March 29, 2012
Thanks to Commissioner O'Malia for his leadership of the Technology Advisory Committee (TAC). He and his staff have done a marvelous job and they are to be commended.
There are over 160 million financial transactions taking place around the world every day. Just think about these markets of enormous size and girth. Journeymen traders, cheetah high frequency traders and others are churning away, burning up the fiber—many trying to scoop up micro dollars in milliseconds as they arbitrage between one market and another, between one or more exchanges in one nation to multiple exchanges around the world. It is a complex matrix that boggles the mind. It is amazing that it works as well as it does, but then again, there are noticeable trips and falls all the time.
I hear from a lot of people in the financial sector how the cheetahs, the HFTs, are nothing more than a variation of the old day trader. The argument is that like day traders, the cheetahs are simply trading based upon very intricate information and making trading decisions in as fast a manner as possible. Similarly, the day traders and the cheetahs desire to be flat at the end of the day, with no outstanding exposure.
While I'll accept that there are similarities, those arguments are used by some to suggest that there isn't anything more to be done with regard to regulating the cheetahs. Nothing here to see folks, please move along.
Like the Beatles sang in Day Tripper, they "Got a good reason for taking the easy way out." The simple analogy from day trader to cheetah is an easy way out for some. What we have found out, and I found out, is that it is naïve for us, in general, not to question how technology is changing markets, but as regulators and those interested in ensuring efficient and effective markets, it is extremely dangerous to take the easy way out.
All of you, on the other hand, understand that we need a dialogue and that we certainly need to understand more. I for one think we need cheetahs to be registered. We need to ensure testing of algos before they go into the production environment, and we need to insist upon kill switches in case a cheetah program goes feral.
I appreciate your willingness to spend your time and effort as part of the TAC. If we go forward with our eyes open, we will ensure that technology in markets isn't simply a "One way ticket yeah."
Last Updated: March 29, 2012