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How to Limit High-Frequency Trading Blunders

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    Capital Markets Advisory Partners founder David Weild weighs in on high-speed trading.

  • Duration 4:10
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High frequency trading is under the spotlight today's congress steps up its scrutiny of computer driven trading following a string of technical glitches that roiled markets and hurt investor confidence just this year.

What can be done to limit these trading heirs without crippling the industry here now to -- -- David we'll.

Founder of capital markets advisory partners and former vice chairman of NASDAQ David it's wonderful to have -- studio with us today.

-- nice to be here by the way around capital markets for -- Jordan and all the public policy thought leadership is has been published movement forward and see you are the perfect person and to ask about this -- topic really rattling investor confidence in Britain seems like trading -- have increase let's put up this graphic we -- just in the last couple of years of what we've seen.

Started with the may sixth flash crash of course.

The bats global markets.

Failed so listing.

Facebook's flood IPO obviously and then most recently Viet Knight capital 440 million dollar software -- so happy -- increased.

While it's it's not clear that they necessarily increase but certainly the magnitude of them has and then you know any any error on this level.

Undermines investor confidence and I think that's the crux of the issue is you know how you keep them from happening in the future.

So that investors don't continue to pulling money out of the stock market trading systems are so complex these days explained to what kind of trades.

Are going out there the sheer volume is staggering.

That's correct and -- on any BBM today at the senate banking committee hearings -- Andrew Brooks who's the head of equity trade and Ford T -- price -- -- mentions that fears over a thousand different order types now.

In the stock markets is also thirteen different stock exchanges fifty different dark pools and so when you look at the level.

A permutations.

That -- the complexity actually actually continues to multiply and so it's something that clearly the regulators need to get their arms around.

I mean if they can't thousand different types of trades and that's just talk dropping so how do you -- might that mean inefficient manner well there.

There -- a lot of proposals out.

There -- and I think that the first thing to address and I -- the chairman Schapiro is on on the chase here.

Is -- cut down on the number of major glitches and I we've we've actually recommended that that anybody that connects into the market should have a fail safe -- -- to there.

They're trading so that it takes it off line if something starts to go outside of a certain tolerance he described what they'll -- algorithm is in more detail.

Well they would simply say that if if all of a sudden a gut that trading that's going through the pipe.

Is moving markets beyond beyond a certain tolerance that it just takes it -- line.

Puts it in the manual mode and requires a human being to -- -- so that for example everything's moving at light speed right now if you look at the at the glitch -- nitrate and okay gets amplified very quickly can't stop it so there needs to be something belt belt and the stop and then.

That mistakes will happen.

And people have also pitched.

As another solution this transaction tax but then other the other side of that is that we'll just ultimately curb -- trading volume -- -- business -- we're actually out actually as of yesterday with a major new paper called the trouble with small text sizes which is the smallest increments.

In which stocks can trade and and our basic thesis there is is that when you proliferate the number of price points right a hundred price points the dollar.

That complexity multiplies and that one of the ways that you can cut down.

Complexity and certainly increase incentives.

To support small companies where capital formation lives in the IPO market whizzes by actually widening out those -- sizes does that have to do with the small investments the small investing companies also partaking in the trading systems as well that it's this is just across the board.

Yeah well it you know you.

It it clearly is essential to do something in the small and micro cap markets because we are now doing about.

A quarter of the number of IPOs that we were doing in the ninety's and even -- many fewer than the eighties and this is driving down.

Job formation in this country than we estimate that has cost the US economy about ten million jobs.

Beyond that it's hard to kind of actually come up with a precise number but the fact that matters and -- common sense says that if you're not raising capital getting capital -- businesses they can't employ people.

And this creates a vicious circle -- the economy absolutely Nestle or watch Japanese feel -- algorithms learn something that thank you so much they might -- okay.

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