California gubernatorial candidate Neel Kashkari, a former managing director at Pimco, says high-frequency trading needs regulation, and another "flash crash" may be inevitable without it.
"Of course I think it should be regulated," Kashkari said Monday on "Squawk Box." "The idea that trading on nanoseconds or microseconds is benefiting the American consumer, the American economy? I don't buy it."
Kashkari was referring to the "flash crash" of May 2010 when the Dow lost 1,000 points and regained them in 20 minutes, a move largely attributed to traders using powerful algorithmic software and high-speed cables. Kashkari, a Republican who headed global equities at Pimco, told CNBC he doesn't think such practices can destabilize the markets, but that they don't add any value to the financial system.
His comments come as financial journalist Michael Lewis caused a stir in the trading community Sunday night. During an interview on CBS' "60 Minutes," Lewis called the stock market "rigged" by a combination of investment firms, exchanges and high-speed traders. Lewis, the author of "The Big Short" and "Moneyball," was promoting his new book, "Flash Boys: A Wall Street Revolt," on the rise of high-frequency trading.
"I'm am worried," Kashkari said. "The complexity of all of these high-frequency traders, it's very hard to understand how all these things are going to interact. I can't imagine that's our last flash crash."
During an earlier interview on "Squawk Box," Themis Trading co-founder Joe Saluzzi said high-frequency trading is a symptom of a stock market that has made simple tasks increasingly more difficult. But that also makes solutions deceptively easy, he added,
While an outright ban on high-frequency trading doesn't seem necessary, Saluzzi says he believes two quick fixes could help shore up the inequalities caused by firms equipped with high-speed cables and powerful trading software.
"It's an overly complex system to do a very simple task," Saluzzi said. "You want to buy. I want to sell. Let's match up."