A Phenomenon of High-speed Trading

Published: 2021-06-17 10:11:17
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Ethical Issues with High-Speed Trading
In today’s world, it seems as though the goal is to make as much of a profit/gain as you can – no matter how it is done – legal or illegal, ethical or unethical, etc. One way to make a few bucks is to invest, whether it be in stocks/ publically buying shares of a company, ETFs, bonds, futures, cryptocurrency, etc. While it was always done by humans in the past, the advancement of technology now allows supercomputers/robots to buy and sell thousands of shares in less than a second, and therefore get ahead of and make more than others: a concept known as high-frequency or high-speed trading. These artificial intelligence machines are basically told to buy low and sell high (the Warren Buffet philosophy), so whenever a stock price drops or rises a bit, they are purchased or sold immediately – this happens millions of times a day. They are programmed by brilliant math gurus who, almost all of the time, do not know a thing about the companies that these computers are buying and selling shares of. The most intriguing part is that the supercomputers’ coding is kept a secret, and the general idea of high-frequency trading is not known to people outside of the business. This now raises a question of ethicality within this industry.
There are multiple stakeholders in this situation, such as the people who are involved in high-frequency trading, or the primary stakeholders, like Manoj Narang, the CEO/founder of Tradeworkx, folks who are involved in the financial world but are against this type of trading, such as Joe Saluzzi of Themis Trading LLC and senator Ted Kaufman, and finally, regular folks, or the secondary stakeholders, who want to invest their money for retirement, college/some form of further education, and personal gain, like myself. The central technical problem in this case is that people are using robots and supercomputers to trade thousands of shares in a millisecond and therefore making a significantly larger profit compared to people who do not have the means to trade like this. High-speed traders are getting very far ahead of others due to an advantage they possess in technology. There is a concept that was briefly mentioned in the 60 Minutes special called electronic front running, which involves a high-frequency trading firms such as Manoj Narang’s Tradeworkx getting ahead of a large client order due to the advancement of technology. The share price of a particular stock can rapidly change as soon as such a large order is placed by these firms. This puts people such as those investing in a mutual fund for retirement, for example, at a bit of a disadvantage – they do not, nor do their fund managers, have the means to compete with high-frequency trading machines and companies.
To figure out the ethical problems of the high-speed trading case, we must look at the this from three main perspectives. According to Honest Work by Joanne B. Ciulla, Clancy Martin, and Robert Solomon, there a few ethical issues tied to the central technical problem of the high-speed trading case. The first viewpoint is through the eyes of those involved in the actual high-speed trading, such as Manoj Narang. He sees algorithmic trading as legal and okay to do, because not only does he have the technology at hand for it, but also the brains as well. He hires people to sit behind a supercomputer for hours on end, trading. Narang and others involved with it are able to make a profit of a penny or more, 40 million times a day – as he mentioned, his goal is simply to make money. Doing this day in and day out cannot be good for humans – but do people like Narang care? Folks such as himself fail to see the Deontological idea of Kant’s statement that we must, “Act so that you use humanity, as much in your own person as in the person of every other, always at the same time as an end and never merely as a means” (Ciulla, Martin, Solomon XXVIII). It becomes evident that the head of these high-speed trading firms use very intelligent people to make a profit no matter what it takes, however they do not see it as an ethical problem – and if they do, they are doing absolutely nothing about it.
The next point of view that this situation can be looked at from is through the eyes of people involved with investing and trading who do not have this technology such as Joe Saluzzi of Themis Trading LLC. In the CBS special, he, as a fellow businessman, says it is wrong to do what these high-speed trading companies do, and believes it is rigged. Joe Saluzzi most likely sees it from a Utilitarian perspective in that he thinks, “businesses…will also contribute to the overall well-being of society through voluntary contributions, such as support for community projects, education, and the arts” (Ciulla, Martin, Solomon XXVII). Saluzzi and others who see it from this perspective also believe we have to weigh the good consequences of our actions with the bad ones – in this case, there are no good consequences; they are ethically bad. Tradeworkx and other high-frequency trading firms are not contributing to society a bit, and instead trying to make the largest profit they can.
The last viewpoint is through the eyes and minds of regular people like myself, my parents, friends, etc. who simply wish to invest their money long or short-term to meet a goal. They, myself included, see it as an issue in which people with advanced technologies that can trade at rapid rates are beating them and therefore making much higher of a profit, and folks without these supercomputers cannot do a thing about it, something that can be argued as unethical. People in this category, like myself, may use one of the three “be-rules” of Virtue ethics concerning being just to others, to explain why this is ethically wrong ¬– “The positive idea underlying virtue ethics is that we are to understand what it is to behave justly through studying the nature and tendencies of the just person, not the other way around” (Ciulla, Martin, Solomon XXIX). They do not see high-speed traders as good since they are getting ahead of the rest, and most likely do not think they are being honest due to the fact that what goes on within high-speed trading is a secret to most.

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