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TheStreet Open House

Ban Robo-Trading? That's so 1980s

Stocks in this article: KCG FB

NEW YORK ( TheStreet) -- It's taking up a lot of headline space, but this business about out-of-control computers messing up the financial markets is nothing new.

Neither is the inability of regulators to stay ahead of what's happening at places like Knight Capital Group (KCG) or Bats Global Markets, both of which have shocked markets after suffering computer glitches this year.

I started thinking about just how long we've been agitating over the role of Wall Street computers that trade on autopilot while reading obituaries last week of John J. Phelan, Jr., the former CEO of the New York Stock Exchange who died on Aug. 4.

Phelan was considered both a hero and a goat for having pushed the NYSE to invest hundreds of millions of dollars in technology in the 1980s. His fans loved him for saving an exchange that risked becoming extinct. His detractors panned him for busting the human-run trading monopoly on the exchange floor -- the collection of people known as specialists.

The technology of Phelan's time looks like the abacus compared to today's trading. There have, however, been constants over the years. Regulators are always playing catch-up with the creations of Wall Street's geeks. Then, as now, market meltdowns result in the same demands to rein in technology, whether it be the program trading of 1987 (the late Louis Rukeyser suggested it be abolished) or the high-frequency trading of 2012 (the blogger Felix Salmon wrote Aug. 6 that we should give it "the funeral it deserves.").

Phelan lobbied to get the luddites at the exchange to agree to pay the tab for computers that would take them into the modern world, but he had no delusions that technology would mean a walk in the park. The stock market crashed on Oct. 19, 1987, with the Dow Jones industrial Average losing 508 points, or 22%, in one day.

Sounding warnings, months before, that program trading could lead to a meltdown like that was Phelan himself.

I sat down with Phelan in his 11 Wall Street office 10 days after the 1987 event known as "Black Monday." He was a cool customer with a poker face and a dearth of chit-chat, though he did allow that he'd "leaned" on his wife, Joyce, in the stressful days since the crash.

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