Apologies ? HMMM ... @ MarketWatch

By Quentin Fottrell

Since he took the reins from Steve Jobs, Apple CEO Tim Cook has had his every move compared with that of the company’s visionary founder. “What would Steve have done?” many wondered when Apple came under widespread criticism for booting Google Maps off the new iOS in favor of its own, many say inferior, software.

‘We are extremely sorry ... and we are doing everything we can to make Maps better.’

Tim Cook, Apple

Though Cook may not be as charismatic as his predecessor, he proved Friday that he is more capable in at least one respect, experts say: apologizing for a blunder. In a letter to users, a Cook conceded that Apple’s AAPL -2.09%  Maps app had fallen short of the company’s standards. Put side by side with a similar mea culpa Jobs issued five years earlier, most experts say, Cook’s apology comes across as more sincere.See text of Tim Cook’s letter .

“We are extremely sorry for the frustration this has caused our customers,” Cook writes in his note, referring to complaints about Apple’s Maps app, “and we are doing everything we can to make Maps better.” See full story: Apple apology praised, but stock falls 2%.

Reuters

Apple CEO Tim Cook takes the stage after the introduction of the iPhone 5 at a Sept. 12 media event in San Francisco.

It’s rare for Apple to apologize, but not unheard-of. In 2007, Steve Jobs apologized to customers for dropping the price of the iPhone to $399 from $599 just two months after its release. “We are doing our best to live up to your high expectations of Apple,” he wrote. Unlike Cook, however, Jobs insisted Apple had done nothing wrong: “I am sure that we are making the correct decision.” As consolation, he offered a $100 store credit to those who had paid an extra $200 for the same phone. Read Steve Jobs’s apology .

Cook’s more empathetic and direct apology has the edge over Jobs’s mea culpa, analysts say. “Cook’s statement was structured more effectively, with the apology front and center,” says Ben Zimmer, a language expert and executive producer of VisualThesaurus.com. Jobs, in contrast, framed his letter to customers noncommittally as “observations and conclusions,” Zimmer says. That said, the Maps debacle is a much bigger PR problem for Apple than the price-point issue was, he says, and the current situation demands a stronger apology. Jobs did show greater contrition in 2010, when the release of the iPhone 4 was dogged by complaints about its antenna.

Click to Play

D10 video: Tim Cook

On the first evening of the D10 conference in June 2012, Apple CEO Tim Cook joined Walt Mossberg and Kara Swisher onstage for this wide-ranging interview.

But Cook also goes further by suggesting that customers try alternative products like Google GOOG -0.26% Maps, Bing and MapQuest. “Jobs offers no alternative except the opportunity to spend more on Apple products [by issuing a store credit] instead of, say, mailing out a check for the difference,” says language expert Alan M. Perlman, a linguistics consultant and author. Cook says he is “extremely sorry.” Jobs’s phrasing — “We apologize for disappointing some of you” — suggests emotional detachment, Perlman says.

APPLE IN THE HEADLINES
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• Hulbert Interactive: Newsletters' Apple views

Apologizing can be a minefield, and, if not done right, it can even make matters worse.

On the following pages are five more CEO apologies that had varying degrees of success.

The Magnum Mea Culpa: Amazon CEO Jeff Bezos, 2009

Reuters

Amazon CEO Jeff Bezos holds up new Kindle Fire HD models on Sept. 6 in Santa Monica, Calif.

Amazon CEO Jeff Bezos threw the book at himself in 2009, when copies of George Orwell’s “1984” and “Animal Farm” mysteriously vanished from people’s Kindle e-readers. Customers were shocked and confused, and the online retailer was accused of banning books. It was, perhaps, unfortunate that the books dealt with themes like censorship and totalitarianism. The truth was less dramatic than that: The books were removed because Amazon didn’t have authorization from the publishers to sell them.

