High-speed trading under investigation
Could flash trades made anonymously potentially bring down the markets?
That's what regulators are trying to figure out. They're examining whether giving "naked" access to high-speed traders could potentially screw up the markets, according to The Wall Street Journal.
Firms have ramped up computers to trade billions of shares a day, and the tradebot strategy has paid off handsomely. So much so, in fact, that those high-speed trades now account for more than half of all stock-trading volume, the Journal reports.
Here's how it works: Regulated brokerages have computer access codes that allow them to trade directly on exchange computers, according to the Journal. These brokerages are loaning out those codes -- at high fees, of course -- to hedge funds and other firms.
Stock exchanges and regulators have no idea who is renting
these codes. All they see are high-speed trades coming in under the
regulated brokerage's name.
With the trading now being done by
computers, it's pretty safe to assume that something will go wrong. And
one could imagine a major trading glitch -- like a wave of high-speed
orders triggering other waves -- causing a broad decline in the overall
Now, brokerages said they make continuous posttrade
checks, and can stop a computer gone wrong. But the Securities and
Exchange Commission is investigating whether the stability of the
markets are at too much risk here.
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