We should clone the robo-trader rather than revile him
By Sebastian Mallaby
Published: September 21 2010 21:17 | Last updated: September 21 2010 21:17
Financial markets are like time machines. The buyer of an equity turns today’s lump sum into tomorrow’s stream of dividends; the seller turns future income into cash to be spent now. Yet even as financial markets ease time’s tyranny, critics rail that they are rigidly short-termist. The latest target of this misconceived abuse is high-frequency trading.
Until recently, few paid attention to this abstruse corner of finance. But in January the Securities and Exchange Commission announced it would be studying high-frequency traders and, in the wake of May’s “flash crash”, politicians and regulators pointed the finger at the high-frequency crowd. The crash post-mortems have yet to show a link to rapid traders, but the critics are not bashful. After all, shadowy computer geeks have built systems whose split-second trades account for more than half the turnover on US equity markets. Here, surely, is a devil’s cocktail of cut-throat finance and black-box technology – an unholy fusion of Gordon Gekko and 2001: A Space Odyssey.