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High-frequency trading firms sometimes are seen as possessing godlike powers, quietly moving in and out of markets around the world at slivers of a second, trading through programs designed by math whizzes and physicists.

Yet electronic market experts remain flummoxed as anybody else when it comes to last week's market plunge, and a Thursday night event that drew some of the biggest firms came no closer to finding a smoking gun than the Securities and Exchange Commission has.

"I'm as much in the dark as anybody," said Matt Andresen, formerly the head of Island ECN and Citadel Investment Group's derivatives unit. "Whatever the cause, the failure mode was unacceptable."

 
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As to fixes for the problem, the general consensus among prop firms was that new circuit breakers designed to halt trading in particularly volatile stocks are a good idea, as long as they're carefully considered.

"It's critical for market makers to understand what the rules are, when the circuit breakers come in," said Stephane DiTullio, director of e-commerce at Barclays Capital Inc.

Though regulators are under pressure to address the market swing, snap decisions around circuit-breaker levels or coverage are "definitely not the way," DiTullo said.

 
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The sweeping sell-off of May 6 has drawn comparisons to the Black Monday crash of 1987, but Andresen's personal time warp sent him back to 1998, after hearing former New York Stock Exchange CEO Dick Grasso on the radio last Friday railing against the fragmentation of the U.S. stock market.

Andresen's Island was among the electronic platforms jousting with the NYSE in the early days of electronic stock trade, and such markets have taken credit for helping drive down investors' cost of doing business.

In comparing his Grasso flashback to the time-skipping ABC show "Lost," Andresen interestingly identified himself with the character Sayid Jarrah, a morally ambiguous mercenary who [spoiler alert] died a hero--on an island.

 
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A favorite market tool of some high-speed trading shops is the intermarket sweep order, often used by institutional investors to scan exchanges to find the best place to execute a trade.

Market-makers like to interact with these orders, but a real-life version could have helped when one panel discussion hit upon a letter sent to regulators by the Investment Company Institute, a mutual fund body seen by some as critical of the prop trading business.

Behold--ICI Senior Counsel Ari Burstein was present and piped up to remind the crowd that his industry "did not hate" high-frequency trading.

While high-frequency inhabited markets generally are "much better for institutional investors," he explained, there remain "inefficiencies" and places where regulators could provide more transparency, and that's what his industry would like to see.

-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117; jacob.bunge@dowjones.com

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