Computer-driven financial markets on unregulated electronic exchanges
programmed by algorithms now dominate Wall Street, along with high-frequency
trading (HFT). The infamous “Flash Crash” in May 2010, driven by electronic
trading, caused stocks in many 401Ks to suddenly fall to pennies and recover
in split seconds. Small investors lost confidence, pulling some $70 billion
out of stock markets.
While Wall Street recovered, trust eroded
further due to the losses, foreclosures, job cuts and taxpayer bailouts
after the 2008 meltdown. Today, the public’s trust is battered by news of
fraud, insider-trading, rigging of interest rates and huge fines on formerly
admired banks paid by shareholders and taxpayers instead of indicting
financiers. Regulators in Washington are out-gunned by the faster computers
and technology of hft. Even market players are sounding alarms.
In 2011, after contacting the SEC, Themis Trading, a respected firm with
many pension fund clients went public in Broken Markets, co-authored by
principals Sal Arnuk and Joe Saluzzi, alerting all investors to the dangers
of electronic front-running and other manipulative practices of hft and the
electronic exchanges on which they trade. wall street journal reporter Scott
Patterson published dark pools (2012). CBS TV’s 60 Minutes covered how Wall
Street and global finance was morphing into a complex, unregulated casino.
The public remained suspicious but mystified until Flash Boys by Michael
Lewis, a former Wall Streeter, became a global best seller in 2013,
explaining in simple terms how “Wall Street is rigged.”
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