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Father of High-Speed Trading: It Has ‘Huge’ Benefits

Thursday, 20 Sep 2012 | 2:26 PM ET

In the debate over high-frequency trading, the benefits shouldn’t be overlooked, said Thomas Peterffy, considered the father of high-speed trading.

“We cannot overemphasize the huge benefits both individual and institutional customers have gotten out of automation,” Peterffy, the CEO of Interactive Brokers , told CNBC’s “Squawk on the Street” on Thursday.

“Exclusive of exchange and regulatory fees, Interactive Brokers charged $2.65 commission on average trades this year,” he noted. “That would be completely unheard of in an unautomated market.”

But in the wake of the Knight Capital trading issues and other high-profile instances of computer-based trading programs run amok, there’s growing concern about the impact high-frequency trading is having on markets. (Read More:Knight Capital Provides a Big Lesson for Individual Investors.)

Father of High-Frequency Trading
CNBC's Rick Santelli talks about the risks and rewards of automated trading, with Thomas Peterffy, Interactive Brokers CEO. "Let us work on how to fix these problems and not throw the baby out with the bath water," he adds.

The Federal Reserve of Chicago recently surveyed 30 firms to evaluate where high-frequency trading stands. What it found was that the industry reported a rash of out-of-control computer algorithms that power the high-speed trading platforms. It acknowledged that speed is more important than safety and called for additional regulations, but said it wanted the rules to be applied equally. (Read More:High-Frequency Trading: It's Worse Than You Thought.)

Peterffy said that the issuescan be addressed without “throwing the baby out with the bath water.”

Additional safeguards against runaway prices are needed, Peterffy said. “The way to do that is to use multiple software shields” to protect against big price moves that are a results of software issues or malicious intent, he said.

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