Wall Street Journal reporter Scott Patterson, who covers the intersection of technology and finance, just conducted an Ask Me Anything on Reddit about his new book, Dark Pools: High-Speed Traders, A.I. Bandits, and the Threat to the Global Financial System. A few excerpts follow.
Question (nyseed): When you interviewed Mark Cuban about the problems with high-frequency trading you asked him “What’s the solution?” How would you respond to the same question?
Answer (scott_patterson): The regulators need to get on top of what’s going on and fast. The public is losing trust in the markets and right now our regulators can’t give them any assurances that they’re wrong. Right now we just don’t know and our regulators don’t either — that’s why the market is dark.
Question (davidmanheim): Is there a possibility of knowing what is going on if the markets remain fully automated, and computerized trading can go on at speeds that make the data processing to understand them so difficult? How can regulators understand a market with arbitrarily complex, constantly changing automatic program running on them? Do changes need to be made first?
Answer (scott_patterson): They simply need to get the computer fire power to monitor the market, and it exists. They just haven’t done it yet. There’s a proposal to build a so-called Conoslidated Audit Trail that could help solve some of these problems. I wrote about it for WSJ last year.
Question (hatetosayit): I’m suspicious about this concept have having a government computer monitor an automated market. As long as it’s a bunch of computers operating based on set rules, won’t there be room to invent new exploits that take advantage of those rules without being detected?
Answer (scott_patterson): Are you suspicious of cops using radar to catch speeders on the highway? Because right now the SEC doesn’t have that radar.
Question (nyseed): Honestly, how confident are you that this could actually happen? Can the public help? Or is reform just a faint hope?
Answer (scott_patterson): I’m not confident, but I’m hopeful. I’m hopeful that my book might help trigger enough outrage that they’re forced to do it. But it’s a hard fight because the industry has all the money and the lobbyists. Regulation is a dirty word on Wall Street.
Tags: Scott Patterson