Wall Street's super traders come under fire

High frequency trading was first used in 2007 and has again transformed trade, increasing its daily volume tenfold over 10 years, reaching 9.8 billion shares in 2009.

If a trade would take minutes in the 1970s, second in the 1980s, and later milliseconds, today HFT executes deals in microseconds, or one millionth of a second.

Despite its heavy trade volume, HFT generated a modest 21 billion dollars in profits in 2008, estimated the Tabb Group, a research firm.

The HFT traders generally use well-known trading strategies, buying low and selling high, but their extreme speed puts them beyond reach of traditional traders, said James Angel, a professor at McDonough School of Business.

One of the most controversial methods is order cancellations, when computers buy or sell massive quantities of shares only to cancel most of the transactions within milliseconds.

This leads shares to rise by tiny increments of a fraction of a cent, allowing the trader to cash in thousands of dollars per transaction.

“They can push the price up by creating momentum... These are the kinds of activities that are certainly unethical and at a certain level probably border market manipulation,” said Sandip Bhagat, head of equities at Vanguard, a large U.S. investment house.

Schapiro said the SEC and other regulators “are looking carefully at certain practices in this area” to assess whether they are fraudulent.

But experts and investors fear that the current political climate could lead to excessive measures against HFT, which would ultimately harm trade.

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