This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Ban Robo-Trading? That's so 1980s

Stocks in this article: KCG FB

That's not a new worry, either. In an interview in November 1989, Phelan told me he was very concerned about "self-front running" where firms engaged in index arbitrage trade ahead of imminent trades for customers.

We can save taxpayers the expense of the inevitable studies. There's a good one that already lays out many of the same automated trading problems we're experiencing today, and it was published in 1990.

The independent Office of Technology Assessment, which was subsequently done away with by Republicans looking for budget cuts, published a 200-page report that outlined the public's anxiety over volatility, market fraud and manipulation, and the increasing odds of a derivatives-related crash that could put the financial system at risk.

The OTA report also detailed how ridiculous -- my word -- it is to have a Securities and Exchange Commission and a Commodity Futures Trading Commission in charge of different aspects of the derivatives market. A divided regulatory structure can hinder enforcement efforts, the report said, describing relations between the two agencies as ranging "from cordial cooperation to polite teeth-gritting."

Before anyone draws the conclusion that it's time to return to the good old days of specialists on an exchange floor, let's be clear that the specialist system wasn't exactly breeding altar boys. The SEC and NYSE brought enforcement actions against five specialist firms that paid $241 million in penalties and disgorgement in 2004 for executing orders for their own accounts ahead of the public.

At least there were actual people to fine or bar from the industry in that case. With computers making more and more trading decisions, the inevitable brokerage firm cop-out will be to dismiss the madness that computers cause as the by-product of a glitch that couldn't be helped.

Smart regulators, if only we had some, will be ready with punishments to make humans accountable when their machines wreak havoc in the markets.

Susan Antilla is a freelance financial writer and columnist at Bloomberg View.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

3 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,959.44 +154.64 0.87%
S&P 500 2,078.54 +7.89 0.38%
NASDAQ 4,781.4240 +16.0440 0.34%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs