Traders attack market structure

Traders clashed over the
fragmentation and ultra high speed of today’s U.S. equities marketplace as one
charged that more traditional orders are being “gamed” but another
said that high-frequency traders are unfairly vilified.

The trading experts — summoned by
the Securities and Exchange Commission to peel back layers of today’s
complicated, mostly electronic marketplace — argued over what needs to be done
to restore confidence after the Dow Jones industrial average mysteriously
plunged some 700 points in minutes before sharply rebounding on the afternoon
of 6 May.

“It shook confidence in our
markets and it was avoidable,” said Richard Rosenblatt, who has executed
trades for institutional investors since the 1970s. “The clear culprit was
a commitment to high speeds whether it made sense or not.”

He added, “The flash crash was
embarrassing.”

The 6 May event confirmed some
long-held concerns over the marketplace’s stability.

The SEC and some policymakers are
questioning the rise of high-frequency traders, which use lightning-quick
algorithms to make markets and earn thin profits from tiny imbalances. Some
critics have said they put long-term and retail investors at a permanent
disadvantage.

The SEC is also probing the
fairness and stability of a marketplace where some 50 electronic trading venues
compete for ever faster and heavier order flow.

Other changes could come, such as
saddling high-frequency traders with commitments to trade and cracking down on
anonymous trading venues known as dark pools.