13. Birth of High-Frequency Trading

In the weeks following Black Monday, a large customer of Houtkin’s seven-year-old brokerage firm, Domestic Arbitrage Group, which made markets in 500 NASDAQ stocks, lost a lot more money than he was worth. In fact, the customer lost more money than Houtkin’s entire firm was worth. The losses from that one trader were so huge that Houtkin had to shutter the doors to all six of his firm’s offices, which was a bitter experience for him because NASDAQ regulators had eased capital rules to help bigger, better-connected firms survive the crash but let small firms like his fail.1

Smart and highly aggressive, Houtkin sought not sympathy but sweet revenge. He was a resilient man with an in-depth knowledge of Wall Street ...

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