How speed traders are changing Wall Street

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Kaufman, who has both business and engineering degrees, says he is a big fan of technology but he thinks it's gotten way ahead of financial regulators' ability to monitor it. Right now, it's not even possible to determine for sure who is making high frequency trades or what they are telling their computers to do.

"We don't know what's going inside those boxes. There's all types of allegations about what's going on inside there. And basically what can happen is you can have these meltdowns where you can have a computer just go crazy and cause all kinds of problems," the senator said.

Which takes us back to the mini crash last year and one of the scariest rides in stock market history, when the Dow Industrials at one point plunged 600 points for no apparent reason.

Turns out it was triggered when a mutual fund's computer dumped $4.1 billion of securities on the market in a 20-minute period, which were then gobbled up by the computers of high frequency traders and sold almost immediately, sending other computers and traders heading for the exits.

"The events of May 6th scared people. I don't think there's any question about that," SEC Chairman Mary Schapiro told Kroft.

Schapiro had already proposed rule changes before the crash that would allow regulators to track and identify high frequency trades, and she is now considering further measures.

"Are you comfortable with computers making 50 to 70 percent of the trades on Wall Street?" Kroft asked.

"One of the concerns is, if one goes wrong, if it operates in an unexpected way, given market conditions, what's the impact of that algorithm that has behaved in an unexpected way, on lots of other investors in the marketplace?" Schapiro replied.

And Schapiro says it has happened since the May 6 crash, after circuit breakers were put in place that automatically halt trading in a stock that moves more than 10 percent in a five minute period.

"A number of times that those circuit breakers have been triggered has been because an algorithm operated in a way nobody intended for it to, causing a stock price to go wildly out of range," Schapiro said.

The crash contributed to the crisis in confidence on Wall Street. Afterwards, people pulled $70 billion out of mutual funds and the biggest concern of Schapiro and Kaufman is that average investors have lost faith in the integrity of the system.

"There are a lot of people out there who think that the stock market is rigged. Rigged in the sense...that there are people out there who have advantages, the insiders, the big companies?" Kroft asked Larry Leibowitz.

"Right. Yep. And I think that we have to do a better job of, first, obviously making sure it's not the case," he replied. "But we can't be evasive about it. We have to make changes that make sense, that give people more confidence in the market, add more transparency, and make people feel like, 'This is a place I can trust my retirement savings to.'"

Since we first aired this story, the Securities and Exchange Commission has proposed further reforms, and high frequency traders are now moving into currency and commodity markets.

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by suzyframe August 28, 2012 3:28 PM EDT: This is such an interesting article. I had no clue that any of this was even going on. I knew that there were such things as speed traders and <a href="http://sjbfuturesllc.com/">on line trading platforms</a>, but not that they were effecting the web this much. Thanks so much for sharing this article.; Reply to this comment

by mike60min June 24, 2011 10:59 AM EDT

This "high speed" trading scheme is probably why so much money is being "skimmed" by Computers. Buying millions of shares in one minute and selling the next minute is like having a milk production pipeline with a "hole in it" and someone using a ladel to "skim" just enough before the milk is put in bottles.

I seem to recall, Bernie Maddoff, the "king of fraud" started Computer trading with NASDAQ. If anyone understands how to de-fraud the Financial Industry using computers, obviously Bernie does.

So now, we have "microsecond skimmers". Skimming the "Cream" from the pipeline every microsecond.

They do not care about Corporate Profits, Innovation, Productivity, Employee Morale, Cash Flow, or new Products. No, they just care if the stock goes up a penny so they can "skim" from the uptick. They have changed the rules, the purpose of investing in a stock.

The SEC needs to really evaluate the effect of this Computer Skimming as to the impact to guys like me, who has watched investment gain of my IRA's for the last decade disappear. No gain, but in the meantime, Goldman Sachs and these guys are making $Billions.

Unfortunately, I don't know where to put my money. The Wall Street Banks and the Commercial Banks are still tied together. The constant flow of 401K money of $Trillions is flowing into Wall Street under the guise of Retirement plans only to be "skimmed off" with rules of engagement that allows $Billions to be paid to Wall Street firms and banks.

Making money from other people who work, toil, build things while these guys sit in front of a Computer, "skimming away".

In the meantime, Computers are depressing investiment stock prices with "skimming" in microseconds and no one, including the regulators who are supposed to be looking out for us, dummies who keep putting money into our 401K's.

These guys need to be shutdown. Like in the "Sting" someone figured out a "new gimick" to make money from money with the use of Computers.

