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Networked markets: the evolution of high-frequency trading (HFT)

By Lucy Thompson, on 9 November 2022

Financial markets have undergone a deep reorganisation in the last 20 years. A mixture of technological innovation and regulatory constraints has promoted the diffusion of market fragmentation and high-frequency trading. In this blog, IFT PhD student Zihao Liu reports on the inaugural seminar in IFT’s Agora Seminar Series – “High frequency trading and networked markets” with Professor Rosario Nunzio Mantegna.

Due to the high-speed development of FinTech and technical innovations in recent years, the operation of the global financial market has changed beyond recognition. Ever more market participants are beginning to use powerful computer algorithms to execute and complete orders in mere microseconds. The new stock market has changed the traditional ecology of market participants and market professionals.

With the development of strategic trading decisions based on high-frequency trading, the fragmentation of markets has occurred. Contemporary stock markets are now “networked markets” where liquidity provision of market members has statistically detectable preferences or avoidances.

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Transforming public services through collective entrepreneurship and sustainable finance

By Lucy Thompson, on 19 October 2022

In the following blog, IFT PhD researcher Filippo Addarii presents his rationale for engagement with sustainable finance. His story is that of the first Social Outcome Contract (SOC) in Italy for the work inclusion of prisoners. As an illustration of his attempt to put reformist theories into practice, it shows that the business of “changing the world” for good requires us to leverage market forces to serve a purpose that is more than profit.

man carrying a bag walks into the light thrown by a single door. bars and prison clothes lie on the floor behind him. The SOC – also referred to as a Social Impact Bond (SIB) – was conceived by a coalition of policymakers, financiers and charities to drive innovation and efficiency in public services and strengthen government to fulfil its mission. In essence, the SOC is a partnership between public and private sectors in which the former sets the goals – in this case, social outcomes – and the remuneration for having achieved them. The private sector provides risk capital, delivers services and manages the whole process. A third party, often academia, carries out the evaluation of the results that trigger payments. Application of the SOC is justified when straightforward state and market solutions fail or are not possible.

This is the theory – evidence reveals that real-time implementation of a SOC can vary greatly based on context. The first SIB/SOC was piloted in the UK in 2010 and since that time, the SOC model has been implemented across the world, with examples now totalling 251 worldwide. A SOC is the flagship product of impact investing, the international movement to put finance at the service of public value creation. It can be categorised as a form of sustainable finance.

My company, PlusValue, has been involved in the conceptualisation and implementation of the first SOC for the work inclusion of prisoners in the private sector in Italy.

Italian law allows prisoners to work outside a prison while serving their sentence, if they are deemed fit by a judge. There are 60,000 prisoners in Italy, most of them on short term sentences. At least 4000 of these prisoners meet the criteria for employment. There is overwhelming evidence about the effectiveness of employment in reducing re-offending rates and fostering social inclusion. Furthermore, scaling employment of the prison population would not only reduce costs of the prison system (approx. €3bn annually) but would also reduce the need for new prisons. (more…)