CEO Jeff Bezos posted a message on Amazon’s AMZN -0.88%  public forum — as if he were just another customer: “Our ‘solution’ to the problem was stupid, thoughtless, and painfully out of line with our principles. It is wholly self-inflicted, and we deserve the criticism we’ve received. We will use the scar tissue from this painful mistake to help make better decisions going forward, ones that match our mission.” See Jeff Bezos’s apology .

Both repentant and humorous, “this apology is clearly the cream of the crop,” Zimmer says.

The Friend-to-Friend Apology: Facebook CEO Mark Zuckerberg, 2006

Reuters

Facebook founder and CEO Mark Zuckerberg at Harvard University in November 2011.

Back when Facebook only had a few hundred million members, CEO Mark Zuckerberg introduced the “news feed.” Intended to compete with just-launched Twitter’s endless stream of updates, the feature infuriated users, who found it too busy and cluttered. Zuckerberg responded with a lengthy open letter on his blog, admitting full responsibility in his opening sentence: “We really messed this one up.”See Zuckerberg’s apology .

But Zuckerberg’s statement read like an email to a close friend: Self-deprecating and casual, it even applauded his most vociferous detractors. “This may sound silly, but I want to thank all of you who have written in and created groups and protested.” He organized an online chat to discuss Facebook’s FB +6.59%  new privacy policies and thanked people for taking the time to read his letter. Not everyone was impressed. Christopher Elliott, author of consumer-advice book “Scammed,” says it was “rambling.”

The Unsigned Apology: Sony Online Entertainment, 2011

Reuters

Kazuo Hirai with predecessor CEO Howard Stringer at a February 2012 news conference in Tokyo.

Some apologies are not signed by a human being at all. In 2011, SonySNE -3.47%  blocked users from playing online games and accessing Netflix and Hulu after hackers compromised more than 100 million records, including 12 million unencrypted credit-card numbers. The breach impacted PlayStation, Sony Online Entertainment and its Qriocity music service. Sony’s May 2 statement began” Dear Valued Sony Online Customer.” And ended: “Sincerely, Sony Online Entertainment LLC.” See Sony’s statement .

Howard Stringer, the company’s CEO, didn’t make a public comment for three days. When he finally did issue a statement, his tone was warmer. “Dear Friends,” he wrote, “I know this has been a frustrating time for all of you. Let me assure you that the resources of this company have been focused on investigating the entire nature and impact of the cyber-attack we’ve all experienced and on fixing it.” See Stringer’s statement .

What the company didn’t acknowledge is that it had failed to protect customers from such an attack, Zimmer says.

The Serial Apology: Research In Motion founder Mike Lazaridis, 2011, and CEO Thorsten Heins, 2012

Reuters

Research In Motion CEO Thorsten Heins holds up a Blackberry during a January 2012 interview in New York.

The BlackBerry makerRIMM +5.04%  has repeatedly apologized in the past year. In October 2011, founder and former co-CEO Mike Lazaridis issued a mea culpa to the millions of customers hit with three days of global services outages. In a video clip, he said, “We’ve let many of you down. But let me assure you we are working around the clock to fix this. You expect better from us, and I expect better from us.” See Lazaridis statement .

Lazaridis recognized his role and made it personal, says marketing consultant Evan Carmichael; however, the problems continued.

Fast-forward to 2012: Another apology for problems with BlackBerry service in Europe and Africa on Sept. 21. This time, CEO Thorsten Heins posted a short, dispassionate statement: “We are conducting a full technical analysis of this quality-of-service issue and will report as soon as it concludes. I again want to apologize to those customers who were impacted today.” See Heins’s statement .

Heins didn’t explicitly take responsibility for the problems with the service, Zimmer points out.

The Half-Apology: Netflix CEO Reed Hastings, 2011

Reuters

Reed Hastings at Allen & Co. conference in Sun Valley, Idaho, in July 2012.

In July 2011, Netflix increased the price of its video-streaming and DVD-rental services. The company NFLX -2.00% apologized for not properly communicating its strategy to customers and, in September 2011, announced that it would spin off its DVD-by-mail service under the name Qwikster. Around a million subscribers canceled their accounts in the months after the price hike and split — causing the company to abandon its plan to split the services. (Since then, Netflix has gradually been regaining many of those lost customers.)

