Growing up in a house filled with racing cars and parts greatly influenced my view on my view on technology. When I joined an HFT firm it allowed me to practice IT in a way that is similar to running a mechanical sports team.
HFT has justly been compared by many to Formula 1 racing and motor sports in general. Most of the time the comparison is about speed, competitiveness, and innovation. One that is generally overlooked though, is the continuous challenge of regulation.
A challenge that F1 and trading have in common is that they can only survive if there is a sizable and diverse competition. Maintaining a healthy, sizable and sustainable field of diverse competitors is extremely hard. In both worlds this responsibility, and therefore the challenge, lies with rule makers.
In recent years, just like in trading, Formula 1 regulations have been subject to a continuous discussion. To keep the field healthy, enough competitive cars need to enter. This means that smaller teams need to invest while knowing that they don't have vast amounts of money and brainpower of the bigger teams. The rule makers needed to find a way to still make it worth their while to enter.
To keep a technology competition like F1 competitive and healthy, the rules are continuously discussed. The effectiveness of a rule depends on how well it addresses the phenomenon it intends to regulate. Just curbing technology has proven to be ineffective as the large teams are extremely creative in finding a novel advantage inside the new rules. In trading, we see similar developments.
The bottom line is that in a competitive, technological environment more brainpower (deeper pockets) will generally be an advantage. Exceptions do occur, deep pockets are no guarantee for success and from time to time a small organization will come up with a brilliant idea.
For rule makers in both fields, the challenge is made specifically hard by comments and demands that focus more on symptoms and specific agendas rather than a healthy community.
In both cases, cries for a level playing field are not necessarily based on an understanding of the subject matter, but they do have a real influence. One side effect of this is, is a tendency to discuss artificial "equalisers".
Is there something we can learn from motor-sports? I say yes. Through the years there have been various championships that have been both competitive and diverse. These championships generally had a straightforward rule-book and rules focusing on the regulating the right parameters in an enforceable and understandable way. A good example is the championships around the 24 Hours of Le Mans. The rule book is written to be practical, enforceable, and does not have artificial "equalizers" . What it does have is different classes with different rules tailored to different competitors.
This has lead to a large field in diverse classes ranging from American GT's to German Prototypes. There is a healthy field with more entrants than can be accommodated for and very different technologies going for the outright win. This year we'll see lots of technologies competing, such as diesel v.s petrol, front wheel drive v.s. rear wheel drive, flywheel hybrid v.s. super capacitor hybrid, front engine v.s. rear engine and so on.
In trading the very same approach is possible. Different types of market participants have different business models and therefor trade differently. A set of rules that recognises the different natures of market participants is possible, if not already in place. Also the industry has enough brainpower and creativity to write practical and enforceable technology rules.
The question is if this will be possible when too many opinions and agendas are involved.