As if you didn’t need another reason to not trust Wall Street investments

I’ve spoken on this topic before.  Yes, some form of rules and regulations with teeth in them are needed.  Wall Street, when left alone, will continue to prove there are no adults in the house and when the regulators are not watching or can not inflict any serious and painful consequences then well, we all know what happens.  Spare the rod and spoil the child…

From the NY Times

Wall Street’s Race to the 48-Millisecond Trade

It took just 45 minutes this month for one of Wall Street’s top trading firms to lose $440 million, a loss that has focused attention on the potential problems associated with high-speed trading. Today’s technological challenges are not unlike those faced by traders in the 19th century, whose jobs were revolutionized by the advent of ticker machines.

– – – (follow the title link for full story)

Computerized trading of stocks, which took off exponentially in the 1980s, is often blamed for accelerating the Black Monday market crash of Oct. 19, 1987. Regulators responded the next year by introducing new competition from more computerized trading and electronic exchanges.

But desktop day traders armed with real-time market quotes and business cable channels have been unable to compete with new powerful algorithms run on giant computers. Stock transactions are measured in microseconds, and they can be ordered and canceled faster than the “American Deer” could blink an eye.

After a spate of flash crashes, including the one in which Knight Capital recently lost $440 million, regulators are discussing steps that would reduce trading volume, including a transaction tax. Although not even the strongest critics of high-speed trading are calling for rules to turn back the clock to 900 characters a minute, there is a growing consensus that the potential negative consequences of raw speed need to be addressed for the good of the financial markets.

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