High-Frequency Trading Moves to Main Street

I am not here to rain on the parade, but I do think developments overnight have the potential to dramatically change the nature of our markets if not our economy. I am referring to issues surrounding high frequency program trading.

Until now, the debate over high frequency trading has largely been relegated to Wall Street periodicals, financial news outlets, and blogs, including Sense on Cents.

Well, this morning America awakens to see this high frequency debate course across the front page of The New York Times, Traders Profit With Computers Set at High Speed:

It is the hot new thing on Wall Street, a way for a handful of traders to master the stock market, peek at investors’ orders and, critics say, even subtly manipulate share prices.

It is called high-frequency trading — and it is suddenly one of the most talked-about and mysterious forces in the markets.

Powerful computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else’s expense.

These systems are so fast they can outsmart or outrun other investors, humans and computers alike. And after growing in the shadows for years, they are generating lots of talk.

Nearly everyone on Wall Street is wondering how hedge funds and large banks like Goldman Sachs are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer.

This article is likely sweeping the globe at this very minute and, in my opinion, is particularly devastating in its tone and delivery . . . and justifiably so.

I can only imagine the commentary this evening at the local Rotary Club, Knights of Columbus, Lions Club, town carnivals, and church fairs. Probably something along these lines:

“Have you heard how Wall Street is screwing us?”

“I knew that game was never on the up and up.”

“What a bunch of thieves.”

Without entering into a debate over the merits or lack thereof of this high frequency program trading, I think Wall Street has a huge problem on its hands. Why? A question of fundamental fairness. With the publication and dissemination of this article, try to explain to the average Joe looking to buy 50 shares of IBM how he is being treated equitably.

As the New York Times reports:

“You want to encourage innovation, and you want to reward companies that have invested in technology and ideas that make the markets more efficient,” said Andrew M. Brooks, head of United States equity trading at T. Rowe Price, a mutual fund and investment company that often competes with and uses high-frequency techniques. “But we’re moving toward a two-tiered marketplace of the high-frequency arbitrage guys, and everyone else. People want to know they have a legitimate shot at getting a fair deal. Otherwise, the markets lose their integrity.” (emphasis added)

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

Visit: Sense On Cents

1 Comment on High-Frequency Trading Moves to Main Street

  1. Its true, about high frequency trading and the rules are fixed for the Top players and these rules dont allow traders with access to these tools to compete. If traders did have access to compete they would have to bow down to big wigs at Goldman or Morgan, Simple fix of making a 1-second quote display rule would level the field for us all……….

Leave a Reply

Your email address will not be published.


*