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Vanguard CIO: High-Frequency Trading Cuts Costs

High-frequency trading has helped individual investors by helping to reduce costs, Vanguard CIO Gus Sauter said Thursday on CNBC.

On "Fast Money , " he said that it was one of several factors that helped bring transaction costs from about 1 percent to one-third of that today.

While HFT has been cited in the flash crash, the Knight Securities fiasco, opening day on the BATS exchange and the Facebook IPO, Sauter said that high-frequency trading has been painted with too broad a brush.

(Read More: Mysterious Algorithm Was 4% of Trading Activity Last Week )

"There are literally hundreds of strategies that are high-frequency trading, ranging all the way from those that really perform much of a market-making and liquidity-providing function to perhaps some on the opposite end of the spectrum, where they are abusive and trying to manipulate the market, " he said.

"Obviously, we need to get rid of those types of high-frequency traders, but I think the bulk of them are creating liquidity and reducing spreads for us, which has dramatically reduced costs."

(Read More: Cuban, Cooperman: Curb High-Frequency Trading )

Sauter cited the Security and Exchange Commission's Regulation National Market System.

(Read More: Ex-Insider Calls High-Frequency Trading 'Cheating' )

"REGNMS only works if there is somebody to arbitrage and bring the markets together, " he said. "That's what the high-frequency traders are doing."

UPDATED at 3:16pm ET

Trader disclosure: On Oct. 18, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC's "Fast Money" were owned by the "Fast Money" traders: Stephanie Link is long AAPL; Stephanie Link is long JPM; Stephanie Link is long SBUX; Stephanie Link is long VALE; Stephanie Link is long DG; Stephanie Link is long LRCX; Stephanie Link is long EBAY; Jon Najarian is long call spreads in JPM; Jon Najarian is long call spreads in SBUX; Jon Najarian is long call spreads in FB; Jon Najarian is long call spreads in MSFT; Jon Najarian is long call spreads in AMZN; Jon Najarian is long call spreads in VZ; Jon Najarian is long call spreads in RGP; Jon Najarian is long call spreads in MHP; Jon Najarian is long call spreads in FRX; Jon Najarian is long call spreads in CIE; Jon Najarian is long call spreads in BTU; Jon Najarian is long call spreads in ACI; Jon Najarian is long call spreads in ANR; Jon Najarian is long STSI; Jon Najarian is long GLUU; Jon Najarian is long CME; Jon Najarian is long CBOE; Baker Avenue is long HYG; Baker Avenue is long IWM; Baker Avenue is long MDY; Baker Avenue is long F; Baker Avenue is long HAL; Baker Avenue is long KOL; Baker Avenue is long NFLX; Baker Avenue is long BK; Baker Avenue is long MS; Baker Avenue is long AAPL; Baker Avenue is long WFC; Stephen Weiss is long QCOM; Stephen Weiss is long SWFS; Stephen Weiss is short AAPL PUTS.

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