In May the Johannesburg Stock Exchange (JSE) announced new rules designed to ensure more stringent oversight of how brokers and trading firms deploy "algo-trading" techniques on the exchange.
Algorithmic trading involves the use of technology such as computer programs or artificial intelligence (AI) to allow traders to buy and sell financial assets automatically, according to predefined rules.
Rather than relying on humans to watch over the market and manually place orders, which means potentially missing out on strong market opportunities, algo-trading allows firms to take advantage of beneficial prices automatically when they become available.
The proliferation of this technology has been welcomed by some, with one analysis in the American Finance Association's Journal of Finance noting that "by reducing the frictions and costs of trading, technology has the potential to enable more efficient risk sharing, facilitate hedging, improve liquidity and make prices more efficient."
Originally published by African Business.