Insider Information: The Ethicality of the High Frequency Trading Industry

Abstract

This study explores the ethical perceptions of employees in the financial industry. Focusing on the high frequency trading (HFT) industry, it analyses a series of interviews with HFT employees (managers, computer programmers and traders). It shows that regulations and firm rules profoundly affect HFT practices. However, they do not provide employees with answers for their ethical questions. To judge the ethicality of HFT, employees choose reference stakeholder groups and assess the way HFT impacts them. The perception that HFT has a positive effect on stakeholder groups is associated with moral satisfaction, whereas the perception that it has a negative effect is related to emotional detachment, sense of meaninglessness and turnover intent. The high variance in employees’ choices of stakeholder reference groups emphasizes the subjectivity and uncertainty that HFT ethicality entails. Therefore, this study suggests that the financial industry may lack moral leadership. It makes empirical and theoretical contributions to the ‘business ethics as practice’ theory and examines management and regulatory applications.