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The Bats Affair: When Machines Humiliate Their Masters

The Bats Affair: When Machines Humiliate Their Masters
Photograph by Andrew Burton/Getty Images

The spectacularly botched initial public offering of Bats Global Markets on March 23 is so rich in irony that it’s difficult to know where to begin. What’s far less amusing is the prospect that the current era of high-frequency trading, in which powerful computers sift through massive information flows in search of price discrepancies and split-second trades, will bring even more episodes of market mayhem far more costly to investors and the broader economy.

In the annals of business screw-ups, Bats has certainly made its mark. Bats stands for Better Alternative Trading System and the company runs two exchanges that collectively rank third in terms of U.S. share trading, behind New York Stock Exchange and Nasdaq. The Bats exchanges account for 11 percent to 12 percent of daily U.S. equity trading, according to its website. The company came of age with the expansion of high-frequency trading over the last decade and the proliferation of quant-jock-driven electronic firms that dominate the buying and selling of U.S. equities. Bats founder Dave Cummings is chairman and owner of high-frequency trading firm Tradebot Systems.