The Stock Market has become Battle of the Machines

As mentioned previously in something wicked this way comes, the New York Times gives a nanosecond blow by blow on the trading of Broadcom. High frequency traders can literally ascertain a stock trend, buy and sell shares in faster time than all of those little guys doing online trades from PCs. No surprise there that execution time could be manipulated, especially with multiple servers, the number of hops into the actual exchanges, and more of the more dubious routing and network traffic algorithm analysis possibilities.

Such technological wars have netted:

High-frequency traders generated about $21 billion in profits last year, the Tabb Group, a research firm, estimates.

Now Senator Chuck Schumer wants the SEC to limit high frequency traders.

The technique, known as flash orders, gives high-frequency traders using lightning-fast computers an unfair advantage, Senator Charles E. Schumer, the New York Democrat who is chairman of the Senate rules and administration committee, said in a letter to the S.E.C. Mr. Schumer wrote that he intended to introduce legislation barring the technique, if the agency failed to act.

Seems there is a loophole (pun intended?) in the law, which allows for flash orders to be seen.

Didn't I mention that regulation needs to be in the technology, the software as well as the mathematical models themselves? Oh yeah, I did.

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