Writing Assignment #2 ACFI 705 Financial Institutions Name: _______________

Note: Below is a corrupted version of copyrighted material, revelation of ownership of the intellectual
material within this version will occur after this assignment for this course is complete. The intent of the
corruption of this document is to practice editing skills and highlight common errors. Modifications to
the text are not limited to the introduction of errors.

In 2000, automated trading algorithms accounted for less than 10 percent of all trading on U.S.
stock markets. Big Wall Street players knew well of their existence, but the algorithms back then were
not moving the market. The thought of algorithms co-opting the entire works, and sparking an event
like that of the Flash Crash was inconceivable. Rather, in 2000, people controlled the pits, not
computers. Almost all trades on the NYSE still travelled through the hands of a human specialist, who
had the unique privilege of overseeing most of the trading on a particular equity. On the floor, a trader
assuming he was being robbed of proprietary code, sued and won a large fine. Yet firms are left
vulnerable to defections and the loss of proprietary technology.
Crisis related layoffs hit Wall Street like a virus. Even legions of quants left their offices with
cardboard shoot orders as quickly as the specialists and their minions could handle them. The system
was entirely human. It was still the pits, rather than computer motherboards, or the pulsing light in a
fiber-optic line that ran Wall Street. Xs system and a generation of copycats had taken over the
NASDAQ, but the NYSE remained a market where anything wholly automatic or even typed was
trumped by yelling out orders.
However, all of that was changing. The rise of trading networks made it easier and cheaper for
trader/ programmers like X to wade into markets that had once been controlled by small cadres of a
select few. A solid network connection, coupled with a powerful desktop computer and some well-
written code could spring a programmer with market knowledge straight into the game.
In addition to greater access, the decimalization of Wall Street gave hackers another huge
opportunity to make money. Prior to decimalization, U.S. stock markets had always operated on
fractions of a dollar. Before 1997, the smallest increment a stock could move had been one-eighth or
12.5 cents. The increment was then halved to one-sixteenth which still meant that the minimum spread
on a stock was 6.25 cents. If an established broker or market maker had underinvested in technology,
then this spread still meant they could rake in money just by selling at the offer, and buying at the bid.
The use of fractions insured brokers [*I assume fractions provided new profits to brokers instead of acting as
insurance to profits the brokers already had, so I did not change brokers to possessive*]profits at the expense
of everyone else, most notably small investors.
By 2008, automated trading algorithms accounted for 60 percent of all U.S. stock market trades.
The financial industry had spent seven years sucking up every deft graduating physicist, engineer, and
Renaissance man who had an attraction to a large salary and bonus. Wall Street had grown to become a
larger employer of math, engineering, and science graduates than the semiconductor,
telecommunications, or pharmaceutical industries. For instance, the share of MIT graduates heading to
Wall Street increased 67% from 2000 to 2006, when more than a quarter of all of the schools graduates
headed into finance.
People who could write the cleverest algorithms and the most elegant code could easily switch
back and forth between Wall Street firms. A few superplayers, quants whose skills were so unique and
valuable as to well command compensation in excess of $1 million per year, were common to firms.
In some cases, compensation grew larger. A plasma physicist behind high-frequency trading
was paid $150 million in 2008, only to leave to found his own firm in 2009. However, he left with his
former employers boxes under his arms. Wall Street stopped hiring. Suddenly, there existed a large
pool of top-notch talent available to firms outside of Manhattan and other trading centers.