CEO Reed Hastings went into damage-control mode. In a 1,160-word blog post on Sept. 18, 2011, titled “An Explanation and Some Reflections,” he apologized for the missteps. “I messed up,” he wrote. “In hindsight, I slid into arrogance based upon past success.” Oddly, he didn’t apologize for pricing increases, which experts say was the big reason customers were upset. Carmichael says Hastings failed to follow one key rule: “Explain what you’re going to do to make sure the problem gets fixed.” 

about CFTC

Court rejects CFTC rule limiting speculation

4:44 p.m. Sept. 28, 2012 - By Ronald D. Orol

WASHINGTON (MarketWatch) - A new rule set up by the post-crisis Dodd-Frank Act to limit speculativetrading in the commodities market was vacated Friday afternoon by a district court. The U.S. District Court for the District of Columbia sent the regulation back to the Commodity Futures Trading Commission, arguing that the agency "fundamentally misunderstood" the ambiguities in the statute.

Commodity Futures Trading Commission

From Wikipedia, the free encyclopedia

The U.S. Commodity Futures Trading Commission (CFTC) is an independent agency of the United States government that regulates futures and option markets.

The Commodity Exchange Act (CEA), 7 U.S.C. § 1 et seq., prohibits fraudulent conduct in the trading of futures contracts. In 1974, Congress amended the Act to create a more comprehensive regulatory framework for the trading of futures contracts and created the Commodity Futures Trading Commission, replacing the Commodity Exchange Authority. The stated mission of the CFTC is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets.^[3]

History

Futures contracts for agricultural commodities have been traded in the U.S. for more than 150 years and have been under Federal regulation since the 1920s.^[4]In recent years, trading in futures contracts has expanded rapidly beyond traditional physical and agricultural commodities into a vast array of financial instruments, including foreign currencies, U.S. and foreign government securities, and U.S. and foreign stock indices.

[edit]Evolving mission and responsibilities

Congress created the CFTC in 1974 as an independent agency with the mandate to regulate commodity futures and option markets in the United States. The agency's mandate has been renewed and expanded several times since then, most recently in December 2000 when Congress passed the Commodity Futures Modernization Act of 2000, which instructed the Securities & Exchange Commission and the CFTC to develop a joint regulatory regime for single-stock futures, and the products subsequently began trading in November 2002. Today, the CFTC assures the economic utility of the futures markets by encouraging their competitiveness and efficiency, ensuring their integrity, protecting market participants against manipulation, abusive trading practices, and fraud, and ensuring the financial integrity of the clearing process. Through effective oversight, the CFTC enables the futures markets to serve the important function of providing a means for price discovery and offsetting price risk.

[edit]Over-the-counter derivatives

Brooksley Born and her chairmanship of the Commission from August 26, 1996, to June 1, 1999, was the focus of an October 2009 Frontline documentary titled "The Warning" and was also chronicled in the documentary Inside Job. The two films recount her attempts to investigate and possibly regulate the over-the-counter (OTC) derivatives market.^[5] Two actions by the CFTC in 1998 led some market participants to express concerns that the CFTC might modify the "Swap Exemption" and attempt to impose new regulations on the swap market.^[6] First, in a comment letter addressing the SEC's "broker-dealer lite" proposal, the CFTC stated that the SEC's proposal would create the potential for conflict with the Commodity Exchange Act (CEA) to the extent that certain OTC derivative instruments fall within the ambit of the CEA and are subject to the exclusive statutory authority of the CFTC.^[7]

