I am constantly asked why I berate algo and HFT trading and finally Knight Capital has given me some ammuntion .
Knight Capital lost $440 milion as an itermediary ; they were not supposed to have any exposure in the markets ! Their shareholders will now have to pay the price for their "risk" failings ; this problem expands when it has systemic implications beyond the companies involved .
Investors since 2007 have learnt financial lessons and now try/refuse to trade these algo related markets as their exposure to "dying swan" is far too great and sadly too common ! Their constant risk glitches have become too expensive and totally unreal .
Regulators have been treating Algos with "kid gloves " and exchanges have totallt ignored their manipulation , we now need a new approach . The risk of organisations failing to manage their "algo programmes " demands a pro active approach ; with a 24 hour surveillance guard . Regulators should insist that a pilot is constantly on hand to take control when an "algo " goes astray ! Guilty parties should be suspended and fined from the market . By introducing an audit trail is also essential into restoring confidence in our live markets .
Finally why are Automated systems still allowed anyway ? Our markets number one job is to provide and raise capital for the owners of companies and some of these ATS have destroyed and doubted the integrity of our markets .