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Computers must remain in check

October 12, 2010
The Daily Mining Gazette

Complicated analysis and speed in reacting to it are keys to investing in stock markets. That always has been the case - but computers have sent trading into a whole new dimension. The shift has not necessarily been beneficial to all concerned.

On May 6, some stock markets plunged badly. The Down Jones industrial average at the New York Stock Exchange lost nearly 1,000 points in less than 30 minutes.

Analysts at the Securities and Exchange Commission and the Commodity Futures Trading Commission revealed this week the steep decline was due to computerized trading. An investment firm's computer, reacting automatically to certain events programmed to be triggers, sold off $4.1 billion futures contracts in about 20 minutes. Other computerized trading programs reacted to that, in a sort of cascading effect.

Frankly, we don't know how federal officials can prevent such automated catastrophes. It does not seem fair to restrict use of computerized trading. Again, it merely speeds up processes once handled by human beings.

But there is a difference. Computers do not exercise judgment. They do not see the "big picture." Clearly, something needs to be done to prevent what amounts to inadvertent stock collapses caused by computers.



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