NYSE Trading Halt: Was High-Frequency Trading (HFT) Responsible For It?

While the NYSE hasn't really specified the nature of the 'technical glitches' that brought trading on the exchange to a halt for 3.5 hours on Wednesday, California Democrat, Representative Brad Sherman, feels that high-frequency trading (HFT) might be partially, if not solely, responsible for the problem.

Sherman was on Bloomberg TV Thursday to discuss his understanding of the trading halt and if there are too many equity exchanges in the U.S.

Good That We Have A Resilient Stock Trading System

"It's part and parcel of a number of problems," Sherman began. "We had 3 major computer problems in the country yesterday, but it's also part and parcel of the flash crash and the other problems we have had. I think, it's good that we have a resilient stock trading system so that the people who wanted to buy and sell shares yesterday could use a variety of other platforms."

HFT Overloading The System

He continued, "At the same time, I am concerned that high-frequency trading is overloading the system on some occasions leading to volatility on others and is always a situation where we have a misallocation of resources. We have some of our best and brightest making some of the largest amounts of money for not providing any real social benefit."

"What we ought to do is make sure that the profits on stocks go to real investors -- people who are really selling shares that they have owned for a while, people who are buying shares to hold for a while -- rather than scooped up by people who operate in milliseconds."

Too Many Trades Is The Problem

Sherman was asked his views on the idea that there are too many equity exchanges in the U.S. He replied, "It was good that we had some extra exchanges yesterday. I think, the real problem is we have too many trades. The idea that, I am told that the average holding period is now down to under-20 seconds. Just a few years ago it was measured in many months and few years before in years."