The New York Times has a front-page story this morning on low latency algorithmic trading by Wall Street firms, which the paper simplifies to “high-frequency trading.” The story describes high-speed trading as a “mysterious force in the markets” with the power to “subtly manipulate share prices” that allows well-equipped firms to “reap billions at everyone else’s expense.”
That last bit is couched with “detractors contend,” but is consistent with the broader tone of the article, which depicts high-frequency trading as a tool giving well-heeled insiders an unfair advantage over the broader market. Surprisingly, there’s no perspective from firms that conduct low latency trading seeking to defend their interest in the practice. It’s not clear whether these hedge funds and banks refused to participate in the article, or their contributions simply didn’t fit the Times’ narrative. The story was written by a reporter who has covered health care and banking issues, rather than technology.
Proponents of low latency trading argue that this activity provides liquidity to execute trades that would otherwise not be possible, making the market more efficient, a point that was largely missing from the Times’ article.
Others are weighing in on the Times’ piece. ClusterStock picks up on a post by John Hempton at Bronte Capital, which argues that high-frequency trading doesn’t explain the math behind Goldman Sachs’ trading profits. Hempton call the focus on low latency trading “the current conspiracy theory.”
Does this debate matter to the data center industry? Low latency trading has become a big business for a number of players in the data center space, especially Equinix (EQIX) and Savvis (SVVS). By “mainstreaming” the discussion about high-frequency trading, The New York Times article is likely to focus more scrutiny on the practice.
Will this be accompanied by a chilling effect on spending by trading firms, which would affect demand for colocation space and connectivity? It’s too early to say, but it bears monitoring going forward.