As a long-time veteran of the securities industry, and as co-founder of a brokerage and trade cost analytics firm with a 35-year history, I have been party to many of the changes that technology has brought to the equity marketplace, mainly for the better. While technology has no doubt improved the efficiency of our business, the recent rise of High Frequency Trading (HFT) threatens to ruin the capital formation system that has served investors of all sizes so well.
Prior to the proliferation of HFT, both retail and institutional investors came together to seek profit as owners of a company, and as a result helped support crucial capital raising and secondary market functions for American business owners. But seemingly what we have now is a major portion of market participants – HFTs – who are unregulated, often undercapitalized, and who provide no redeeming social function. As I see it, they exist to extract value from real investors one fraction of a penny at a time, over and over again.
While our firm’s ability to embrace technological change has served us well, I must draw the line with HFT. At the risk of sounding alarmist, the May 6th “flash crash” and subsequent trading halts in individual securities were the proverbial canary in the coal ....