Streams

Trading Machines

Friday, June 29, 2012

Traders work on the floor during afternoon trading at the New York Stock Exchange. (Spencer Platt/Getty)

Scott Patterson, staff reporter at The Wall Street Journal and author of Dark Pools: High-Speed Traders, A.I. Bandits, and the Threat to the Global Financial System and New York Times bestseller The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It, explains how trading "bots" and artificially intelligent systems are running many of the world's markets, and the risks they pose to the financial sector.

Guests:

Scott Patterson

Comments [5]

William Bristol from Tampa,fl.

Doesn't sound anything like what Enron was doing. Put in multiple artificial orders, far above the actual strike price, tripling and quadrupling the price of the commodity. Then cashing in. Did cause a few small disruptions before it got figured out. Some blackouts in Cal. the business going bust, and a lot of lives ruined. But hey, its a free market right. Force a hold on all purchases of one hour that don't have an actual percentage gain or loss. Charge a premium for transactions that are superfluous. Put people that are trying to manipulate the market illegally in jail. Apologies for spelling!

Aug. 06 2012 12:09 PM
Brian Donnelly from New York, NY

Flash crashes are not a result of high frequency traders and market makers. They are a result of someone's machine pouring too much risk into the market too quickly. That market makers respond by moving their prices is sensible, and would happen if they we're posting prices manually. The risk to the system is from operational error at the end user who accidentally traded too much risk too quickly. The regulators should attack the problem by enforcing risk controls at exchanges and clearers - limiting the amount of risk a firm can trade in a defined period of time, and at end users by auditing the software connecting to the market to ensure adequate risk controls are in place.

Forcing market makers to post liquidity in highly volatile market conditions is a bad idea that will damage liquidity for the end users of financial instruments.

Brian Donnelly
CEO
Volant Trading (high frequency trading)

Jun. 29 2012 04:31 PM
Amy from Manhattan

Great, so they can cause (or at least contribute to) the problem & then get out of facing the consequences of their own actions?

Jun. 29 2012 11:49 AM

How about we ban this kind of trading because it doesn't provide any tangible benefit to society -- it's basically legalized gambling.

Jun. 29 2012 11:42 AM
John A

How many times in software development have I met the individual who thinks, 'Just hit "run" and lets see how it does'. Not the best sign.
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Would an identical 'flash crash' happen today, or is there new circuitbreaker in place in response? (Not that that is a complete solution)
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High-Speed interviews... too bad.

Jun. 29 2012 11:42 AM

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