GONE IN 22 SECONDS
- By Al Lewisis,
If Mary Schapiro, chairman of the Securities and Exchange Commission, wants to regulate the stock market, she's going to have to think faster.
Last week, Ms. Schapiro said she's worried about high-frequency stock trades.
She said they have little to do with "the fundamentals of the company being traded," just "the minuscule aberrational price move" that only a computer can pick off. She said she is considering proposals to slow things down.
This comes long after the May 6, 2010, trading glitch known as the Flash Crash, which saw the Dow Jones Industrial Average lose a trillion dollars in value in minutes. Yes, Ms. Schapiro is still living in years while traders are living in seconds. And nobody seems to know how many seconds.
One widely repeated statistic is that the average holding period for a stock in America is now 22 seconds.
When I tracked down the economist who supposedly came up with this astonishing number, he told me he was misquoted. "I was taking a nap and woke up and said something—too long ago to remember," he replied in an email exchange.
Depending on what other oft-cited numbers you want to believe, somewhere between 40% and 90% of the stock market's daily trading activity is between incredibly fast computers battling each other like robots in the movie "Real Steel."
Whoever programs the fastest, smartest robot wins.
Whatever the numbers, they are likely scary enough for Ms. Schapiro to worry about them. But she is powerless to stop technological progress. Instead of trying to slow trading down, she should be speeding it up. Here are my thoughts for the future:
Day traders, who hold stocks for minutes at a time, often at home in their underwear, shall no longer be called day traders. They are America's buy-and-hold investors.
All market-data providers should immediately replace 52-week high/low with 52-millisecond high/low.
Companies should no longer hold annual shareholder meetings. They should hold them by the minute. Executive compensation should be commensurate with stock performance during this period.
Quarterly financial reporting—which some say is ruining Corporate America, anyway—should now be done four times a minute.
Shareholders-rights advocates take note: Nobody cares what a corporate executive or a billionaire corporate raider does, as long as they get their return in a reasonable number of seconds. Accounting fraud, pump-and-dumps, boardroom skulduggery—it could take minutes to uncover this stuff. Who has time to care?
Financial-news headline writers take note: It doesn't matter whether the Dow is 13000 or 6500, as long as there's enough volatility for traders. The best headline ever written is "Dow Fluctuates."
It doesn't matter if Greece gets another bailout, if Europe is headed for a mild recession or a full-blown depression, if America's companies are employing more or laying off more, or if the national debt is $15 trillion or $15 quadrillion. We will all be accelerated by supercomputers.
If this sounds dizzying, there remains one speed limit left in the universe. Last week, the physicists who had claimed to see particles traveling faster than the speed of light had to admit these results may have been due to a loose wire.
No matter how fast technology progresses, there is always a loose wire.
