At their small brokerage firm in the United States, two traders
are railing against the giants of high-frequency trading and warning
-- loudly -- of the dangers they pose.
Ticker tape: It is an enduring image of Wall Street. The paper is
gone but the digital tape runs on, across computer and television
screens. Those stock quotations scurrying by on CNBC are, for many,
the pulse of American capitalism.
But Sal L. Arnuk does not really believe in the tape anymore --
at least not in the one most of us see. That tape, he says, does not
tell the whole truth.
That might come as a surprise given that Mr. Arnuk is a
professional stockbroker. But suddenly, and improbably, he has
emerged as a leading critic of the very market in which he works. He
and his business partner, Joseph C. Saluzzi, have become the voice
of those plucky souls who try to swim with Wall Street's sharks
without getting devoured.
From workaday offices, these two men are taking on one of the
most powerful forces in finance today: high-frequency trading.
H.F.T., as it is known, is the biggest thing to hit Wall Street in
years. On any given day, this lightning-quick, computer-driven form
of trading accounts for more than half of all of the business
transactions on the stock markets in the United States.
It is a staggering development -- and one that Mr. Arnuk, 46, and
Mr. Saluzzi, 45, say has contributed to the hair-raising flash
crashes and computer hiccups that seem to roil the markets with
alarming frequency. Many ordinary Americans have grown wary of the
stock market, which they see as the playground of Google-esque
algorithms, powerful banks and secretive, fast-money trading firms.
To which Mr. Arnuk and Mr. Saluzzi say: enough. At their
Lilliputian brokerage firm, they are railing against the giants of
high-frequency trading and warning -- loudly -- of the dangers they
pose. Mr. Saluzzi was the only vocal critic of H.F.T. appointed to a
24-member U.S. panel that is studying the topic. Posts from the blog
that the two men write have been packaged into a book, "Broken
Markets: How High Frequency Trading and Predatory Practices on Wall
Street are Destroying Investor Confidence and Your Portfolio," which
was published in June. They are even getting fan mail.But they are
also making enemies.
Proponents of high-frequency trading call them embittered relics -
- quixotic, old-school stockbrokers without the skills to compete in
sophisticated, modern markets. And, in a sense, those critics are
right: they are throwbacks. Both men say they wish the financial
sector could go back to a calmer, simpler time, before the old
exchange system splintered and murky private markets sprang up and
computers could send the Dow into 1,000-point spasms.
They have proposed solutions that might seem simple to the
uninitiated but look radical to H.F.T. insiders. For instance, the
two want to require H.F.T. firms to honor the prices they offer for
a stock for at least 50 milliseconds -- less than a wink of an eye,
but eons in high-frequency time.
On May 6, 2010, shortly before 3 p.m., the stock market
plummeted. In just 15 minutes, the Dow tumbled 600 points --
bringing its loss for the day to nearly 1,000. Then, just as fast,
and just as inexplicably, it sprang back nearly 600 points, like a
It was one of the most harrowing moments in Wall Street history.
And for many people outside financial circles, it was the first clue
as to just how much new technology was changing the U.S. financial
markets. The flash crash, a government report later concluded,
"portrayed a market so fragmented and fragile that a single large
trade could send stocks into a sudden spiral."
It turned out that a big mutual fund firm had sold an unusually
large number of futures contracts, setting off a feedback loop among
computers at H.F.T. firms that sent the market into a free fall.
Despite computers' many benefits -- faster, cheaper trades and
mind-boggling analytics -- they have been causing problems on Wall
Street for years. …