Rein in the stock robotrading
Wall Street sign outside an entrance of the New York Stock Exchange Credit: Getty/STAN HONDA
Regulation always takes time to catch up with technology. But when it comes to high-speed trading on Wall Street, time is of the essence in more ways than one.
The controversial practice of using powerful computers to make rapid-fire trades that exploit tiny price differences now accounts for two-thirds of stock trading in this country. It's happening in other nations as well. And it undermines the confidence of small investors and others who don't rely on lightning- fast buying and selling
Critics say this fast trading is at least partly to blame for the market's scary volatility of late, and regulators worry that an incident such as the brief "flash crash" of May 6, 2010, could happen on a much larger scale, due to out-of-control high-speed trading. The computers and their putative masters, meanwhile, grow ever more sophisticated.
So there's no time for regulators to waste. Securities officials on both sides of the Atlantic have made a good start. The Securities and Exchange Commission, for instance, is requiring more information from all high-volume traders, which should enable easier tracing of their trades. And it's planning a powerful, universal monitoring system to gather data as trades occur on all U.S. exchanges.
But the agency could go further. All such traders should be registered with the SEC or other regulators. And the United States should take a look at a European proposal for a small transaction tax as a way of reining in the robots.
