Editor’s Letter

The utilization of algorithmic trading has grown continually since 2007 and now accounts for a substantial portion of institutional share trading in the United States. Domowitz and Yegerman examine usage patterns and the performance of algorithmic trading. One conclusion they draw is that the usage of an algorithm, not the algorithm itself, is the important point. Lately, there has been much discussion about the need for outcomes-based policy making by securities market regulators charged with enhancing market efficiency, while preserving market integrity. Aitken and Harris present their proposal, which includes measurement proxies for market integrity or fairness as well as market efficiency. This is followed by Blau and Brough, who examine the trading activity of inverse ETFs looking at inverse ETF volume and whether it contains bearish information about future market prices.

Schack and Gawronski provide a review of the trends and growth of dark pools for 2010. This is followed by Semenenko, who studies the connection between order imbalances in informed trades and specific information that triggers selling or buying on behalf of informed investors. There is an interest by both human and algorithmic trading in predicting the volume for the remainder of the trading day. Chen, Chen, Ardell, and Lin present a hierarchical model that uses the trading volume already accumulated from the beginning of the trading day to the time of prediction and the historical daily trading-volume dynamics quality prediction of the volume that will be traded in the remainder of the trading day.

We conclude this issue with an article that is reprinted from the Guide to Global Liquidity 3. We thought the interest in this article merited reprinting it for The Journal of Trading readership. Harris, Aitken, Berkeley, Overdahl, and Venkataraman were part of a panel discussion at the Financial Management Association Meetings in New York in 2010 to discuss “Market Integrity: The Missing Stepchild.” Those discussions contributed to a proposed framework for assessing security market quality.

As always, we welcome your submissions. Please encourage those you know who have good articles or have made good presentations on trading-related subjects to submit them to us. Submission guidelines are included in this issue. We value your comments and suggestions, so please email us at journals{at}investmentresearch.org.

Brian Bruce

Editor-in-Chief

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