MAHWAH, N.J. -- The future of the New York Stock Exchange is inside the red-brick building that is rising from the ground here about 35 miles from Wall Street. Right now, the mammoth facility being constructed on the site of an old quarry is a largely empty shell with a jumble of high-tech gear. In about a year, the building is expected to house several football fields of cutting-edge computing equipment for hedge funds and other firms that engage in high-frequency trading, or the use of computers and complex algorithms to trade at lightning speed. "When people talk about the New York Stock Exchange, this is it," said NYSE Euronext Co-Chief Information Officer Stanley Young. "This is our future." As trading goes increasingly electronic, the last bastion of floor trading is embracing high-frequency trading as part of its race to keep up with competitors such as Nasdaq OMX Group Inc. High-frequency trading now accounts for more than half of all stock-trading volume in the U.S. as banks, hedge funds and institutional investors seek to gain an edge by trading before rivals. But even as the Big Board and other exchanges scramble to win more business, some regulators are growing concerned about the risks that high-speed trading potentially poses to the broader financial system. As trades flow at an ever-quicker pace, a computer glitch at even just one firm could trigger a wave of selling that sets off huge losses across financial markets, some people worry. "Unfettered access by unregulated entities into a market where trades can ripple through multiple markets can rise to the level of systemic risk," said David Shillman, associate director of the Securities and Exchange Commission's division of trading and markets. "The very high-frequency traders could be doing more of these activities that could go awry." SEC officials are particularly wary about "sponsored access," in which registered brokers lend out their identification numbers to high-speed trading firms. That effectively allows the firms to trade using a broker's code, helping them remain anonymous. A rogue firm engaging in aggressive trading could destabilize parts or even all of the market, Mr. Shillman said. http://online.wsj.com/article/SB124890969888291807.html Old story, but pretty much topical...
I WILL MAKE A PREDICTION THAT THE DOW JONES OR ANOTHER INDEX BE IT THE S AND P OR NASDAQ WILL TRADE DOWN TO ZERO - WITHIN 2 YEARS. not because of a depressions, recessions or other bad news but as a direct result of this kind of growth in HFT. i think it will also happen sooner than people realise. last thursday demnstrated that. they may fix the so called problem but it seems fairly obvious that no rogue trader / fat finger was to blame. the bottom line is that hft / algos / quants / co located servers / inept overpaid stupid sec and exchange staff all led to that outcome. no one wants to tell the man no. they are all yes men. only when zero is hit will they realise they made a monumental error going down this road. sad very very sad
Discretionary traders are playing a video game against a computer. No different then Pong / Chess or any other Computerized video game. Are there chess masters that can beat the computer programs? Sure but far and few between. Same thing is going on here with HFT systems capable of monitoring market data and processing orders in milliseconds. These computers never have to get up and piss but they sure know when you do and take full advantage