PROVIDENCE – A Wall Street watchdog group wants to put a stop to so-called “algo trading” that it says is playing havoc with the stock market.
The nonprofit public advocacy group Better Markets is calling for federal officials to get the Consolidated Audit Trail system launched to better police computer-driven algorithmic trading, also known as high-frequency electronic trading. The group says algo trading has been a contributing factor to the recent steep drops and volatility in the stock market this year.
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Better Markets President and CEO Dennis Kelleher said the Consolidated Audit Trail, or CAT, is overdue and is needed to better monitor trading and stop “needless” algo trading.
“Computer-driven, high-frequency algo trading has been driving market drops, swings and volatility for too long,” Kelleher said. “The damage to investors and our economy have been incalculable. Orderly U.S. markets have been transformed into the ‘Wild West,’ where computers are programmed in microseconds to maximize their short-term profits at the expense of everyone else.
“This is preventable if regulators would use the same modern-day technology to monitor, supervise and police the markets,” he added. “However, while the traders and predators are moving at 21st-century speeds, regulators are chasing after them in outdated 19th-century horse and buggies. It’s not a fair fight, and investors, markets and our economy are the losers.”
Algo trading grew in use after the computerization of trading that took root in the financial markets in the 1970s. By 2010, roughly 60 percent of all trades were executed by computers, using mathematical models and investment formulas. By 2018, that number had grown to an estimated 85 percent of all trades, the Wall Street Journal recently reported.
The trend has prompted U.S. Treasury Secretary Steven Mnuchin to point to algo trading as contributing to the market’s big swings in 2018. Citing Mnuchin’s remarks, Better Markets called for him, the U.S. Securities and Exchange Commission and President Donald Trump to push for getting CAT launched and fully operational as soon as possible.
The CAT system would allow regulators to improve securities markets’ surveillance by creating an extensive audit trail of customer and order-event information for all U.S. exchange-listed and over-the-counter equities securities. It would collect such data for exchange-listed options contracts. When fully complete, CAT would be able to process more than 58 billion records a day, becoming the world’s largest data repository of information on securities transactions, tracking all orders throughout their life cycle.
Scott Blake is a PBN staff writer. Email him at Blake@PBN.com.
