Technology Squeezing Role of Analysts, Investors

Thursday, 02 May 2013 08:39 PM

By Dan Weil

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Technological developments are changing the nature of financial markets, with computerized
algorithms moving to replace the decisions of stock analysts and investors.

"The changes that started with high-frequency and algorithmic trading are just the first step to an entirely different process of determining stock prices," Nicholas Colas of ConvergEx Group wrote in a commentary obtained by CNBC.

Forbes Columnist: ‘Who the Hell Cleared This?’

"Will an equity market running on algorithmic autopilot serve to tie the managers of capital
(senior executives) to the ultimate owners (shareholders) as robustly as one dominated by flesh-and-blood money managers? It seems a stretch to think so."

Some experts say that exchange-traded funds (ETFs) will take over from active money managers.

"I spoke with a high-ranking member of the trading community this weekend," Michael Murphy of hedge fund manager Rosecliff Capital, told CNBC. "His large firm sees an end of stock-picking. They see passive, ETF-style investing as the new normal."

Billionaire investor Mark Cuban isn’t happy to see the change. "There's so much algorithmic
trading and technology-driven trading it's created downstream problems," he told CNBC.

Last week, for example, a fake tweet about an explosion at the White House from a hacked Twitter account briefly sent stocks reeling. And two days later, the Chicago Board Options Exchange couldn’t open for almost 2 ½ hours thanks to software problems.

"You have to provide a sense of predictability and stability that the markets aren't going to break every other month," Sang Lee, co-founder of research firm Aite Group, told The Wall Street Journal. "You don't want to play around with investor confidence at this stage."

Forbes Columnist: ‘Who the Hell Cleared This?’

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