High-Frequency Trading Causes More Liquidity Shortages, BIS Says

Financial markets have become more susceptible to liquidity shortages with the rise of algorithmic trading and increased market fragmentation, according to the Bank for International Settlements.

The institution analyzed 25 years worth of high-frequency trading data across asset classes in the US, Europe and Japan and concluded that markets have become more fragile even as liquidity on average improved.

The BIS said sudden bursts of wild price swings and flash crash events are more frequent now, and the main reasons for that are the advance of electronic trading and the increased market fragmentation. Equities in particular have become more ...