Poll: Are Flash Freezes a Permanent Part of the Investment Business?

More than 80% of respondents to this week’s CFA Institute Financial NewsBrief poll question, “Are ‘flash freezes,’ such as Nasdaq’s last week, a permanent part of the investment business?” said, “Yes, the number of computer-based traders is only going to increase.”

In the past few years, trading-volume increases have come predominantly from high-frequency traders, driving exchanges’ profit growth and exchanges’ attention. In other words, the trading world is now a silicon world to which investors must adapt. Adaptation also requires understanding that high-frequency trading is about not only speedy execution of trades but also very sophisticated, data-driven algorithms. Unfortunately, these algorithms are blindly initiated once certain criteria are met, amplifying human error, which about 3% of respondents blamed for the Nasdaq flash freeze. The cause of the flash freeze is still unknown, and it may have been just a technology issue, as Nasdaq claims and as about 16% of respondents believe. Whatever the cause, it seems that future flash freezes are inevitable.

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