Subsequently, the CFTC issued a concept release requesting comment on whether regulation of OTC derivatives markets is appropriate and, if so, what form such regulation should take.^[8] Legislation enacted at the request of Treasury, the Federal Reserve Board, and the SEC in 1998 limited the CFTC's rulemaking authority with respect to swaps and hybrid instruments until March 30, 1999, and froze the pre-existing legal status of swap agreements and hybrid instruments entered into in reliance on the Swap Exemption, the Hybrid Instrument Rule, the Swap Policy Statement, or the Hybrid Interpretation.^[9] The text of that act read: "...the Commission may not propose or issue any rule or regulation, or issue any interpretation or policy statement, that restricts or regulates activity in a qualifying hybrid instrument or swap agreement". Brooksley Born resigned on June 1, 1999, and later commented the failure of Long-Term Capital Management and the subsequent bailout as being indicative what she had been trying to prevent.^[5]

[edit]Criticism

Since 1991 the CFTC has given secret exemptions from hedging regulations to 19 major banks and market participants, allowing them to accumulate essentially unlimited positions. ^[10] These exemptions were originally given in secret, coming to light only as the 2008 financial crisis unfolded and Congress requested information on market participants. A trader or bank granted an exemption as a bona-fide hedger can affect the price of a commodity without being either its producer or consumer. ^[11] Barack Obama has argued that current loopholes in CFTC regulations have contributed to skyrocketing prices and lack of transparency of oil on markets.^[12]

On June 25, 2008 Speaker Pelosi sent a letter to President Bush calling on him to direct the Commodity Futures Trading Commission (CFTC) to use its emergency powers to take immediate action to curb excessive speculation in energy markets, and to investigate all energy contracts. Despite growing reports of excessive speculation in energy markets, the CFTC has refused to take actions they have taken in the past.^[13] The Energy Markets Emergency Act of 2008 was a failed bill that would have attempted to curb excessive speculation in the energy futures markets.

About Recession @ The Fool

3 Things to Know About Recessions

By Morgan Housel | More Articles 
September 28, 2012 | Comments (18)

Economist Marc Faber appeared on CNBC last month declaring that the odds of a new recession are 100%. As far as I can tell, he didn't attach a time frame to that prediction, so he's absolutely right. We will have more recessions. Count on it.

But when? That's the important question, and it's one nobody knows the answer to. Always remember the old Arabic saying: "Those who claim to foresee the future are lying, even if by chance they are later proved right."

So while we wait, here are three things to know about recessions.

1. We're having fewer of them
In May, Herman Cain wrote an op-ed in The Wall Street Journal arguing for a gold standard. Among his arguments: Under previous monetary standards, recessions were "less frequent" than in recent times.

I'm not sure what evidence he used to back that up (it may exist), but the official tracking of recessions by the National Bureau of Economic Research makes one thing clear: We've had far fewer recessions in recent decades than we did during the late 19th and early 20th century.

Source: National Bureau of Economic Research.

From 1860 to 1900, the economy was in recession 48% of the time. From 1900 to 1940, it was in recession 43% of the time. From 1940 to 1980, that plunged to 15%. And since 1980, we've been in recession about 16% of the time. Blogger Evan Soltas looked at similar data and wrote: "To put that in perspective, postwar America gets four additional years, on average, of real growth before a recession than did the America of history."

2. They have been more drawn out
We may be having fewer recessions, but recent downturns -- particularly the last three -- have been agonizingly slow to recover from. This chart, from the financial blog Calculated Risk, tells the story:

From the end of World War II through the 1980s, almost every recession saw employment return to its previous peak within two years. That trend ended in 1990 when employment took nearly three years to return to normal. In 2001, it took even longer -- four years. Today, almost five years after employment peaked, we're not quite halfway back to par. As I've written before, the most recent recession will likely surpass the Great Depression in duration when measured in employment terms.

Why recent recoveries are so painfully slow is the topic of lots of debate and little agreement. One idea is that innovation happens faster today than in previous generations, so laid-off workers often have to learn an entirely new skill set before regaining employment -- which is difficult, if not impossible, for many. Another is that unemployment benefits are more generous in recent times than they were during past recessions. And the three most recent recessions were all driven by the collapse of asset bubbles, which may inflict longer-lasting damage on confidence than run-of-the-mill slowdowns.

3. The last recession was much different from most
Most recoveries over the last half-century have been fueled by consumer spending, often financed with debt. The last recession was different. For the first time in recent history, real household debt declined:

Source: U.S. Federal Reserve; author's calculations.

