Regulators want to put the brakes on rapid trading

By GRAHAM BOWLEY The New York Times
Published: Sunday, October 9, 2011 at 1:00 a.m.
Last Modified: Saturday, October 8, 2011 at 8:09 p.m.
Regulators in the U.S. and internationally are cracking down on computerized high-speed trading that crowds today's stock exchanges, worried that as it spreads around the globe it is making market swings worse.

The cost, critics say, is the confidence of ordinary investors in the markets and, ultimately, their belief in the fairness of the financial system.

"There is something unholy about them," said Guy P. Wyser-Pratte, a prominent longtime Wall Street trader and investor. "That is what caused this tremendous volatility. They make a fortune whereas the public gets so whipsawed by this trading."

Regulators are playing catch-up. In the U.S. and Europe, they have recently fined traders for using computers to gain advantage over slower investors by illegally manipulating prices, and they suspect other market abuse could be going on.

Regulators are also weighing new rules for high-speed trading, with an international regulatory body to make recommendations to global leaders in coming weeks.

In addition, officials in Europe, Canada and the United States are considering imposing fees aimed at limiting trading volume or paying for the cost of greater oversight.

Perhaps regulators' biggest worry is over the unknown dynamics of the computerized stock market world that the firms are part of -- and the risk that at any moment it could spin out of control. Some regulators fear that the sudden market dive on May 6, 2010, when prices dropped by 700 points in minutes and recovered just as abruptly, was a warning of the potential problems to come. Just last week, the broader market fell throughout Tuesday's session before shooting up 4 percent in the last hour.

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