Arthur Levitt ’52 interview on high frequency trading. See also his Wall Street Journal op-ed.

The debate over high-frequency trading may seem remote and irrelevant to small investors. After all, they may think, if you’re only buying and selling stocks and mutual funds occasionally, what difference does it make whether some traders are able to move quickly in and out of those same stocks, squeezing an extra penny or two of profit here and there?

But this debate is not just about the rarified world of high-frequency traders, dominated by superfast computing and trading by advanced algorithms. It’s fundamentally about the competitiveness and health of U.S. markets, and the ease with which all investors are able to find willing buyers and sellers. Small investors may never directly use a high-frequency trading strategy in their lives, but they have a very large stake in whether such strategies are regulated out of existence, as is now urged by some in Congress, the media and Wall Street.

High-frequency trading is, in many respects, just the next stage in the ongoing technological innovation of financial markets. Just as paper tickets for trades were replaced by computer orders, and the trading floor seen on television was made largely irrelevant by electronic exchanges, so has high-frequency trading revolutionized the way most U.S. stocks and related investment products are priced and sold.

Read the whole thing. Levitt is 100% correct. For a dissenting view, see here and here.

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