Cage the financial cheetahs

Two years ago, the Dow Jones industrial average dropped nearly 1,000 points in a few, short minutes. It was a major, and extremely fast, market meltdown.

The blame game revealed that the size and speed of the “flash crash” would not have taken place in markets were it not for automated computer trading programs used by relatively new traders I call “cheetahs” because of their incredible speed. The problem is: Since the crash, nothing has been done to cage the financial cheetahs.

Just think about the incredible financial markets that see 160 million transactions each day. The markets are churning and burning up the fiber-optics as cheetahs arbitrage between one market or another all across the globe in an effort to scoop up micro-dollars in milliseconds. And by the way, the flash crash took place late in the trading day. Had it taken place earlier, when European markets were open, it could have been much worse.

Even more incredible is that two years after that event, regulators still don’t even require cheetahs to be registered with any government oversight agency. It is nuts. We all know that there are potentially significant downsides when technology doesn’t work like it woulda, shoulda, coulda. We have the evidence that we can all become victims to such problems in markets.

Think about it: The third-largest trader on the largest exchange in the world, based in Chicago, is a cheetah trader based in Eastern Europe. If regulators want to look at their books or records, they’d find that, even though they trade in the U.S., the cheetahs aren’t required to produce squat.

It is time that Washington cage the financial cheetahs. I’m not suggesting that they become an endangered species, just that they be registered and have some legitimate protocols. For example, shouldn’t they be required to test their programs? What if a program goes feral the way we have seen time and again? Shouldn’t there be kill switches to shut it down? But, nowhere in the often criticized financial-reform law commonly referred to as Dodd-frank are these cheetah traders even mentioned.

It is high time regulators not only learn from past mistakes (what a concept), but do something about caging these financial cheetahs.