Stock market crashes: Robin Hood against the computer bots
One day in May, Wall Street experienced a “flash crash”, as Newsnight reported this evening. Share prices fell further, faster, than ever before: the Dow Jones fell 700 in ten minutes. Share prices recovered quickly, but they might not have done, and if they hadn’t, the global recession would have been dwarfed. What caused the crash was the use of share trading algorithms, computer programmes that buy and sell millions of shares automatically as prices change marginally. The same applies to currency trading. Normally, this just means that millions are bought, millions are sold, and a few pence are made. But as the Wall Street micro-crash showed, the movement in share prices can be massive – and so can the casualties. The Securities and Exchange Commission is investigating the causes of the micro-crash and could be considering regulation as a way of trying to control algorithmic trading. But there is another way. One of the effects of a Robin Hood Tax would be to tax the trades that the algorithms make. Because the margins are so small and the trades so short-term, even a small tax rate would make such trading uneconomic.
The Robin Hood Tax would lead to longer term investing and less market volatility.