Excerpt from Op-Ed Columnist Ever Hear the One About ... By JOE NOCERA Published: August 17, 2012 http://www.nytimes.com/2012/08/18/opinion/nocera-ever-hear-the-one-about.html?_r=1&ref=highfrequencyalgorithmictrading
Someone told me recently that a handful of firms that use high-frequency trading strategies are developing a new microwave system to connect their Chicago and New York offices. The reason? To shave literally nanoseconds off the time it takes to complete trades. It’s true. It’s also madness. After I wrote about high-frequency trading two weeks ago, I wound up thinking I had understated how corrosive — and pervasive — it has become. In fact, the markets have been largely optimized for high-frequency trading. The exchanges cater to these traders. Everyone scrambles to get their business. Firms like Knight Capital — which lost $440 million a couple weeks ago in a computer fiasco — both take orders from brokers and run their own trading systems. That gives them, undeniably, advantages for their own trading. The regulators, focused on the prospect of computer malfunctions that lead to wild price swings, are missing the forest for the trees. The real issue is the capture of the markets by high-frequency traders, not the occasions their computers run amok. As for the long-term investor or the companies that want to tap the capital markets, their concerns scarcely matter. High-frequency trading is where Wall Street now makes its money. That’s all that counts. ********** I especially agree with Nocera's observation : "The regulators, focused on the prospect of computer malfunctions that lead to wild price swings, are missing the forest for the trees. The real issue is the capture of the markets by high-frequency traders, not the occasions their computers run amok."
