News / Economy

High Frequency Traders Under Scrutiny

High Frequency Traders Under Scrutinyi
X
April 08, 2014 9:41 PM
The U. S. Justice Department is investigating the relationship between high frequency trading firms and major exchanges -- and regulators in Washington and the state of New York are taking aim at them as well. At issue is the integrity of the worldwide marketplace and the appropriate use of advanced technology. VOA’s Bernard Shusman reports from Wall Street in New York City.
Bernard Shusman
— The U. S. Justice Department is investigating the relationship between high frequency trading firms and major exchanges -- and regulators in Washington and the state of New York are taking aim at them as well.   At issue is the integrity of the worldwide marketplace and the appropriate use of advanced technology. 

Technology has made stock trading easier, enabling worldwide participation in U.S. financial markets.  Now -- with advanced super computers and agreements with trading exchanges - some companies are able to trade stocks in fractions of a second.  The practice -- known as high-speed trading -- is controversial.  But as St. John’s University professor Michael Perino points out, traders have been trying to speed up the process as long as there have been securities markets.

“There is a great old story, it may not be true or not, but apparently the Rothschilds used carrier pigeons to get word of Napoleon’s defeat at Waterloo before anyone else and made money in the London Stock Exchange that way," he said. "And through telegraphs and fiber-optic cables throughout the years, everybody is trying to get faster and faster to the information because it gives them a competitive advantage.  High frequency traders just take that to the next degree.”

Still, these high frequency trading practices have come under the scrutiny of both the U.S. Justice Department and officials in New York State.  Attorney General Eric Holder confirmed an investigation is underway.

“We at the Justice Department are investigating this practice to determine whether it violates insider trading laws." he said. "The Department is committed to ensuring the integrity of our financial markets -- and we are determined to follow this investigation wherever the facts and law may lead.”

 For a fee, some of the exchanges and financial information services have supplied the high speed traders with extra bandwidth, special high speed switches and ultra-fast connection cables.  With that arrangement, HFT (High Frequency Trading) companies can receive information faster and gain an advantage over others in the market.

A new and controversial  book, “Flash Boys,” has whipped up a storm about such trading practices, and cites BATS Global  as one company it says is rigging the markets.  On a business network program  on CNBC, BATS CEO William O’Brien defended his company’s activities.

“BATS Direct Edge didn’t exist 10 years ago," he said. "And we became the biggest stock market on any given day in the United States by going to our customers, proving we had a value proposition and winning their business.  We didn’t do anything by trying to scare people.  And, I don’t think it’s true and I don’t think it’s right. “

Drexel Hamilton is a typical full-service institutional broker-dealer.  Like many other broker-dealers, it believes high frequency trading could kill the market place and turn away customers.  Ian Burgess, a managing director at Drexel Hamilton, says it makes the market less efficient.

“We see bids all of a sudden disappearing while we try to go in there and sell stock," he said. "We see offers also vaporizing when we’re trying to buy stock.  It makes it much more difficult and much more costly, I think.”

The Wall Street Bull is still one of New York’s major attractions.  But, the question is whether it will continue to be an attraction if the investing public loses confidence in the stock market.

You May Like

At Khmer Rouge Court, Long-Awaited Verdict Approaches

First phase of trial, which is coming to an end, has focused on forced exodus of Phnom Penh in 1975 - and now many are hopeful justice will be served More

Video When Fighting Eases, Gazans Line Up at Bakeries

When there is a lull in the conflict, residents who have been hunkered down in their apartments rush out to stock up on food and other necessities More

Video Information War Rages Alongside Real One in Ukraine

Downing of Malaysian airliner, allegations of cross-border shelling move information war in war-torn country to a new level More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Information War Rages Alongside Real One in Ukrainei
X
Al Pessin
July 31, 2014 8:13 PM
The downing of the Malaysian airliner two weeks ago, and allegations that Russians are shelling Ukrainian troops across the border, have moved the information war swirling around the Ukrainian conflict to a new level. VOA's Al Pessin reports from Kyiv.
Video

Video Information War Rages Alongside Real One in Ukraine

The downing of the Malaysian airliner two weeks ago, and allegations that Russians are shelling Ukrainian troops across the border, have moved the information war swirling around the Ukrainian conflict to a new level. VOA's Al Pessin reports from Kyiv.
Video

Video When Fighting Eases, Gazans Line Up at Bakeries

When there is a lull in the conflict in Gaza, residents who have been hunkered down in their apartments rush out to stock up on food and other necessities. Probably the most important destination is the local bakery. VOA’s Scott Bobb reports from Gaza City.
Video

Video US-Funded Program Offers Honduran Children Alternative to Illegal Immigration

President Obama and Central American leaders recently agreed to come up with a plan to address poverty and crime in the region that is fueling the surge of young migrants trying to illegally enter the United States. VOA’s Brian Padden looks at one such program in Honduras - funded in part by the United States - which gives street kids not only food and safety but a chance for a better life without, crossing the border.
Video

Video 'Fab Lab' Igniting Revolution in Kenya

The University of Nairobi’s Science and Technology Park is banking on 3-D prototyping to spark a manufacturing revolution in the country. Lenny Ruvaga has more for from Nairobi's so-called “FabLab” for VOA.
Video

Video Gazans in Shelled School Sought Shelter

Israel's air and ground assault against Hamas-led fighters in Gaza has forced many Palestinians to flee their homes, seeking safety. But safe places are hard to find, as VOA’s Scott Bobb reports from Jabaliya.
Video

Video Rapid Spread of Ebola in West Africa Prompts Global Alert

Across West Africa, health officials are struggling to keep up with what the World Health Organization describes as the worst ebola outbreak on record. The virus has killed hundreds of people this year. U.S. President Barack Obama and other world leaders are watching the developments closely as they weigh what actions, if any, are needed to help contain the disease.
Video

Video Michelle Obama: Young Africans Need to Embrace Women's Rights

U.S. first lady Michelle Obama urged some of Africa's best and brightest to advocate for women's rights in their home countries. As VOA's Pam Dockins explains, Obama spoke to some 500 participants of the Young African Leaders Initiative, a six-week U.S.-based training and development program.
Video

Video Immigrant Influx on Texas Border Heats Up Political Debate

Immigrants from Central America continue to cross the U.S.-Mexico border in south Texas, seeking asylum in the United States, as officials grapple with ways to deal with the problem and provide shelter for thousands of minors among the illegal border crossers. As VOA's Greg Flakus reports from Houston, the issue is complicated by internal U.S. politics and U.S. relations with the troubled nations that immigrants are fleeing.
Video

Video Study: Latino Students Most Segregated in California

Even though legal school segregation ended in the United States 60 years ago, one study finds segregation still occurs in the U.S. based on income and race. The University of California Los Angeles Civil Rights Project finds that students in California are more segregated by race than ever before, especially Latinos. Elizabeth Lee reports for VOA from Los Angeles.

AppleAndroid

World Currencies

EUR
USD
0.7305
JPY
USD
101.53
GBP
USD
0.5830
CAD
USD
1.0656
INR
USD
60.075

Rates may not be current.