A Last Word
In light of events like the Flash Crash and Knight Capital, it's more than clear that some combination of federal oversight and corporate responsibility is needed to mitigate the risks of HFT. Market confidence is a fragile thing, especially in the current climate, where concerns over Europe, tax policy, and the 'fiscal cliff' drive investors more than company fundamentals do. Errors from high frequency trading can exacerbate sell offs, drive markets into a spiral and take firms into insolvency in the blink of an eye. We must do more to support markets against these concerns and keep America's exchanges a safe place for all comers to invest.
Article comments
1 - The Obnoxious American
Alex,
Well reasoned and articulately put, but I disagree completely.
Black Monday happened 25 years ago, and all this time trading has been going on, throughout all manner of trading cycles, without much issue. The Knights example sucked but so what. Leave the market to it's devices - the banks with actual skin in the game know how better to protect their assets than any government regulatory agency.
We need less regulation. Not more of it.
2 - Alexander J Smith III
Obnoxious,
Thanks for your comment, always good to hear your feedback.
I feel like we've taken that position before and experience shows that the financial sector is vulnerable to shocks that permeate the system as a whole. The Knight Capital incident was a small thing because Knight was a small firm, that lost a relatively small amount of cash, enough that a few bankers could coordinate and recapitalize it. But were that same type of thing to occur at say, Goldman or BOA, the consequences to markets would be exponentially larger and the government may yet again have to take on more risk to provide liquidity and capital to the financial sector.
They've proven they either can't or won't self-regulate, who else but the government will do it?
3 - Glenn Contrarian
"Self-regulation" is a joke. When the profit motive is involved and there is no oversight by those outside the industry, those who are seeking to make a profit will cut every corner they can - which is exactly what I've seen time and time and time again in third-world nations which have small, weak governments with little regulation.
For instance, look sometime at the safety practices by their construction crews. I've watched them arc-weld with no gloves, no welding mask or even goggles, and wearing flip-flops - and he was getting paid a pittance. Something like that would make the news here in America, but there? It would have cut into the company's profit to provide him with the basic safety equipment that is required by law in America.
And most of us remember how without government regulation, cars would not have seat belts for everyone and cigarettes would still be marketed to kids.
It's the same thing in any business, whether construction or finance or retail or service - when the profit motive is unbound by regulation, morality and simple good sense go out the window.