In Report, Speed Trades’ Problems and Pluses

The report released Monday night is the product of the most comprehensive effort to date to understand the computerized trading firms that have come to dominate the financial markets and generate anxiety among regulators and investors.

The committee that oversaw the study largely rejected some of the most troubling accusations that have been made about the firms that practice high speed trading, or H.F.T., including charges that they have caused greater volatility in markets and manipulated stock prices.

“Some of the concerns about the problems of H.F.T. are misconceived,” said John Beddington, the British government’s chief scientific adviser, and the head of the government body that ran the project, the Foresight Programme.

But the committee concluded that regulators had failed to gather enough data or build the expertise needed to allay a widespread assumption among professional investors that faster traders have an advantage and profit at the expense of ordinary investors.

The committee’s findings are likely to become a touchstone in global debates about how to deal with the fast rise of high-speed trading firms. While the companies have become entrenched in the American stock markets — now accounting for just over half of all trading — they are just beginning to rise to prominence in many foreign markets, including European stock exchanges.

Regulators and academics around the world have struggled to keep up with rapid development of the industry — a problem that the British Government Office for Science was hoping to alleviate with its inquiry. Over the last two years, the office has commissioned about 50 independent studies from more than 100 academics and industry experts from 20 different countries. The report out Monday is a synthesis of those findings.

The committee’s conclusions are consistent with a number of academic studies that have found that competition between H.F.T. firms has made it easier and cheaper for ordinary investors to buy or sell stock whenever they want.

They also confirm some of the problems with high-frequency trading that academics have pointed to in the past. For instance, the report said that high-speed traders can exacerbate big swings at moments of crisis, similar to the 2010 findings of Frank Zhang, a professor at the Yale School of Management. But the authors of the report that these are only isolated events.

Mr. Zhang said on Monday that the incidents of big price swings were a problem precisely because they were isolated, and as a result they were that much more unpredictable and unnerving for ordinary investors. The clearest example, he said, was the 2010 flash crash, when share prices dropped almost 10 percent in half an hour with little obvious reason.

“They miss the bigger picture,” Mr. Zhang said of the report’s authors.

David Lauer, a former employee at a few of these trading firms who has testified against the industry, said the British commission ignored or downplayed a number of studies that had pointed to the significant costs imposed on ordinary investors by recent developments.

Mr. Lauer pointed to a paper released in September by the Federal Reserve Bank of Chicago that said that many trading firms did not have stringent processes to test their trading programs or to stop runaway trading after it started. That finding was notable because the trading firm Knight Capital lost nearly $460 million in half an hour in August when one of its computer programs went awry.

But Mr. Lauer said his larger concern with the British report was that it did not acknowledge the degree to which the markets had become too complex to be understood even by the world’s most advanced scientists.

“If you can’t understand the market then you can’t understand how to fix it,” Mr. Lauer said.