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A Voice for Reason?

May 15, 2010

But the Senator’s biggest home run has been on a different issue: his warnings about the dangers of high-speed trading, involving “dark pools” of money, appear to have been completely vindicated – ironically enough, also last Thursday.

Think about it this way.  The US stock trading system, long-established and widely thought to be robust, crashed on Thursday afternoon.  Widely held stocks, traded with consistent liquidity, do not fall in value from $40 to 1 cent and then bounce back again – even in emerging markets, let alone in the United States.  It is true that complex systems crash, but given the infrastructure and back-up systems involved here, this is much closer to east coast air traffic control shutting down for 15 minutes than it is to your local cable company having a problem.

And here’s the most remarkable point – after 6 full working days (and top people do sweat this kind of issue on the weekend), we are still no closer to really understanding what happened.  To be sure, there are plenty of theories – and no shortage of proposals for avoiding a recurrence.  But, despite the evident resources thrown at this problem, we do not know what went wrong.

As Senator Kaufman points out, the SEC does not even routinely collect the data it needs to understand the actions and impact of large traders.

Baseline

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