By GRAHAM BOWLEY OCT. The cost of these high-frequency traders, critics say, is the confidence of ordinary investors in the markets, and ultimately their belief in the fairness of the financial system. Wyser-Pratte, a prominent longtime Wall Street trader and investor.

They make a fortune whereas the public gets so whipsawed by this trading. Regulators are playing catch-up. In the United States and Europe, they have recently fined traders for using computers to gain advantage over slower investors by illegally manipulating prices, and they suspect other market abuse could be going on. Regulators are also weighing new rules for high-speed trading, with an international regulatory body to make recommendations in coming weeks.

In addition, officials in Europe, Canada and the United States are considering imposing fees aimed at limiting trading volume or paying for the cost of greater oversight.

Some regulators fear that the sudden market dive on May 6, , when prices dropped by points in minutes and recovered just as abruptly, was a warning of the potential problems to come. The industry and others say that the vast majority of trading is legitimate and that its presence means many extra buyers and sellers in the markets, drastically reducing trading costs for ordinary investors. Some academic studies show that high-frequency trading tends to reduce price volatility on normal trading days.

High-frequency trading took off in the middle of the last decade when regulatory reforms encouraged exchanges to switch from floor-based trading to electronic.

Traders Profit With Computers Set at High Speed - The New York Times

As computers took over, daily turnover of stocks rose to 8 billion shares in the United States from about 6 billion in , according to BATS Global Markets. The trading, done by independent firms or on special desks inside big Wall Street banks , now accounts for two of every three stock market trades in America. View all New York Times newsletters. Such trading has expanded into other markets, including futures markets in the United States.

It has also spread to stock markets around the world where for-profit exchanges are taking steps to attract their business. When British regulators noticed strange price movements in a range of shares on the London Stock Exchange, they tracked them to a Canadian firm issuing thousands of computerized orders allegedly designed to mislead other investors.

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The action was challenged by Swift Trade, which was dissolved last year. The organization will present its recommendations to G finance ministers this month. Long-term investors like pension funds complain that the practice makes their trading harder.

Long-term investors worry that some traders may be using their superior technology to detect when others are buying and selling and rush in ahead of them to take advantage of price moves.

This is driving some investors who buy and sell in large blocks to move to new so-called dark pools — venues away from public exchanges. As more trading takes place in these venues, prices on exchanges have less meaning, critics say.

In the United States, the Securities and Exchange Commission has been looking into the new market structure for almost two years. After the flash crash, exchanges introduced circuit breakers to halt trading after violent moves. Bart Chilton, a commissioner at the Commodity Futures Trading Commission, called for regulators to go further. He wants compulsory registration of high-frequency firms and pre-trade testing of their algorithms.

The proposed tax would apply to all trades in stocks, bonds and derivatives , and may face stiff opposition from European governments. Many such firms are based in Britain or the Netherlands, and authorities fear a loss of business.

In Canada, a top regulator is proposing higher fees on the biggest players. Last year, the country put in place a monitoring system to track the million to million orders its exchanges receive daily — up from 70 million a year and a half ago.

A version of this article appears in print on October 9, , on Page A1 of the New York edition with the headline: Clamping Down On Rapid Trades In Stock Market. Order Reprints Today's Paper Subscribe. Tell us what you think. Please upgrade your browser. Sections Home Search Skip to content Skip to navigation View mobile version. The New York Times window. Business Day Clamping Down on Rapid Trades in Stock Market. Subscribe Now Log In 0 Settings.

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