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San Diego Law Review

Document Type

Article

Abstract

A growing concern in the stock and commodity markets over the last several years has been the rise of high-frequency traders (HFTs). Those traders employ high-speed computer technology for the algorithmic origination, transmission and execution of their orders through fiber optic cables and microwave towers. That technology allows HFT orders to be executed in times measured in fractions of a second. As a result of this technological advance, HFTs are now dominating trading volumes. This phenomenon has, on the one hand, led to claims by proponents of high-speed trading that HFTs are an important source of market liquidity and should not be subject to burdensome regulation. Critics of HFTs, on the other hand, are claiming that high-speed trading is abusive and disruptive for other traders. Those critics also claim that HFTs use their high-speed advantage to trade in advance of other customers and that HFTs should be regulated in a manner that will remove their advantages. This Article will show that concern over informational advantages of traders through "high-speed" communications is not a new phenomenon. Such advantages have historically been employed through communication methods that have included fast sailing ships, courier pigeons, stagecoaches, smoke signals, semaphore flags, flashing mirrors, the telegraph, and the telephone. This article will also show how computerized high-speed trading transformed the stock and commodity markets from inefficient open outcry auctions to more efficient electronic trading platforms in which HFTs play an important role. The article concludes that HFTs are simply a continuation of market advances and that efforts to slow down HFTs are misguided.

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