Regulating the Market with Supercomputers

September 16th, 2016

Melanie Rodier of Wall Street & Technology reports that the Center for Innovative Financial Technology (CIFT) at Lawrence Berkeley National Laboratory has received $100,000 in research donations to study the use of supercomputing and data intensive science to improve stability, regulation and enforcement in U.S. markets.

CIFT was established in part on the heels of the 2010 Flash Crash, which was seen as a signal that a financial system built on real computer networks posed a real threat to market stability.

“There are many ways existing supercomputer computing systems are advantageous to regulation and enforcement,” said CIFT Director David Leinweber. He stated in a release:

They remove all of the data size and computation speed limits for these functions. The need for improved analysis, simulation and testing of market system integrity has been demonstrated repeatedly by a series of market mishaps. There is no algorithm certification of any sort today. In virtually all other complex systems, modeling and simulation play a central role. It’s not easy to do right, but with enough horsepower it becomes feasible to consider.

Marcos Lopez de Prado, head of global quantitative research at the Tudor Investment Corporation, which contributed funds, commented:

Those responsible for market oversight could benefit from real-time ability to effectively monitor a complex system. Recent events, including the Flash Crash and other market disruptions, have highlighted the need to solve potential inadequacies in market structure and execution. Our research, in collaboration with CIFT, has shown that relatively simple analytics, like the HFPIN metric of order flow toxicity, can provide up to an hour’s advance warning of certain market anomalies.

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