I was already aware of the recent news uptick (forgive the term) on the term high-speed trading when I was drawn by a rather bland headline about high-performance computing and hedge funds and pursued it through the Internet to a rather bland white paper endorsing the potential uses of high-performance computing in the financial markets–high-performance computing being the acceleration of computation by harnessing several processors together. This objective-sounding article describes such phenomena as algorithmic trading of derivatives and automated trades. It cites the need for multiprocessor speed created by intense competition and high volume in the hedge fund sector and by the complexity of derivative investments. At the same time, the article points out that high-performance computing can be used for rapid Monte Carlo software, fast value-at-risk analyses, and real-time statistical analysis.
As I began to look further into this news uptick, I found that not everybody in the finance and economist communities thinks the potential for acceleration is a good thing. In fact, Paul Wilmott, editor of an online finance journal, finds the trend somewhat terrifying, and Paul Krugman, thinks it’s a tool of choice for the bad guys. Their primary objections are that high-speed real-time trading takes place too quickly to allow anyone to consider or react to the high-speed analyses the same systems provide and that profit-taking from high-speed speculation occurs before potential losses from the risks of these transactions have been realized.
The most recent developments on this front are the SEC’s proposal to to control short-selling in a high-performance atmosphere by returning to some version of the "uptick rule" put in place in the 1930s and withdrawn only two years ago and, following that, a strong objection from a bipartisan group of senators to the SEC’s extended comment period on its proposed rules . They charge the SEC with being too concerned about the convenience of high-speed trading to the financial industry.
The SEC’s 30-day extension of the comment period began August 17. So if you’re a quick study and can digest all the information on all the issues in the blink of an eye, let the commission know what you think before high-performance trading speeds ahead.