This "deleveraging" process is healthy and necessary, but it's the biggest reason our recovery has been so slow. And the slower the recovery, the more people worry. The more people worry, the more likely it is we'll slip back into another recession. What's necessary for the long run can create a vicious cycle in the short run.

Maybe it will even cause more frequent recessions.

Exit Zuk ! or Zuck ?

Quand Mark Zuckerberg fait douter Wall Street

jeudi 27 septembre 2012 à 07h02

Il n’a pas encore 30 ans et l’introduction en Bourse de sa société a fait de lui un multimilliardaires en dollars, mais aujourd’hui, le patron de Facebook doit déchanter.

D’abord, parce que le cours de Bourse de sa société a perdu 40 % depuis le 27 mai dernier, sa fortune a donc aussi baissé de 40%. Je vous rassure, il lui reste encore de quoi vivre pendant quelques siècles sans s’inquiéter de ses fins de mois.

Tout de même, maintenant, Mark Zuckerberg n’est plus seul à bord, sa société est cotée en Bourse et il doit communiquer, s’expliquer régulièrement sur le cours de l’action,…Bref, il ne peut plus agir seul comme une sorte d’autocrate même s’il est à l’origine de cette société et de ce succès planétaire.

Si le cours de Bourse de Facebook flanche, c’est parce que les investisseurs ne voient pas comment ce jeune homme de moins de 30 ans va faire en sorte de rentabiliser Facebook sur le plan publicitaire. C’est bien d’avoir un réseau social avec un milliard de fans, mais ce serait encore mieux si tous ces fans rapportaient plus d’argent qu’aujourd’hui, notamment via la téléphonie mobile qui est devenue la porte d’entrée d’Internet.

Wall Street doute cependant de ses capacités du jeune Mark Zukerberg à mieux rentabiliser son réseau social, déjà qu’il a présenté sa société en jeans et en pull à capuchon ce qui a déplu à certains analystes à Wall Street. La dernière idée en vogue est de demander à Mark Zuckerberg de se mettre en retrait, de retourner à son laboratoire et de laisser la place à un vrai patron !

Si vous en doutez, sachez que c’est ce qui s’est passé avec Google. A un moment donné, les deux génies qui sont à son origine ont été chercher Eric Schmidt, un pro du secteur, c’est avec lui qu’ils ont pu développer la firme pour la mener là où elle est aujourd’hui. Certains rêvent d’un scénario comparable pour Facebook. Ce n’est pas idiot, un entrepreneur fait rarement un bon gestionnaire et vice versa. 

HFT

Marchés boursiers: Berlin s'attaque au trading à haute fréquence

Des écrans d'ordinateur dans une salle de marché (Photo Eric Piermont/AFP/Archives)

Mercredi 26 septembre 2012, 16h12
Le gouvernement allemand a adopté mercredi un projet de loi pour réguler les transactions boursières à haute fréquence, accusées d'accentuer la nervosité des marchés et la spéculation des traders, avec l'espoir qu'il inspirera ses voisins européens et Bruxelles.

Lassé d'attendre une initiative européenne, Berlin a décidé qu'il fallait contrôler les risques de "fluctuations extrêmes et irrationnelles des cours" liés à cette technologie, appelée communément trading à haute fréquence et qui consiste à acheter et vendre des titres par ordinateur à la vitesse de quelques microsecondes.

Cette pratique, encore très peu encadrée, concerne entre 40% et 50% des échanges sur le marché boursier allemand, et présente des "dangers" et des possibilités d'"abus", estime le gouvernement allemand.

Permettant de déclencher des millions d'ordres par des algorithmes prédéfinis, elle a été pointée du doigt après un "krach éclair" à Wall Street le 6 mai 2010, causé par un emballement des ordinateurs après un ordre erroné. Elle est également accusée d'encourager la spéculation.

