High-frequency trading, which already has a sullied reputation, is even worse than the critics have charged, a new survey shows.
The Federal Reserve of Chicago recently asked 30 firms associated with the industry -- traders, exchanges, vendors and others -- to evaluate where HFT stands in the wake of a series of high-profile blowups.
While the central bank's analysts knew there were issues, what they found exceeded their expectations.
Industry pros reported a rash of out-of-control computer algorithms that power the HFT platforms. They admitted that speed is more important than safety. And they even went so far as to say that they actually wish the industry was more regulated but want the rules to be applied equally, something that may not be happening today.
"Market participants at every level of the trade life cycle reported they are looking to regulators to establish best practices in risk management and to monitor compliance with those practices," Carol Clark, senior policy specialist at the Chicago Fed, wrote in a summary of the survey's findings.
[More From CNBC: High Frequency Traders -- the New Kings of Wall Street]
The report came about as the Fed sought to uncover what happened in a series of well-publicized gaffes: A snafu that delayed the opening of the much-ballyhooed Facebook initial public offering; price spikes in dozens of stocks that happened after a glitch at Knight Capital; and problems at the BATS trading platform that squelched the exchange's own IPO.
What it found was an amalgam of firms desperately trying to stay ahead of each other even at the expense of their own businesses.
In theory, high-frequency trading, which is done through algorithms that process trades at lightning speeds in hopes of profiting by miniscule moves in prices, has a series of checkpoints that should prevent errors.
In practice, that's frequently not how it works.
"With the chance of an order passing though controls at so
http://finance.yahoo.com/news/high-frequency-trading-worse-thought-165633554.html;_ylt=Aj.k0UPc7kWkIj6J6670ffuiuYdG;_ylu=X3oDMTQ4ZnQxbWNuBG1pdANDTkJDIFRvcCBTdG9yaWVzBHBrZwM1OWYxYzg5Yi1lNjI5LTMwMjAtYjQ1OS1lMzhlZGNlOTVjZjgEcG9zAzMEc2VjA01lZGlhQkxpc3RNaXhlZExQQ0FUZW1wBHZlcgNlM2MxMGFkMS0wMzVjLTExZTItOWZlZi1hM2M4ZTlkY2FhMjU-;_ylg=X3oDMTFpNzk0NjhtBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25z;_ylv=3
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
| 