High frequency trading of stocks, using computer driven quantitative models, processing large orders are increasing at a rate faster than regulators can monitor. So are the risks, say the head of one of the largest high frequency trading companies, Mark Gorton, head of Tower Research Capital. Gorton and others are concerned with the lack of risk controls in the exchanges.
On May 6, 2010, financial markets experienced a crisis called the “flash crash” when in a half an hour financial indices dropped swiftly before recovering. This is now well accepted as a consequence of high frequency trading.
While the SEC has been monitoring the phenomenon from afar, it has not been active in regulating the issue. Experts say their concern is that if one of the computers executing a large high speed trade and becomes uncontrolled, could this tip the market?