A major U.K. study into high-frequency trading has come under criticism for siding up to the HFT community.

The Foresight Project, a much-anticipated two-year study commissioned by the U.K. government, gathered evidence from 150 academics and experts from 20 countries and has come to the conclusion that if HFT was seriously curbed then liquidity and market efficiency could disappear faster than the blink of an eye.

However, the study, which was published last week, is attracting flak from some who say that the majority of the make-up of one of Foresight’s two advisory panels was heavily linked to the HFT industry.

“The Foresight report repeatedly uses the standard pro-HFT arguments that the HFT lobby continues to use—shrink spreads, add liquidity,” said Joe Saluzzi and Sal Arnuk, both partners and co-founders of Themis Trading, an institutional brokerage, in their latest blog.

“This is no surprise since the majority of the High Level Stakeholder Group that worked on the Foresight Project are industry insiders.”

The Foresight Project, which was released last week, did acknowledge that institutional investors “consistently reported” claims of “market manipulation using high-frequency trading techniques” and that “institutional investors have little or no confidence in the ability of regulators to curb the behavior”.

But the report downplayed these worries. “While these claims are not substantiated by evidence, plausible scenarios can be constructed which show how such abuse could potentially occur,” the Foresight Report said.

The report also dissected many studies that had been written on HFT in coming to its conclusions, but Saluzzi and Arnuk believe that other less favorable reports on HFT, such as by RT Leuchktafer, have been overlooked.

“We think the Foresight Report missed the major issues regarding market structure,” they said. “The fragmented market structure and conflicted interests of the for-profit exchange model are the key issues why HFT has grown so much. We think issues like market maker obligations, order types and the maker/taker (payment for order flow) pricing model should have been discussed further—the report punted on these issues.”

Foresight claimed that HFT has actually enhanced markets in the past decade in terms of lower spreads and increased liquidity, despite a few instances where liquidity has dried up.

“A key message: despite commonly held negative perceptions, the available evidence indicates that high-frequency trading and algorithmic trading may have several beneficial effects on markets,” said the Foresight Report. “However, HFT/AT may cause instabilities in financial markets in specific circumstances.”

It went on to add: “Much of what has transpired in markets is for the good: liquidity has been enhanced, transactions costs have been lowered and market efficiency appears to be better, or certainly no worse.”

Again, Saluzzi and Arnuk disagreed. “Over the past few years, when HFT has increased dramatically, HFT has not significantly lowered spreads in the majority of stocks,” they said. “The majority of the spread savings has happened after decimalization in 2000 and was assisted by the rise of electronic trading—not high-frequency trading.”

The Foresight Report did, though, add a slight caveat on HFT.

“There are issues with respect to periodic illiquidity, new forms of manipulation and potential threats to market stability due to errant algorithms or excessive message traffic that must be addressed,” it said.

“Regulatory changes in practices and policies will be needed to catch up to the new realities of trading in asset markets. Caution must be exercised to avoid undoing the many advantages that the high frequency world has brought. Technology will continue to affect asset markets in the future, particularly as it relates to the ultra-fast processing of news into asset prices.”

The report’s author, Sir John Beddington, the U.K. government’s chief scientific officer who headed up the study, said that, in effect, it may be nigh on impossible going forward to properly regulate the HFT industry due to its constantly evolving nature. The report did, though, back the use of circuit breakers and a coherent tick size policy.

“The pace of technological change, coupled with the ever-increasing complexity of financial trading and markets, makes it difficult to fully understand the present effect of HFT/AT on financial markets, let alone to develop policies and regulatory interventions that are robust to developments over the next decade,” he said.

“There is [also] a relative paucity of evidence and analysis to inform new regulations, not least because of the time lag between rapid technological developments and research into their effects. This latter point is of particular concern, since good regulation clearly needs to be founded on good evidence and sound analysis.”

There are also fears that if the U.K. were to introduce new laws on HFT on the back of the Foresight Report—ahead of any potential new HFT laws from the European Union in the form of MiFID II—then business would just move to other jurisdictions in the mean time.

“Despite producing a valuable report, we still do not know the answers that the [Foresight] report might have hoped to find,” said Professor Brian Scott-Quinn, non-executive chairman of the ICMA Centre, a business school for financial markets, at the University of Reading.

“At a time when the U.K. government is considering withdrawing from various EU bodies and is concerned by the encroachment of EU regulation of financial markets, the report makes clear that the U.K. cannot sensibly regulate on its own in this area as multiple trading venues across many countries trade the same securities. Thus U.K. over-regulation on its own could be ineffective and simply cause business to shift to other countries.”