On Wall Street, the power (and danger) of high-speed trading

Wall Street slumpTrader Peter Tuchman appears on the floor of the New York Stock Exchange in this 2009 file photo. The columnist writes about the role of high-speed computers on Wall Street trading.

By Sarah Anderson






Oh, and sometimes the computers go haywire. Two years ago, high-frequency traders fuelled a dramatic free fall in the stock market. A trillion dollars disappeared in a matter of minutes.

That time, the market recovered by the end of the day. But next time, we may not get so lucky. Bart Chilton of the Commodity Futures Trading Commission has warned that if the Flash Crash had taken place in the morning instead of the afternoon, it could have spread like wildfire to global markets.

The high-frequency traders claim they do serve a social good by providing the liquidity that oils the whole financial machine. But as Elara Capital chairman Avinash Persaud and others have pointed out, during times of crisis, the speed freaks try to “run ahead of the trend, draining liquidity just when it is needed the most.”

So what’s the government doing to prevent these speed demons from driving us all into another global financial crisis? Not very much. Securities and Exchange Commission chief Mary Schapiro acknowledges she’s worried and is exploring various ways to address the problem.


There are still no limits on the number of orders that firms can make or cancel each second. The government doesn’t even have the ability to monitor such trading as it’s happening. It took regulators nearly five months to piece together what happened during the Flash Crash of May 2010.

The Obama administration has also opposed proposals for a small tax (less than 0.5 percent) on each trade of stock. Such taxes would make high-frequency trading less profitable, while encouraging longer-term productive investment.

So, buckle up. The speed freaks are driving our financial system.

Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies. This article was distributed by OtherWords.