The discovery of atomic fission was a huge milestone in the history of scientific development. Unfortunately, the breakthrough also led to the creation of the atom bomb with its frightening potential to decimate life and property. The evolution of information technology has more or less moved along the same path.
The extent to which technology has changed life on this planet, including our understanding of the planet itself, in the past 15 years is beyond description. Much of this has been in a positive way. But developments have also seen technology turn into a monster, capable of devouring all that was thought fundamental to value systems, whether it is in life and morality or in the spheres of economics and commerce.
Last week the world woke up to the shocking revelation that Wall Street’s high-speed traders, armed with computer-controlled automated trading technologies and algorithms to get in and out of trades in fractions of minutes and seconds, were amassing fortunes at the cost of ordinary investors with modest means and investment ideas inherited through generations.
Each speed trade might involve only a fraction of the lowest denomination unit of the currency in question, but the aggregate tally could run into millions. The flip side is that ordinary investors used to traditional investment goals and outlook are left in the lurch, holding the baggage of unscrupulous practices.
Regulators, including US government agencies, are looking into the potential wrong-doing by these high-frequency traders, who spoof trades for their own benefits, but put the rest of the market at a great disadvantage. Much of these sophisticated tools available to these traders are Greek and Latin to the regulators, which means they have a lot of catching up to do to reach the bottom of the issue on hand.
For regulators and market operatives in regional markets like the Gulf and the Middle East, it may be small consolation that these practices have occurred mostly in the mature markets of the West. But given that the time lag between the introduction of new trading tools in these markets and their accessibility in the rest of the world is growing narrower, such small favours may only be of limited value in terms of assurance and sense of security.
It is not known whether instances of high-frequency trades have been unearthed in this part of the world. But should something like that happen here, regulators and market supervisors will be hard pressed for clues. There is already a huge backlog of problems and issues that our regulators need to address to be at par with the rest of the world.
The recent multiple highs recorded by the local markets already warrant a good deal of explanation as the underlying numbers do not quite add up to the market movements. Even after making allowances for the fact that the local and regional markets are used to showing exaggerated reaction to developments, both positive and negative, the recent spikes do not make complete sense for those who tend to look at the market with moderation.
As the local markets do not have the depth and spread of their established counterparts elsewhere, suspicions about practices such as automated technical trades and assisted insider trading can undermine investor confidence, which is just about picking up after a prolonged spell of indifference and fear that kept retail investors away from the proceedings.
This is particularly of interest to analysts, who have reacted to the apparent new momentum in the market with utmost caution on the ground that some of the assumptions that have caused values to peak may be highly unrealistic and therefore unsustainable over longer terms.
The regulators would do well to put together the expertise and means to deal with such possible abuses so that the prospects of another market trough can be warded off.