Just because they can, does not mean they are legal. This is Criminal and just like the Computers that control slot payouts in Las Vegas real time. I don't gamble with slots or electronic anything anymore.

Thanks 60 minutes for exposing this "skimming scheme". Now I realize that my money should NOT be put in my 401K stocks to funnel to the "Wall Street skimmers".

I think I will shift to another investment scheme that is NOT associated with Stocks. Of course, they could be doing the same with Bonds, skimming with computer programs.

I compared a 3% annual conservative investment over 10 years verses a diversified investment of Moderate Risk with stocks and the 3% made as much money, slightly more in fact, than the stock diversified accounts. Very little gain in stocks unlike what Wall Street toots of 10 to 12% for 75 years.

I don't have time to wait, so I guesss the best thing is to pull my money out of the stock market. The regulators evidently are doing nothing to stop the skimming.

I am not willing to play when the game is rigged against me.

Just like all thieves who don't like to work for a living, they will figure out ways, the "angles" to steal and in this case, using a "hole in the system" that has yet to be plugged by regulators who are supposed to keep our Financial System safe and secure for investors.

Yeah Right.

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by Maple-pie June 24, 2011 12:37 PM EDT: This is truely the rape of America. It lowers the confidence in the
trading system in the United States. The stock market is more about
confidence than any single idea. Shorting stocks merely for profit
and not the virtue of the investment devalues the U.S. Economy.
There is no discrimination here, just numbers. It is surely turning
America into a third world country. Contact your elected officials
and let them know.

by Maple-pie June 10, 2011 7:52 PM EDT

Byrne's naked shorting crusade outs Yahoo! security vuln
Patrick Byrne's unrelenting crusade against naked short selling has uncovered a gaping ... controlled the articles on naked shorting, Patrick Byrne, and Overstock from ... ( 14 Comments

A story about Patrick Byrne would be great piece.

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by Maple-pie June 10, 2011 8:23 PM EDT: Naked shorts can add an extra ten cent per
share loss to a stock by flooding the net with negative messages
about a company on a down market day. These potentially libelous posts are traceable. Perhaps anyone who trades short and posts a negative message owes the American People for the loss.


by PRICEPETER June 6, 2011 6:21 PM EDT: Is greed going to be the distruction of the economic system we have all known. Are the money changers from bibical times still alive and well. Must be and the rich(banks) get richer and the average smucks get poorer until the banks get in financial trouble and the tax payers have to bail thiers ***** out. So you see they are really nice to us and give us jobs so we can pay the taxes they needto get bailed out. No wonder Americans are pissed off at the crookedness of the financial order of things. My American friends say all you will need when the USA goes belly up is water and a gun and you'll survive.God bless america.; Reply to this comment

by pepopo June 6, 2011 5:59 PM EDT

Who is funding these 'cheaters'? Who is their broker? Even nano seconds there has to be shares to buy/sell. A lot of 'real' information was not covered and or omitted. The subject needs more info and, certainly, some one should put shackels on these people who are 'skewing the market place--it has enough wheeler dealers who are manipulating what should be an investing field for regular investors.

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by Maple-pie June 10, 2011 7:39 PM EDT: Computer trading and naked shorting have nothing to do with
the fundamentals of a company. The internet is a way to reach a mass of investors interested in a certain company.
Some short-sellers do not play by the rules. A small group of short traders will stop at nothing to annihilate the companies they sell short. Their tactics can include: blackmail, smear campaigns, fraud, harassment and rumor-mongering. From my view, the attempted killing of the Small American Company is handled in this manner.
One Favorite Tactic:
Find a small cap company with a small float and flood the
internet with messages..


by striperone June 6, 2011 5:22 PM EDT: The show displayed secret computer operators and locations. Some refused to be interviewed? Why? They are all against SEC Regulations and trade on PRICES with no reference to Corporate Certificate Numbers on Corporation Books of Record.
The fact they expect to extend to Commodities, Money Exchanges, and Bonds is unbelievable. The result will be the same as they are doing with Oil Contracts which are also numbered and registered.
Steve Kroft must follow up last night's episode listing who owns and has control of every computer location he knows about. He needs to interview the Justice Department, the SEC, the FBI and the President about shutting down all of these operations.
Reason: They punish honest investors, Pension Funds, Mutual Funds, and will destroy Commodity Markets, Bond Markets, and Money Exchanges World Wide.
THEY TRADE PRICES AND NOT STOCK CERTIFICATES THAT ARE AUTHORIZED NOR OUTSTANDING ON CORPORATE RECORDS WORLD WIDE.
EVERYONE SHOULD STAY OUT OF THE MARKET UNTIL THIS IS CORRECTION.; Reply to this comment


