SEC - Death To High Speed Trading

By: James Mulvey / on
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  • On Wall Street, experienced traders know milliseconds can make or break you. High Speed Trading on Wall Street has taken the market by storm and hurt investor confidence. It's simple really. Here's how it works: Firms with lots of cash install ultra high speed fiber optic connections and route them directly to financial data centers in New Jersey. They now have the edge over the competition able to execute computerized trades automatically and at ultra high speeds. After months of banter The SEC has finally assembled a panel of experts to create "kill switches" and impose limits on high speed trading.

    Kill Switches To Protect The Market

    The SEC responded after a well known investment firm, Knight Capital Group Inc, reported losses following a software malfunction. There was also a technical error that delayed the opening of trades for Facebook Inc back when they went public. Members of the panel agreed that software malfunctions were extremely dangerous for the trading market. The solution? Wire in a systematic kill switch designed to prevent such software malfunctions from occurring and to also prevent high speed traders from exceeding the natural threshold of a trade. While the details aren't finalized some panelists urge that an automated kill switch might have a hard time differentiating between trades that need to terminated and ones which were intended. Hopefully the SEC is able to come up with an algorithm that is complex enough to protect high speed traders from exploiting the market yet intelligent enough to know when somethings gone awry. Stay tuned.

    High Speed Trading

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