Troubling too is the prospect of what a series of glitches could do to the global economy. Billions of dollars were sucked out of the US economy on May 6. Fortunately, the markets gained most of the losses back just as quickly as the price plummet occurred. If it had happened earlier in the day, while European markets were open, it could have been worse.
Regulators have generally lacked the technological ability to keep up with high-frequency trading, and that has to change. We need a posse with fast horses to keep up with the cyber cowboys. If they are doing something wrong, we need to put a stop to it, and better technology will be a means to prove it when it happens. Better still, we should be able to prevent wrongdoing in the first place. The financial reform bill passed in the US this year goes a long way towards helping us keep up through its provisions for real-time reporting and the ability to pursue disruptive trading practices. The way the law was written before, it was nearly impossible to prove that market manipulation had occurred.
It is now our challenge and our responsibility to ensure that we get this right - Congress gave us the architectural plans, and the hammers and nails, and now we have to build the structure. Developing appropriate rules to regulate high-frequency trading will ultimately protect American consumers and ensure that our markets continue to serve their intended purposes.
David Fuller's view I have said it before - unequivocally - high-frequency trading is a very dangerous development. ('Search' the Fullermoney site under 'frequency' to see 24 additional articles and discussions on this subject.)
Here are two additional informative and recent articles on high-frequency trading:
Gillian Tett's column - also in PDF
FT - High-frequency traders battle also in PDF