Preventing the Next Flash Crash
By EDWARD E. KAUFMAN Jr. AND CARL M. LEVIN
NYT
ONE year ago, the stock market took a brief and terrifying nose-dive. Almost a trillion dollars in wealth momentarily vanished. Shares in blue-chip companies were traded at absurdly low prices. High-frequency traders, who use computers to look for microscopic price differences in stocks on different exchanges and other trading venues, stopped trading, while others immediately sold whatever they bought, mainly to each other, in what has been called “hot potato” trading.
We haven’t had a repeat of last year’s “flash crash,” but algorithmic trading has caused mini-flash crashes since, and surveys suggest that most investors and analysts believe it’s only a matter of time before the Big One.
They’re right to be afraid. The top cop for our financial markets remains inexcusably blind to the activities of high-speed computer trading.
After the flash crash, the Securities and Exchange Commission moved quickly to apply a Band-Aid in the form of circuit breakers to limit daily price moves. Then it proposed a long-overdue consolidated audit trail, to plug the gaps in reporting requirements that prevent the efficient tracking and policing of orders and trades. It spent months painstakingly using antiquated methods to reconstruct and study the trading data during the flash crash. With the Commodity Futures Trading Commission, it convened a joint advisory committee, which presented an array of recommendations in February. And it continued to dither.
(More here.)
NYT
ONE year ago, the stock market took a brief and terrifying nose-dive. Almost a trillion dollars in wealth momentarily vanished. Shares in blue-chip companies were traded at absurdly low prices. High-frequency traders, who use computers to look for microscopic price differences in stocks on different exchanges and other trading venues, stopped trading, while others immediately sold whatever they bought, mainly to each other, in what has been called “hot potato” trading.
We haven’t had a repeat of last year’s “flash crash,” but algorithmic trading has caused mini-flash crashes since, and surveys suggest that most investors and analysts believe it’s only a matter of time before the Big One.
They’re right to be afraid. The top cop for our financial markets remains inexcusably blind to the activities of high-speed computer trading.
After the flash crash, the Securities and Exchange Commission moved quickly to apply a Band-Aid in the form of circuit breakers to limit daily price moves. Then it proposed a long-overdue consolidated audit trail, to plug the gaps in reporting requirements that prevent the efficient tracking and policing of orders and trades. It spent months painstakingly using antiquated methods to reconstruct and study the trading data during the flash crash. With the Commodity Futures Trading Commission, it convened a joint advisory committee, which presented an array of recommendations in February. And it continued to dither.
(More here.)
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