Ted Kaufman - United States Senator for Delaware

High Frequency Trading: What You Missed on ‘60 Minutes’

Source: Wall Street Journal

By Shira Ovide

October 11, 2010

“60 Minutes” last night ran a piece about high-frequency trading that piled onto doubts about such computer-driven rapid trades and whether they are an unfair gaming of the markets.

“These super computers, which actually decide which stocks to buy and sell, are operating on highly secret instructions programmed into them by math wizards who may or may not know anything about the value of the companies that are being traded,” correspondent Steve Kroft said in the opener.

The piece didn’t quite add to the debate about the role high-frequency trading played in the May 6 market “flash crash” – a subject of much debate in the wake of a regulatory report in the last week that pinned much of the blame on a single trade.

Gary Gensler, chairman of the Commodity Futures Trading Commission, last week raised the issue of stiffer regulation for algorithmic trading in the wake of the May 6 market gyrations. Data firm Nanex and some traders also have said the high-frequency traders who leapt into the market selloff of May 6 drove the spiraling market decline.

On the role of computer algorithms in the market, SEC Chairman Mary Schapiro gave a measured answer on “60 Minutes”: “One of the concerns is, if one goes wrong, if it operates in an unexpected way, given market conditions, what’s the impact of that algorithm that has behaved in an unexpected way, on lots of other investors in the marketplace?”

The “60 Minutes” piece also interviewed Joe Saluzzi of Themis Trading, which has emerged as a highly public critic of high-frequency traders, Democratic Sen. Ted. KAUFMAN of Delaware, NYSE operating chief Larry Leibowitz and a lone official from a high-frequency firm, Tradeworx. “60 Minutes” said the New York firm was the only high-frequency trader willing to go on the record for the segment.

(Completely pointless side note: Leibowitz is the brother of “Daily Show” frontman Jon Stewart, who wasn’t shy about tapping the flash crash for laughs.)

NYSE’s Leibowitz walked “60 Minutes” through the Big Board’s new data center in New Jersey where the exchange sells trading firms zippy access to their data feeds. Critics and the SEC have said information from the exchange data feeds potentially gives firms information on bids and stock prices split seconds before the rest of the public. He also defended high-frequency trading.

“Look, there’s always been charges for as long as trading has existed that people are front-running orders, manipulating stocks. This is nothing new. I think now you add to it the element of the mysterious element of ‘the computer’ and it makes people even more mistrustful,” Leibowitz told Kroft.

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