Editorial: QE3, Flash Trading And Fat Fingers

Well the latest – but not the last – instalment of quantitative easing, QE3, touched down in the financial end zone last week.

As predicted, energy prices rose sharply on the announcement of the Fed’s plans for open-ended purchases of $40 billion of mortgage debt per month, beginning a seven-day rally that saw Brent crude up 2.7 per cent at the start of this week.

However, the maxim "It’s always easier to destroy than to create" was played out to the fullest in the markets yesterday, as an entire week of gains was wiped out in a mere 3 minutes of high volume trading.

With economists scrabbling to explain such an unprovoked price plummet, analyst have been keen to point the blame at "fat fingers" fumbling across high-frequency trading consoles. The "Flash Crash" of Spring 2010, was levelled at a similar set of hypertrophied digits pressing the wrong buttons and sending the market into an unprecedented 1000 point nosedive.

So, in a fragile global economic environment, is so-called flash trading, where complex algorithms can facilitate up to 3000 transactions per second , really a good idea?

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