Les acteurs financiers, qui pratiquent le trading à haute fréquence, font eux valoir qu'il permet aux investisseurs d'obtenir le meilleur prix grâce à ces algorithmes. Mais pour le ministère allemand des Finances, il "abrite une multitude de nouveaux risques: fluctuations extrêmes et irrationnelles des cours, surcharge des systèmes et possibilités d'abus".

Les mesures décidées mercredi devraient aider à "plus de transparence, de sécurité et de surveillance", ce qui rendra "le système financier plus résistant aux crises", selon le communiqué du ministère.

"Nous ne voulons ni l'interdire (le trading haute fréquence, ndlr) ni l'incriminer dans son ensemble, mais cela doit être régulé", a défendu le porte-parole du gouvernement dans un point presse régulier.

Le projet de loi prévoit notamment la nécessité d'une licence pour les traders qui en font usage. Ces derniers devront aussi configurer leurs machines de telle façon à éviter des réactions en chaîne sur le marché, conduisant à des scénarios extrêmes.

Berlin veut également prélever une taxe sur ceux qui feront un usage excessif de cette pratique et renforcer les droits d'information et d'intervention du gendarme allemand des marchés financier, le Bafin.

"Le principe du trading haute fréquence est d'obtenir une petite rentabilité sur un très grand nombre d'opérations d'achat-vente. Cette rentabilité peut être tuée par une taxe sur les transactions, si elle est correctement structurée", estime Christophe Nijdam, analyste du secteur bancaire chez Alphavalue.

Mais selon lui, le gouvernement allemand ne va pas assez loin. Il souhaite une interdiction pure et simple de cette pratique, qui "introduit des risques systémiques supplémentaires" pour une utilité non démontrée.

A l'inverse, l'association FIA European Principal Traders Association, représentant des traders qui agissent pour leur propre compte, estime qu'aujourd'hui "les marchés offrent une liquidité sans précédent à des coûts très bas".

"Ce type de régulation est davantage mû par l'émotion et des éléments anecdotiques que par de réelles preuves", a-t-elle estimé, dans un communiqué publié à Bruxelles, ajoutant que cela allait rendre encore plus complexe le cadre réglementaire européen.

Le projet de loi allemand devrait être présenté au Parlement d'ici la fin de l'année pour une adoption au plus tard en février 2013, selon un responsable gouvernemental. Il entrerait en vigueur mi-2013.

"Le trading haute fréquence doit aussi sur un plan européen (...) être plus durement régulé", assure le ministère des Finances, qui se targue d'être "pionnier" en la matière.

"Si les Allemands décident de le faire seul, cela a valeur d'exemple et pourrait éventuellement permettre à d'autres pays de leur emboîter le pas", estime M. Nijdam.

En France, une première étape a été franchie cet été: si aucune loi n'a été votée, le gouvernement a publié un décret début août, taxant à hauteur de 0,01% un opérateur, quand plus de 80% d'ordres sont annulés.

"L'encadrement doit se faire au niveau européen", a commenté mercredi une porte-parole de l'Autorité des marchés financiers (AMF).

La révision de la directive européenne MIF (actuellement en cours) sur les marchés financiers doit permettre de limiter le risque "à la source, en contrôlant mieux les acteurs eux-mêmes", selon le gendarme français des marchés.

High-frequency trading (HFT) is the use of sophisticated technological tools to trade securities like stocks or options, and is typically characterized by several distinguishing features:^[1][2][3]

• It is highly quantitative, employing computerized algorithms to analyze incoming market data and implement proprietary trading strategies;
• An investment position is held only for very brief periods of time - from seconds to hours - and rapidly trades into and out of those positions, sometimes thousands or tens of thousands of times a day;^[4]
• At the end of a trading day there is no net investment position;
• It is mostly employed by proprietary firms or on proprietary trading desks in larger, diversified firms;
• It is very sensitive to the processing speed of markets and of their own access to the market;
• Many high-frequency traders provide liquidity and price discovery to the markets through market-making and arbitrage trading; high-frequency traders also take liquidity to manage risk or lock in profits.
• This type of trading has been implicated in large, fast "flash" price movements, and may cause new types of serious risks to financial system stability.^[1][5]

