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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October 14, 2008

A Pioneer in Electronic Trading Dies

SOES set the stage for today's auto-ex world

By Michael Scotti

Also in this article

Harvey Ira Houtkin, a man who helped launch the electronic trading revolution, died in late summer while on vacation near San Diego. The Brooklyn native was retired and living in Aventura, Fla. He was 59.

Houtkin was a leading figure in the day-trading craze in equities that fueled the Internet bubble of the 1990s. From his perch as head of All-Tech Investment Securities, Houtkin gave retail investors direct access to the Nasdaq market through the Small Order Execution System, or SOES. Houtkin's All-Tech was not alone, as dozens of other day-trading firms sprung up during that period. Short-lived firms like Broadway Trading and Momentum Securities thrived and flamed out. But others like Tradescape.com and Cybercorp left a lasting contribution with their smart-routing technology, which formed the basis for the trading tools used on institutional desks today.

Still, Houtkin may have been day trading's most vocal and visible proponent, particularly when it came to SOES. Nasdaq's SOES was the first automated execution system on Wall Street and was set up in response to the Crash of 1987, when investors charged that Nasdaq market makers did not pick up their phones to trade in a falling market. Before SOES, every share traded went through a market maker.

Tragic Vacation

Houtkin died after tonsil surgery at Sharp Grossmont Hospital in LaMesa, Calif., according to Mark Shefts, his brother-in-law and long-time partner at wholesaler Domestic Securities. "This was a major shock to everyone," Shefts said. "We're still not sure what happened...we're looking into it."

An Aug. 1 Union-Tribune story alleges that a lapse in care at the facility caused Houtkin's death. After the emergency operation, he died because an air tube was either dislodged or blocked while he waited for a room in the intensive care unit, according to a whistle-blower physician on the hospital staff who spoke to the newspaper. After the hospital denied the charges, the Houtkin family requested an autopsy, which reportedly substantiated the family's case, according to the paper.

On Aug. 25, the Houtkin family filed a lawsuit against the hospital, according to a San Diego Union-Tribune story. In the lawsuit, the family alleges that the hospital's caregivers adjusted Houtkin's breathing tube incorrectly, causing him to suffocate. The hospital has denied that its care was responsible for the death, according to both newspaper accounts.

It was the Nasdaq Stock Market that brought Houtkin fame. Trading on SOES became popular and created a new business for Houtkin, a former risk and convertible securities arbitrageur whose firm went out of business as a result of margin calls from the Crash of '87.

After the firm's demise, Houtkin was trading his own account and realized that he had the right to trade auto-ex on SOES and didn't need a market maker for a fill, said Shefts, who was his business partner since 1979. From there, the business grew.

"He turned [SOES] into a cottage industry, and a very successful one," said Arthur Pacheco, CEO of iNano Capital Markets, who then headed Nasdaq sales trading at Bear Stearns.