As Wall Street stocks mostly scramble higher into the record books, stoking some bearish fears about the perilous heights that equity markets have reached lately. Brad Katsuyama, CEO at exchange IEX Group, fears that computer-driven trading is driving flash crashes that continue to roil markets.
In a recent interview with MarketWatch, Katsuyama, whose firm and company were made famous by Michael Lewis’s 2014 book“Flash Boys: A Wall Street Revolt,” says computers running complex software conducting trades at lightening speeds as a “dangerous” threat to the stability of the market, juicing volumes and sparking so-called flash crashes, where assets swing rapidly in value in a matter of seconds.
“I think the biggest risk in the market is that 50-, 60-plus percent of the volume is being executed by computer programs who have no idea what companies actually do. They’re just reacting to data. And I think it’s dangerous,” Katsuyama said.
The exchange boss pointed to a recent and unusual bout of volatility in the market when shares of Amazon.com Inc. AMZN, +1.13% accelerated a broad decline in the technology sector XLK, +0.02% on June 9, just a day after some of the biggest, highflying components of so-called FAANG group of stocks—or Facebook Inc. FB, +0.52% Amazon, Apple Inc. AAPL, +1.01% Netflix Inc. NFLX, +0.09% and Alphabet-parent Google Inc. GOOG, +0.18% GOOGL, +0.09% —hit all-time highs.
“I think it’s why we have flash crashes in stocks. Last month, you had Amazon’s stock drop $40 in four seconds and come right back. The market value of Amazon didn’t change by billions of dollars in four seconds,” Katsuyama said.
Check out the Amazon chart below, which shows that intraday trading action on June 9 Katsuyama is referencing:
On the day of that stunning move by Amazon’s shares, the tech-laden Nasdaq Composite Index COMP, +0.18% ended some 1.8% lower. The S&P 500 index SPX, -0.10% ended mostly lower, while the Dow Jones Industrial Average DJIA, -0.21% however, finished modestly higher, underlining the odd trading that data, given that those equity indexes tend to finish higher on the same days.
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IEX last year won approval from the Securities and Exchange Commission to kick off a stock exchange, which adds a speed bump to, the company argues, level the playing field between slow and fast traders, which have come to dominate Wall Street.
Check out the Katsuyama interview below: