Practical analysis for investment professionals
29 August 2013

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

Posted In: Risk Management

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.”

Poll: Are "flash freezes," such as Nasdaq's last week, a permanent part of the investment business?

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.

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

About the Author(s)
Jason Voss, CFA

Jason Voss, CFA, tirelessly focuses on improving the ability of investors to better serve end clients. He is the author of the Foreword Reviews Business Book of the Year Finalist, The Intuitive Investor and the CEO of Active Investment Management (AIM) Consulting. Voss also sub-contracts for the well known firm, Focus Consulting Group. Previously, he was a portfolio manager at Davis Selected Advisers, L.P., where he co-managed the Davis Appreciation and Income Fund to noteworthy returns. Voss holds a BA in economics and an MBA in finance and accounting from the University of Colorado.

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