High-frequency trading could be a new threat to the stability of financial markets
The past few years have been a roller coaster in the markets. And the industry is nervous that queasy investors want off—for good. Of particular concern is the rise of high-frequency trading (HFT), or using sophisticated computer programs to buy and sell stocks in the blink of an eye. A recent study by the Investment Industry Regulatory Association of Canada found as much as 42 per cent of all trading activity on Canadian exchanges can be attributed to such rapid-fire computerized trades, which some have blamed for increasing market volatility and taking advantage of ordinary investors.
In the U.S., HFT has already been fingered as a potential culprit in both the 2010 “flash crash,” when the Dow Jones Industrial Average briefly plunged nearly 1,000 points, and Facebook’s botched IPO, which saw the NASDAQ’s computer systems overwhelmed. Critics say it’s only a matter of time before another disaster strikes. “The only certainty in the software world is that there is no such thing as bug-free software,” Mark Cuban, the billionaire owner of the Dallas Mavericks, recently told the Wall Street Journal. “When software programs are trying to outsmart other software programs and hack the world’s trading platforms, that is a recipe for disaster.”