They are agnostic on market direction, but ubiquitous in markets. Firms like Goldman Sachs and Morgan Stanley might get the headlines, but algorithms are the real force today on Wall Street.
The mysterious programs were at the center of the so-called “Flash Crash” in May 2010, when the US stock market plunged more than 9 percent in a matter of minutes for no discernible reason.
The swoon, which was reversed within a matter of minutes, was sparked by a computerized order to sell a large quantity of S&P 500 futures in a short period. That, in turn, triggered a chain reaction of other computerized orders by high-frequency traders.
Photo: Bloomberg
The quickfire crash and recovery underscored the pivotal role of algorithms, which execute automated trades after taking instantaneous readings of inputs that can include news events, economic data and stock price movements.
The era of automated trading began with the 1971 founding of the NASDAQ Composite market, which introduced computers to Wall Street in a significant way.
Today, algorithms are the dominant force in markets, playing a role in the vast majority of securities transactions.
“I would say it is 90 percent algorithmic, but there is not a great way to quantify that,” said Valerie Bogard, an equity analyst at Tabb Group, a research and consulting firm. “Even though [people] may send an order through a sales desk, it is possible it is going through an algo.”
Algorithmic trades vary in complexity and can be carried out with minimal human involvement once they are set up.
For example, the branding and technology company T3 has created a robotic, or “bot,” system that reads US President Donald Trump’s Twitter feed and implements stock trades if it determines based on a quickfire reading that there will likely be a negative impact on a company’s shares.
Other firms, such as QuantCube Technology, use algorithms to make trades following analysis of so-called “Big Data.”
FAKE TRADES
However, the most controversial type of algorithms are those that do high-frequency trading, which execute buy and sell orders that individually result in minuscule gains, but can add up to great amounts at large volumes.
High-frequency trades make up a rising share of overall market transactions and are often criticized due to their opacity.
Traders in this area have at times engaged in “spoofing” — placing thousands of computer-generated rapid-fire fake trades that are quickly canceled.
The objective is to coax other traders into making bets at artificially high or low prices.
“That is just a violation of some of the rules of trading,” said Eric Noll, chief executive of Convergex Group, a New York brokerage firm.
The US Securities and Exchange Commission (SEC) in 2014 levied its first fine for such bogus trades. Since then, US regulators have pumped more resources into enforcing the rules on electronic trading.
The SEC now requires firms to identify those who design and operate algorithms and can subpoena documents from firms employing the technology.
There has also been a preference among some investors to rein in the machines. The New York Stock Exchange has announced plans to slow down transactions in one of its platforms, following the introduction of a similar mechanism by IEX Group, which delays transactions by microseconds.
These moves were taken in response to criticism that high-frequency traders were stiffing investors by driving up transaction costs.
However, market insiders say there is no evidence of a clear trend as far as whether high-frequency trading makes the market more prone to crises than with conventional trading. After all, markets were also prone to violent gyrations prior to when the machines took over.
“When the crash in 1987 happened, it was before algos,” Noll said. “It is a somewhat harsh reality but true.”
SEMICONDUCTORS: The German laser and plasma generator company will expand its local services as its specialized offerings support Taiwan’s semiconductor industries Trumpf SE + Co KG, a global leader in supplying laser technology and plasma generators used in chip production, is expanding its investments in Taiwan in an effort to deeply integrate into the global semiconductor supply chain in the pursuit of growth. The company, headquartered in Ditzingen, Germany, has invested significantly in a newly inaugurated regional technical center for plasma generators in Taoyuan, its latest expansion in Taiwan after being engaged in various industries for more than 25 years. The center, the first of its kind Trumpf built outside Germany, aims to serve customers from Taiwan, Japan, Southeast Asia and South Korea,
Gasoline and diesel prices at domestic fuel stations are to fall NT$0.2 per liter this week, down for a second consecutive week, CPC Corp, Taiwan (台灣中油) and Formosa Petrochemical Corp (台塑石化) announced yesterday. Effective today, gasoline prices at CPC and Formosa stations are to drop to NT$26.4, NT$27.9 and NT$29.9 per liter for 92, 95 and 98-octane unleaded gasoline respectively, the companies said in separate statements. The price of premium diesel is to fall to NT$24.8 per liter at CPC stations and NT$24.6 at Formosa pumps, they said. The price adjustments came even as international crude oil prices rose last week, as traders
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), which supplies advanced chips to Nvidia Corp and Apple Inc, yesterday reported NT$1.046 trillion (US$33.1 billion) in revenue for last quarter, driven by constantly strong demand for artificial intelligence (AI) chips, falling in the upper end of its forecast. Based on TSMC’s financial guidance, revenue would expand about 22 percent sequentially to the range from US$32.2 billion to US$33.4 billion during the final quarter of 2024, it told investors in October last year. Last year in total, revenue jumped 31.61 percent to NT$3.81 trillion, compared with NT$2.89 trillion generated in the year before, according to
SIZE MATTERS: TSMC started phasing out 8-inch wafer production last year, while Samsung is more aggressively retiring 8-inch capacity, TrendForce said Chipmakers are expected to raise prices of 8-inch wafers by up to 20 percent this year on concern over supply constraints as major contract chipmakers Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and Samsung Electronics Co gradually retire less advanced wafer capacity, TrendForce Corp (集邦科技) said yesterday. It is the first significant across-the-board price hike since a global semiconductor correction in 2023, the Taipei-based market researcher said in a report. Global 8-inch wafer capacity slid 0.3 percent year-on-year last year, although 8-inch wafer prices still hovered at relatively stable levels throughout the year, TrendForce said. The downward trend is expected to continue this year,
RSS