The man who built what was possibly the first stock-trading robot now worries they have too much sway over the market. In other news, Victor Frankenstein is starting to rethink that whole reanimating-the-dead thing.
Starting in the 1970s, Thomas Peterffy, the billionaire founder of the Connecticut brokerage firm Interactive Brokers, was a pioneer in getting computers to perform the trading of stocks and options and whatsits, so that humans could spend the rest of eternity sipping drinks and collecting checks. In a fascinating interview with NPR, he tells how his efforts culminated in a rubber-fingered robot that typed rapid-fire orders on the Nasdaq electronic stock exchange in 1987.
Back then Peterffy's efforts tended to frighten and confuse the market locals, but pretty soon everybody was using computers for trading. Fast-forward to today, when trading robots have become so ubiquitous that high-speed trading makes up more than half of all stock-market volume. In fact, Morgan Stanley recently estimated that 84 percent of all stock trading is done by independent desks and brokerage firms, many using high-speed trading programs.
Proponents of all this fast trading say it helps make the markets more "liquid," by which they mean that stocks and other financial instruments move back and forth more easily and cheaply, for capitalism. But sometimes they make markets more "liquid" in the sense that they splatter them with the gore of the high-speed trading accidents, such as Knight Capital and the Flash Crash and the Facebook IPO.
These blowups have wrecked investor confidence in the stock market, according to recent surveys by the TABB Group, a research firm.
And Peterffy now believes that the constant thirst for speed, which theoretically could involve drones and particle accelerators, has reached absurd levels.
"We are competing on milliseconds," Peterffy told NPR. "And whether you can shave off three milliseconds in the execution of an order has absolutely no social value."
He wants regulators -- who currently cannot even keep up with all of the trading -- to make rules to tap the brakes on the market. As NPR's David Kestenbaum rightly points out, traders like Peterffy will always try to find ways around the rules. But that doesn't mean we shouldn't try.