Black Box Trading, Not Short-Selling Caused The Recent Market Turmoil According To Former Top Regulator

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Black box trading has been blamed for more than one stock market crash

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Britain’s former financial services regulator-in-chief says that the real reason for recent volatility that led to ~$489 billion in losses is so-called “black box” trading.

While Spain, France, Belgium, and Italy are banning the often self-fulfilling prophesy of short-selling, Myners says they’re ignoring the real problem. 

Myners told the Telegraph, “High-frequency trading appears so detached from the true function of capital markets, but is potentially fraught with hazard. It definitely deserves more attention than either the Financial Services Authority (FSA) or the Treasury has given it.”

He says “black boxes” are computer algorithms that make instantaneous trading decisions that human traders don’t even have to be fully aware of. Computers that are capable of monitoring several markets simultaneously can instantly identify trends and seize upon a fleeting pattern faster than a human being can assess the value of a trade.

Myner’s warnings are not new.  High-frequency trading has been blamed for the stock market crash of 1987 and the flash-crash of 2010. And last week, people started blaming it for the recent market turmoil.

HFT accounts for about half of trades in London and almost three quarters of transactions in New York.