CORRECT: REPORTER'S NOTEBOOK: High-Frequency Huddle Focuses On May 6
14 Maggio 2010 - 1:28AM
Dow Jones News
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."
***
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, a
director at Deutsche Bank Securities.
Though regulators are under pressure to address the market
swing, snap decisions around circuit-breaker levels or coverage are
"definitely not the way," DiTullio said.
***
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.
***
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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