswoman Laurie Bischel
Representatives for the ICE and NYSE declined to comment. A
spokesman for the Eurex could not immediately be reached.
The study used two benchmarks to assess intraday volatility
in the 15 futures contracts, which included seven interest rate
contracts, five equity index contracts, two crude oil contracts
and one sugar contract.
The study does not draw a definitive connection between the
rise of high-frequency trading, known as HFT, and steady
volatility in the contracts, said Charles Jones, a finance
professor at Columbia University's business school.
It was "not really looking at HFT per se, but just looking
at the broad arc in terms of the behavior over time," he said.
"What they're saying is, taken together, all the changes we've
seen in markets haven't increased volatility."
The most natural conclusion is that the increase in
high-frequency and algorithmic trading did not impact
volatility, said Terrence Hendershott, an associate professor at
the University of California at Berkley.
"If HFTs caused a big problem, you would expect to see a lot
of ready evidence of it. And they don't find it," he added.