Positions are taken in equities, options, futures, ETFs, currencies, and other financial instruments that can be traded electronically.^[6]

High-frequency traders compete on a basis of speed with other high-frequency traders, not long-term investors (who typically look for opportunities over a period of weeks, months, or years), and compete for very small, consistent profits.^[7][8] As a result, high-frequency trading has been shown to have a potential Sharpe ratio (measure of reward per unit of risk) thousands of times higher than the traditional buy-and-hold strategies.^[9]

Aiming to capture just a fraction of a penny per share or currency unit on every trade, high-frequency traders move in and out of such short-term positions several times each day. Fractions of a penny accumulate fast to produce significantly positive results at the end of every day.^[2] High-frequency trading firms do not employ significant leverage, do not accumulate positions, and typically liquidate their entire portfolios on a daily basis.^[8]

By 2010 high-frequency trading accounted for over 70% of equity trades in the US and was rapidly growing in popularity in Europe and Asia.^{[citation needed]}

High-frequency trading may cause new types of serious risks to the financial system. Algorithmic and high-frequency trading were both found to have contributed to volatility in the May 6, 2010 Flash Crash, when high-frequency liquidity providers were in fact found to have withdrawn from the market.^{[10][11][12][13][14][15][16][17]} A July, 2011 report by the International Organization of Securities Commissions (IOSCO), an international body of securities regulators, concluded that while "algorithms and HFT technology have been used by market participants to manage their trading and risk, their usage was also clearly a contributing factor in the flash crash event of May 6, 2010."^[1][18] An October 2012 study by the Chicago Federal Reserve found that "every exchange interviewed had experienced one or more errant algorithms" and recommended "limits on the number of orders that can be sent to an exchange within a specified period of time." ^[5]

Contents   [hide]  1 History 1.1 Market growth 2 High-frequency trading strategies 2.1 Market making 2.2 Ticker tape trading 2.3 Event arbitrage 2.4 Statistical arbitrage 3 Low-latency strategies 4 Effects 4.1 May 6, 2010 Flash Crash 5 Risks and Controversy 5.1 Flash Trading 6 Advanced trading platforms 7 Notes and references 8 See also 9 External links

[edit]History

High-frequency trading has taken place at least since 1999, after the U.S. Securities and Exchange Commission (SEC) authorized electronic exchanges in 1998. At the turn of the 21st century, HFT trades had an execution time of several seconds, whereas by 2010 this had decreased to milli- and even microseconds.^[19]Until recently, high-frequency trading was a little-known topic outside the financial sector, with an article published by the New York Times in July 2009 being one of the first to bring the subject to the public's attention.^[20]

[edit]Market growth

In the early 2000s, high-frequency trading still accounted for less than 10% of equity orders, but this proportion was soon to begin rapid growth. According to data from the NYSE, trading volume grew by about 164% between 2005 and 2009 for which high-frequency trading might be accounted.^[20] As of the first quarter in 2009, total assets under management for hedge funds with high-frequency trading strategies were $141 billion, down about 21% from their peak before the worst of the crises.^[21] The high-frequency strategy was first made successful by Renaissance Technologies.^[22] Many high-frequency firms aremarket makers and provide liquidity to the market which has lowered volatility and helped narrow Bid-offer spreads, making trading and investing cheaper for other market participants.^[21] In the United States, high-frequency trading firms represent 2% of the approximately 20,000 firms operating today, but account for 73% of all equity orders volume.^[23] The largest high-frequency trading firms in the US include names like Getco LLC, Knight Capital Group, Jump Trading, andCitadel LLC. The Bank of England estimates similar percentages for the 2010 US market share, also suggesting that in Europe HFT accounts for about 40% of equity orders volume and for Asia about 5-10%, with potential for rapid growth.^[19] By value, HFT was estimated in 2010 by consultancy Tabb Group to make up 56% of equity trades in the US and 38% in Europe.^[24]