Regulators have sharpened their focus on algorithmic and high-frequency trading since May 6, 2010, when a computer program employed by one firm sparked a 20-minute plunge in stock prices, temporarily erasing $862 billion of market value. The issue emerged again last month when a software malfunction at Knight Capital Group Inc. (KCG) cost the company $440 million and left it looking for a financial infusion.
Thirty-seven percent of survey respondents said high- frequency and algorithmic trading is mostly bad because it makes markets more volatile, and 18 percent said it was negative because computer problems could hurt investors.
“In today’s market, emotions appear to drive investor decisions more than fundamental rationale,” said Jon Morris, a portfolio manager at Palladium LLC in Norfolk, Virginia. “Trading by algorithms and with high frequency clearly is skewed away from fundamentals. When algorithms are right for the wrong reason, it only increases investors’ abandonment of sound judgment.”