Last week a unique and unknown algorithm placed orders, to cancel them immediately, on US financial markets.
Nothing strange so far. L'hft (“high frequency trading”, also known as “algorithm trading” or high-frequency trading) is not an unknown phenomenon.
It allows you to make money stellar profits replicating thousands of operations in the stock market, operations so lightning-fast as to determine the market trend without however exposing the trader to significant risks, since a single order is opened and closed within a few hundredths or even thousandths of a second. But most of the time the positions are not even actually opened.
Algofinance has become such a disruptive phenomenon as to involve a majority share of financial transactions. Therefore, various market analysis companies specialized in monitoring the financial impact of the hft were born.
One of these, the Nanex, founded twelve years ago by Eric Hunsader, has denounced the "sighting" of a comet-algorithm that last week he would have opened and closed thousands of transactions of twenty-five milliseconds each, for 4% of the entire trading volume on approximately 500 securities.
However, it is a real financial comet, since at 10.30 on Friday 5 October all traces of the algorithm were lost, not re-sighted after the reopening of the markets on Monday.
The event "says a lot about how one person can have such a disproportionate impact on the market," said Hunsader, CEO of Nanex, referring to the fact that there would have been no simultaneous operation by many operators. Indeed, Nanex's radar "hooked" on the algorithm's signal, determining a single location within the Nasdaq headquarters in Times Square.
The flow of transactions has become so intense that a substantial part of the bandwidth on which orders circulate is "occupied" by algotrading, and only the algorithm observed by Nanex would have "sequestered" about 10% of the space each day available to operators.
The hft is increasingly unpopular, and although it is a legal phenomenon, it is perceived as a pure speculative technique. But as in the banking sector, regulation is struggling to implement certain and stringent rules.
In the case of algofinance, however, political attention begins to converge on the need to put the brakes on the technology: a US Senate commission began an investigation at the end of September, but the legislative response to the hft is far from the be born.
