Commentary

Tim Quast
Traders Magazine Online News

We're All HFTs Now

In this guest commentary, author Tim Quast looks back at the history of HFT and how the market has evolved to where many firms now fit the definition of high-frequency trader.

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August 11, 2008

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By Michael Scotti

The name of Richard Grasso and the New York Stock Exchange will always be indelibly linked. Grasso, the former head of the NYSE, was recently exonerated of charges that his rich compensation package was ill-gotten. It is both timely and coincidental that this month's cover story and another feature are New York Stock Exchange-related.

The cover story outlines how specialists are getting new rules that would both lessen trading restrictions and grant new freedoms to trade. Peter Chapman reports that the NYSE will need to set the best price more often to increase its dwindling market share. In a separate story, readers can also get a look at how floor brokerage firms have been remaking themselves. Many are going into new areas, such as derivatives and program trading. Both the specialists and the brokerage firms have their work cut out for them. But not Grasso. He is set and can keep his $139.5 million compensation award since the State of New York dropped the case.

The decision came days before Independence Day-Grasso certainly had plenty to celebrate on July 4. So did three U.S. citizens who had just regained their freedom. They had been held hostage by the FARC in Colombia for about five years. Their rescue, along with that of 12 others, made the holiday weekend a special one in our household and an extra reason to celebrate.

My brother-in-law, Cesar, had been held captive by the FARC for nearly a year in 1999. Cesar was finally released after paying a heavy ransom. But to hear his stories and those of the three Americans released last month, it is clear to me how we take basic freedoms in this country for granted.

The hostage rescue also reminded me how much larger than life Grasso was. He once flew to Colombia to speak to the rebel leader Raul Reyes. Grasso told the Marxist about the benefits of capitalism and negotiation. I had mixed feelings at the time-did he really intend to help the situation or was it a publicity stunt? The wounds of Cesar's ordeal were still a heavy burden for us. (Reyes, by the way, is the rebel leader whom the Colombian Army recently killed, after which they found the computer files linking Venezuelan leader Hugo Chavez to the FARC, nearly sparking a war. So the man Grasso met wasn't a choirboy.)

Since Grasso's visit to Colombia, the NYSE saw its high position as a marketplace rise even higher. Stocks were the place to be and so was the NYSE. Decimalization came in 2001, and its floor became even more important for price discovery. It's safe to say that the floor broker, the specialist and Grasso, although richer, haven't been the same ever since. Enjoy the issue.

Michael Scotti

Editorial Director

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