high frequency trading
Pros lose confidence in the market
August 23, 2012: 11:04 AM ETThe reason for stock market skittishness might be more mundane than high-frequency trading and computer algorithms gone amuck.
FORTUNE -- The TABB Group, a research firm that specializes in stock trading and technology, is out with what appears to be a concerning stat: Just 2% of professional investors completely trust the market.
It's become a common line to say that Knight Capital's recent trading glitch, the bungled Facebook IPO and the 2010 Flash Crash is either adding to or the root cause of individuals' skittishness with the market. As evidence, people point to the fact that money has continued to come out of stock funds even as the market has rallied. Now TABB is saying it's not just individuals but pros who are growing nervous.
MORE: Libor and the folly of deregulation
TABB has done this survey a number of times, and taken together they do seem to suggest high-frequency trading and technical glitches are the source of the pros' growing uneasiness with the market. After 2010's Flash Crash, 12% of market pros said their confidence in the market's structure was "very high." After Facebook's bungled IPO, the "very high" group had dropped to 5%.
The problem with all this lack-of-confidence talk is that the market's main gauge of confidence, the S&P 500, is up 11% so far this year. Yes, on light volume. But for the market to be up that much, someone must be putting more money in.
What's more, fears that the market is some sort of borg-controlled system ready to be taken down by a computer bug is only part of the confidence story. Along with the question about confidence, TABB also asked respondents what they thought it would take to revive investor enthusiasm for U.S. stocks. Slightly less than half of all asset managers and hedge funds who responded to the survey, 47%, did say some improvement in market structure would help. But the next highest response, 39%, was that U.S. stocks "outperform other markets." What's more, the most common written-in response, at 8%, for what would boost confidence was "global economy."
MORE: Why Knight lost $440 in 45 minutes
I'm not saying that our complicated, fragmented market is not a problem that regulators shouldn't look into. And it's probably true the market has grown so complicated that a growing number of professionals now don't truly understand how it all works.
But we should also be careful before lumping in the trading problems into talk of "the death of equities." The reason stocks have had a lackluster few years could be more mundane than we think. People aren't confident in the market, because stocks haven't been going up, at least not consistently. And the economy hasn't turned around. When stocks go up, and the economy turns around, investors are likely to pile back into the market, which is, of course, what always happens.
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Why Knight won't be the only one
Building error-free trading software is impossible, and that makes today's stock markets even more fragile.
FORTUNE -- One question keeps arising in the saga of Knight Capital and its $440 million software glitch: why did Knight, one of the premier U.S. market makers that handles more than 10% of total stock trading, introduce glitchy software into the market?
CEO Thomas Joyce explained in a television interview that the company's new software program MORE
Scott Cendrowski, writer-reporter - Aug 3, 2012 2:17 PM ET -
Sorry, SEC. Fast trading on Wall Street is here to stay
Instead of making an enemy of the high frequency trading firms, the SEC might be better off teaming up with them to help police the markets and provide liquidity.
By Cyrus Sanati, contributor
FORTUNE -- The rise of the machines on Wall Street seems unstoppable. While regulators say they are concerned about possible market distortions brought about by computerized high frequency trading algorithms, they don't seem to have any idea what to do about it. In fact, MORE
Feb 28, 2012 10:15 AM ET -
Progress Energy joins flash crash crowd (Updated)
Today's mini-flash crash victim is Progress Energy.
Trading in shares of Progress (PGN), a Raleigh, N.C., utility operator, were halted for five minutes Monday afternoon after the stock briefly plunged 90% for no apparent reason.
The stock dropped from around $44.50 to $4.57 just before 1 p.m. EDT before resuming trading above $44 a few minutes later. The New York Stock Exchange, where Progress shares are listed, said the troublesome trade took MORE
Colin Barr - Sep 27, 2010 2:07 PM ET -
Fast-trading firm hit with big fine
Regulators slapped a $1 million fine on a brokerage firm for manipulating stocks using a technique fingered in May's flash crash.
The Financial Industry Regulatory Authority, or Finra, said it censured and fined Trillium Brokerage Services of New York and 11 of its employees for improprieties tied to so-called high-frequency trading. The violations took place over a three-month period at the end of 2006 and the start of 2007.
All told, the MORE
Colin Barr - Sep 13, 2010 3:41 PM ET -
A trader's-eye view of the meltdown
Jeremy Frommer, a longtime Wall Streeter who now runs the TFG Investments hedge fund in Englewood, N.J., posted this video to give people an idea what Thursday's free fall looked like from the inside. The video is of the TFG trading floor, where the traders focus on publicly traded stocks, options and futures, Frommer said.
"In the middle of the worst drop we've seen since the 2008 crisis, we thought this MORE
Colin Barr - May 7, 2010 5:05 PM ETPosted in: high frequency trading, video -
High frequency trading: Why the robots must die
The robo-stock market blew a fuse Thursday. Now is Washington's chance to rewire the joint for good.
The exact causes of Thursday's stock market short-circuit remain unclear, but the lesson is unmistakable. The regulators and the major exchanges have drifted from their original duty: to run a market that gives small companies a way to raise capital and mom-and-pop stock buyers a way to invest for the future on fair terms.
Instead, MORE
Colin Barr - May 7, 2010 12:53 PM ETPosted in: high frequency trading, NYSE
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