High-Frequency Trading's Rise and Rise
1998 U.S. Securities and Exchange Commission regulations open the door for electronic trading venues to become rivals to traditional stock exchanges.
The rise of high-frequency trading—the use of algorithms to buy and sell securities electronically at high speeds and huge volumes—is only the latest evolution in buying and selling stocks. The SEC’s decision to end fixed commissions in 1975 was amplified by forces that changed the nature of exchanges. As machines grew more complex, exchanges evolved from clubs where only certain brokers could trade to companies catering to everyone with an ETrade account. In 2000, when shares began trading in 1¢ increments, rather than by eighths of a dollar, matching buyers with sellers got easier. Trading volumes exploded as computers took over. In addition to rendering human traders practically obsolete, HFT is blamed for making stock exchanges less transparent and markets more volatile. Rightly or wrongly, it has disrupted the process of trading stocks that determines the value of public companies.