by mmsoar June 6, 2011 5:00 PM EDT: One thing one learns while studying physics is that perpetual motion machines don't exist. The claims here, similar to the derivatives markets of a few years ago, are that this is a risk free, financial perpetual motion machine. Just press this button and money appears continuously .... forever. The process adds zero value (i.e. no energy input)while removing capital from the markets (i.e. energy output). I don't need to know the mechanism of collapse, the timing of the collapse, or any other details -- I just know that it WILL collapse.

The US Patent office stopped taking patents on perpetual motion machines many years ago. We should all take a cue from that.; Reply to this comment


by HelpVinMc June 6, 2011 2:25 PM EDT: Steve Croft. I love you and think you are a great journalist, however, did they provide you with the questions you could and couldn't ask? I understand that you had one segment that you were focusing, but you could literally spend 60 Minutes each Sunday on what is wrong and corrupt in our financial systems. Did you think of asking Mary Shapiro how she oversaw the greatest theft in American history and is actually friendly with the Madoff family and yet has never been held accountable and was promoted to the head of the SEC? Steve. Maybe you could have asked who helped write the Frank-Dodd Act that somehow seems like they are creating more regulation in the "securities industry" at the very same time they are opening the back door to ongoing theft of billions of dollars in the Futures and Commodities Exchanges in cooperation with Ms. Shapiro? Here's an easy one... a layup... Steve. Matt Taibbi at Rolling Stone wrote an article that executives from JP Morgan gave their wives $220 Million of our TARP money...and nobody has covered it and nobody has gone to jail yet? The only person I know that is in jail besides Bernie Madoff is Vincent McCrudden who is a small Hedge Fund operator that was set up by the CFTC and FINRA on an email that he never sent. THEY SENT IT! That didn't stop the media from spreading lies and accusations that are now unprovable. Are you going to give him 6 months of his life back? Are you going to give his reputation back? or his career back? No. The media took Press Releases from the Justice Department that were filled with lies and accusations that now cannot be proven and yet nobody is writing or covering that.
Steve. Nice job and this is important for people to know, but don't let them pick the subject and the questions next time. and maybe ask 60 Minutes for more than 5 minutes to cover a story that is costing America BILLIONS of DOLLARS every single day.; Reply to this comment


by wbschamp June 6, 2011 12:42 PM EDT: Trading stocks and/or commodities in the secure markets that are regulated by the government (which contributes to that security) is a privilige that comes at a significant cost to the taxpayers. The volitility created by high volume, ultra-fast, computer trades which are made without any relationship to company or commodity traded, is both dangerous and, more importantly, creat no real value for the money they derive from manipulating the system. A trade tariff of 1/10th of 1% of the value of the trade would be easily computed and collected, would generate very significant new and badly needed revenue, and would also significantly reduce much of this dangerous, unproductive, volitility in the marketplace. If 1/1000th of the value of a trade is a "deal breaker", the trade shouldn't be made in the first place.; Reply to this comment


by moderatetechie June 6, 2011 10:37 AM EDT: Excellent reporting. Perhaps CBS could take a more thorough look (and brace for the reaction) at the difference between investing and speculation/gambling, and explore other/new ways of helping companies grow. What is done in this country and others that differs? Only an extremely small fraction of the trades are of new issues to raise capital for companies. It is inaccurate to say that the stock market is (primarily) an instrument to provide new $ to companies and bolster jobs. It HAS become an integral part of our economy because so many institutions have market positions and thus are intertwined and affect lives, depending on the rise and fall of market value. In many if not most cases, that value is many times the real assets of the companies. So the pricing is based not just on traders' activities, but on PERCEPTION of the strength/weakness of companies. In one view, the market activities can be distilled down to people with fear or hope exchanging $ with one another....this really is gambling with a much bigger slot machine. There have to be better ways to truly grow an economy, and help our lives improve through material contribution to work, building and serving in real ways... not just trading fear, hope, and perception. I realize dealing with this is just about as easy as simplifying the tax code, which would threaten and change millions of jobs in accounting, law, and government, while shifting $ in ways that some will like and some won't. But for our country to not collapse and go the way of all past civilizations, only sooner, action is needed now. Thanks for reading this far....; Reply to this comment