Ray,
The Armstrong article has been removed.
But there is plenty of other stuff:
Retail and institutional investors have been stunned at recent stock market volatility. The general thinking is that it is related to the global financial crisis, starting, in August 2007, when the Volatility Index, or VIX, started to climb. However, there are more fundamental reasons behind the explosion in trading volume and the speed at which stock prices and indexes are changing. It has to do with the
way electronic trading, the new for-profit exchanges and ECNs, the NYSE Hybrid and the SEC's Regulation NMS have all come together in unexpected ways, starting, coincidently, in late summer of 2007.
This has resulted in the proliferation of a new generation of very profitable, high-speed, computerized trading firms and methods that are causing retail and institutional investors to chase artificial prices. Today liquidity rebate traders, predatory algorithmic traders, automated market makers, and program traders are exploiting the new market dynamics and negatively affecting real investors. Rebate trading computer makes a penny per share, and has caused the institutional investor to pay a penny higher per share.
WHAT CAN BE DONE?
Forget about short sale restrictions. From a regulatory point of view, two simple, powerful rules would help to eliminate much of the problem.
1. Make orders valid for at least one second. That will eliminate the pinging. High frequency traders will expose themselves. One second would destroy their ability to immediately cancel it if nothing is there.
2. Reinstate the 2% curb on program trading. When the market is down 3% or 4%, that's when the program traders can really juice it. The SEC, however, has to institute the curb across the board so no market center has an advantage over another.
With these two rules, half the volume of the exchanges and ECNs might go away. The market centers, however, will surely fight it because they don't want to lose the trading volume and the resultant tape revenue.
Until then, what can investors do? Retail investors are sitting ducks, institutional investors should not "walk away from the machine" after they have entered an algo order.
