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High frequency stock trading risks systemic breakdown
Key Excerpts from Article on Website of New York Times
Posted: November 1st, 2010
http://dealbook.blogs.nytimes.com/2010/05/17/speedy-new-trad...
Inside the humdrum offices of a tiny trading firm called Tradeworx, workers ... tend high-speed computers that typically buy and sell 80 million shares a day. But on the afternoon of May 6, as the stock market began to plunge in the flash crash, someone here walked up to one of those computers and typed the command HF STOP: sell everything and shutdown. Across the country, several of Tradeworxs counterparts did the same. In a blink, some of the most powerful players in the stock market high-frequency traders went dark. The result sent chills through the financial world. After the brief 1,000-point plunge in the stock market that day, the growing role of high-frequency traders in the nations financial markets is drawing new scrutiny. Over the last decade, these high-tech operators have become sort of a shadow Wall Street from New Jersey to Kansas City, from Texas to Chicago. Depending on whose estimates you believe, high-frequency traders account for 40 to 70 percent of all trading on every stock market in the country. Some of the biggest players trade more than a billion shares a day. These are short-term bets. Very short. The founder of Tradebot, in Kansas City, Mo., told students in 2008 that his firm typically held stocks for 11 seconds. Tradebot, one of the biggest high-frequency traders around, had not had a losing day in four years, he said.
Note: For key reports on the dubious practices which underlay the financial crisis and the impoverishment of the public treasury, click here.
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