| <No.530> |
| High Frequency Traders Under Scrutiny |
|
Technology has made stock trading easier,
enabling worldwide participation
in U.S. financial markets.
Now, with advanced super computers
and agreements with trading exchanges,
some companies are able to trade stocks
in fractions of a second.
The practice, known as high-speed trading, is controversial.
But as St. John's University professor Michael Perino points out,
traders have been trying to speed up the process
as long as there have been securities markets.
"There's a great old story.
Apparently, the Rothschilds used carrier pigeons
to get word of Napoleon's defeat at Waterloo
before everybody else
and made money in the London Stock Exchange that way.
And, through telegraphs and fiber-optic cables
throughout the years,
everybody is trying to get faster and faster to the same information
because it gives them a competitive advantage.
High frequency traders just take that to the next degree."
Still, these high frequency trading practices
have come under the scrutiny
of both the U.S. Justice Department and officials in New York State.
Attorney General Eric Holder
confirmed an investigation is underway.
"We at the United States Department of Justice are investigating
this practice
to determine
whether it violates insider trading laws.
The Department is committed
to ensuring the integrity of our financial markets,
and we are determined to follow this investigation
wherever the facts and law may lead."
For a fee, some of the exchanges and financial information services
have supplied the high speed traders
with extra bandwidth,
special high speed switches
and ultra-fast connection cables.
With that arrangement,
HFT or High Frequency Trading companies can receive information faster
and gain an advantage
over others in the market.
Drexel Hamilton is a typical full-service institutional broker-dealer.
Like many other broker-dealers,
it believes high frequency trading could kill the market place
and turn away customers.
Ian Burgess says it makes the market less efficient.
"We see bids all of a sudden disappearing,
while we try and go in there
and sell stock.
We see offers also vaporizing
when we're trying to buy stock.
So, it makes it much more difficult
and much more costly, I think."
The Wall Street Bull is still one of New York's major attractions.
But, the question is whether it will continue to be an attraction
if the investing public loses confidence
in the stock market.
Bernard Shusman, VOA News, Wall Street |
|
|
|
