Wall Street’s Speed Freaks


The power suits making billions off the stock market are always trying to assure us that their trading serves a socially redeeming purpose. They steer money to companies and industries that make our economy more productive, they claim.

In reality, the majority of stock trading today has absolutely nothing to do with helping companies raise capital to innovate and create jobs. Thoughtful investors don’t drive today’s Wall Street. Computers do.

About 55 percent of all U.S. stock trading last year was performed by computers programmed to make trades at speeds measured in the millionths of seconds. The goal of these “high-frequency traders”? To move faster than the next guy to exploit microscopic differences in stock prices on different exchanges.

If you can buy a stock in New York and sell it in London a split second later for a fraction of a penny more, and do that millions of times per day, those pennies can add up. One hedge fund alone, Citadel, made $1 billion in profits off such games in 2009.

As such high-volume, high-frequency trades have come to dominate the market, investment in small businesses has declined. For the computers, it’s a lot easier to flip stocks all day than to identify promising enterprises and stick with them.

Oh, and sometimes the computers go haywire. Two years ago, high-frequency traders fuelled a dramatic freefall in the stock market. A trillion dollars disappeared in a matter of minutes.

That time the market recovered by the end of the day. But next time we may not get so lucky. Bart Chilton of the Commodity Futures Trading Commission has warned that if the Flash Crash had taken place in the morning instead of the afternoon, it could have spread like wildfire to global markets.

The high-frequency traders claim they do serve a social good by providing the liquidity that oils the whole financial machine. But as Elara Capital Chairman Avinash Persaud and others have pointed out, during times of crisis, the speed freaks try to “run ahead of the trend, draining liquidity just when it is needed the most.”

So what’s the government doing to prevent these speed demons from driving us all into another global financial crisis? Not very much. Securities and Exchange Commission chief Mary Schapiro admits that she’s worried and is exploring various ways to address the problem.

But so far the agency’s main action has been to introduce circuit breakers to stop the trading of a particular stock if the price rises or falls drastically in a short time. These are merely Band-Aids that fail to address the root cause of the problem.

There are still no limits on the number of orders firms can make or cancel each second. The government doesn’t even have the ability to monitor such trading as it’s happening. It took regulators nearly five months to piece together what happened during the Flash Crash of May 2010.

The Obama administration has also opposed proposals for a small tax (less than 0.5 percent) on each trade of stock. Such taxes would make high-frequency trading less profitable while encouraging longer-term productive investment.

So buckle up. The speed freaks are driving our financial system.

Sarah Anderson directs the Global Economy Project of the Institute for Policy Studies.

This column is distributed by OtherWords.

November 26, 2015
Ashley Nicole McCray – Lawrence Ware
Decolonizing the History of Thanksgiving
Joseph Grosso
The Enduring Tragedy: Guatemala’s Bloody Farce
Roxanne Dunbar-Ortiz
Imperial Myths: the Enduring Lie of the US’s Origin
Ralph Nader
The Joys of Solitude: a Thanksgiving!

Joseph G. Ramsey
Something to be Thankful For: Struggles, Seeds…and Surprises
Dan Glazebrook
Turkey Shoot: the Rage of the Impotent in Syria
Andrew Stewart
The Odious President Wilson
Colin Todhunter
Corporate Parasites And Economic Plunder: We Need A Genuine Green Revolution
Rajesh Makwana
Ten Billion Reasons to Demand System Change
Joyce Nelson
Turkey Moved the Border!
Richard Baum
Hillary Clinton’s Meager Proposal to Help Holders of Student Debt
Sam Husseini
A Thanksgiving Day Prayer
November 25, 2015
Jeff Taylor
Bob Dylan and Christian Zionism
Dana E. Abizaid
Provoking Russia
Oliver Tickell
Syria’s Cauldron of Fire: a Downed Russian Jet and the Battle of Two Pipelines
Patrick Cockburn
Trigger Happy: Will Turkey’s Downing of Russian Jet Backfire on NATO?
Robert Fisk
The Soothsayers of Eternal War
Russell Mokhiber
The Coming Boycott of Nike
Ted Rall
Like Father Like Son: George W. Bush Was Bad, His Father May Have Been Worse
Matt Peppe
Bad Policy, Bad Ethics: U.S. Military Bases Abroad
Martha Rosenberg
Pfizer Too Big (and Slippery) to Fail
Yorgos Mitralias
Bernie Sanders, Mr. Voutsis and the Truth Commission on Greek Public Debt
Jorge Vilches
Too Big for Fed: Have Central Banks Lost Control?
Sam Husseini
Why Trump is Wrong About Waterboarding — It’s Probably Not What You Think
Binoy Kampmark
The Perils of Certainty: Obama and the Assad Regime
Roger Annis
State of Emergency in Crimea
Soud Sharabani
ISIS in Lebanon: An Interview with Andre Vltchek
Thomas Knapp
NATO: This Deal is a Turkey
November 24, 2015
Dave Lindorff
An Invisible US Hand Leading to War? Turkey’s Downing of a Russian Jet was an Act of Madness
Mike Whitney
Turkey Downs Russian Fighter to Draw NATO and US Deeper into Syrian Quagmire
Walter Clemens
Who Created This Monster?
Patrick Graham
Bombing ISIS Will Not Work
Lida Maxwell
Who Gets to Demand Safety?
Eric Draitser
Refugees as Weapons in a Propaganda War
David Rosen
Trump’s Enemies List: a Trial Balloon for More Repression?
Eric Mann
Playing Politics While the Planet Sizzles
Chris Gilbert
“Why Socialism?” Revisited: Reflections Inspired by Einstein’s Article
Charles Davis
NSA Spies on Venezuela’s Oil Company
Michael Barker
Democracy vs. Political Policing
Barry Lando
Shocked by Trump? Churchill Wanted to “Collar Them All”
Cal Winslow
When Workers Fight: the National Union of Healthcare Workers Wins Battle with Kaiser
Norman Pollack
Where Does It End?: Left Political Correctness
David Macaray
Companies Continue to Profit by Playing Dumb
Binoy Kampmark
Animals in Conflict: Diesel, Dobrynya and Sentimental Security
Dave Welsh
Defiant Haiti: “We Won’t Let You Steal These Elections!”