Via The Race to the Bottom.
However, there is one type of regulation outside of Washington that actually has the power to bring strong changes for the better to high frequency trading. That type of regulation is corporate governance. Many firms that engage in forex scalping, for instance, have very little if any corporate governance determining what is acceptable and what is not. Therefore, traders and investment managers fall prey to greed and other destructive emotions and begin developing models and engaging in trading behaviors that simply are bad for financial markets as a whole.
Ugur Lel is an economist with the Federal Reserve who works in the Division of International. He recently wrote an essay entitled, “Currency Hedging and Corporate Governance: A Cross-Country Analysis.” Lel’s analysis and findings are quite fascinating. He discovered a very tight correlation between firms with strong corporate governance and their trading practices. Typically, firms that have instituted strong corporate governance tend to employ trading strategies for value-maximizing reasons, while firms with weak corporate governance tend to use trading strategies based primarily on self-interests of the management team—aka greed.
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