high-frequency trading

The frightening revelations over the past few days that hackers had penetrated certain systems at the Nasdaq stock exchange are reverberating throughout the financial world. Did cyber-crooks gain access to inside information that can used to reap ill-gotten gains?

The S&P 500 has rebounded 20% since its July 2010 low, which comes as bad news to perma-bears like Nouriel Roubini, Gary Shilling and Bill Gross, all of whom predicted the opposite. This raises several questions about how stocks move, and why pundits say the things they do.

The May 6 "flash crash" is still somewhat of an enigma, but an advisory panel meeting on Friday to review a report into it could at least help regulators establish some new market rules to prevent similar crashes from occurring in the future, Reuters reports.

The U.S. Securities and Exchange Commission is considering a rule that would level the playing field between retail investors and high frequency traders. Under the proposed rule, unlicensed high-frequency traders will no longer be able to gain "naked access" to public markets through brokerages that rent out their access.

Two crashes in recent years are bad enough, but investors are also facing high-frequency traders, bearish insiders, less-than-honest corporate self-portrayals and a moribund mortgage market. It's no wonder they've lost confidence in the nation's equity markets.

To hear the pundits tell it, Greece's debt woes signaled the end of the euro, or worse. Yet, the country's rebound grabs few headlines. This pattern is getting repeated over and over, much to investors' detriment.

Since the S&P finally rose past the key 1,130 level on Monday, stocks have languished rather than rapidly advance. That's because volume is anemic. And without volume, the market is said to lack the conviction needed to actually create a definitive trend.

Quote stuffing is just another way high-speed traders make a few cents by exploiting small price differences between the exchange where a trader buys and the one where he sells using huge orders that are immediately canceled. Such a ploy gone awry could be the culprit.

Cheer up, market! Earnings are growing, companies are piling up cash, P/Es are low and nobody wants to go anywhere near stocks. Hold your nose and buy.

Whether investors can outwit the broader market over the long run is a perennial, hotly debated, topic. But computerized trading and virtual baskets of stocks are making the discerning of specific companies' fortunes matter less and less.