Charles Schwab: 'High frequency trading is a growing cancer'
Spencer Platt/Getty Images

Leading retail stockbroker Charles Schwab has followed up on the release of Michael Lewis' compelling Flash Boys book on high-frequency trading with a statement that strongly condemns high-frequency trading as a "cancer":
High-frequency traders are gaming the system, reaping billions in the process and undermining investor confidence in the fairness of the markets. It's a growing cancer and needs to be addressed. If confidence erodes further, the fuel of our free-enterprise system, capital formation, is at risk. We can't allow that to happen. For sure, we still believe investing in equities is a primary path to long-term wealth creation, and we believe in the long-term structural integrity of the markets to deliver that over time for individual investors, which is all the more reason to be vigilant in removing anything that creates unfair advantage or undermines investor confidence.
What to do about it? Charles Schwab thinks that the practice should be banned altogether:
There are solutions. Today there is no restriction to pumping out millions of orders in a matter of seconds, only to reverse the majority of them. It's the life-blood of high-frequency trading. A simple solution would be to establish cancellation fees to discourage the practice of quote stuffing. The SEC and CFTC floated the idea last year. It has great merit. Make the fees high enough and they will eliminate high-frequency trading entirely. But if the practice is simply a scam, as we believe it is, an even better solution is to simply make it illegal.
But actually, it seems to me like Charles Schwab is a bit late to the party. High-frequency trading profits have collapsed to just an estimated $1 billion in 2012, down from $5 billion in 2009. What was a powerful predator in 2009 seems considerably less powerful — and dangerous — today.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
John Aziz is the economics and business correspondent at TheWeek.com. He is also an associate editor at Pieria.co.uk. Previously his work has appeared on Business Insider, Zero Hedge, and Noahpinion.
-
Andor series two: a 'perfect' Star Wars show
The Week Recommends Second instalment of Tony Gilroy's 'compelling' spin-off is a triumph
By Irenie Forshaw, The Week UK
-
The rise and fall of 4Chan
The Explainer Most notorious messageboard on the internet appears to have posted its last meme
By Chas Newkey-Burden, The Week UK
-
RFK Jr.'s focus on autism draws the ire of researchers
In the Spotlight Many of Kennedy's assertions have been condemned by experts and advocates
By Theara Coleman, The Week US
-
Nobody seems surprised Wagner's Prigozhin died under suspicious circumstances
Speed Read
By Peter Weber, The Week US
-
Western mountain climbers allegedly left Pakistani porter to die on K2
Speed Read
By Justin Klawans
-
'Circular saw blades' divide controversial Rio Grande buoys installed by Texas governor
Speed Read
By Peter Weber
-
Los Angeles city workers stage 1-day walkout over labor conditions
Speed Read
By Justin Klawans
-
Mega Millions jackpot climbs to an estimated $1.55 billion
Speed Read
By Catherine Garcia
-
Bangladesh dealing with worst dengue fever outbreak on record
Speed Read
By Catherine Garcia
-
Glacial outburst flooding in Juneau destroys homes
Speed Read
By Catherine Garcia, The Week US
-
Scotland seeking 'monster hunters' to search for fabled Loch Ness creature
Speed Read
By Justin Klawans