Mark Gorton is sitting in the Zen garden on the roof of his office
in downtown Manhattan, squinting into the sunlight and telling me
he's not evil.
"If you listen to some of the rhetoric in the press recently, you'd
think we were killing babies," Gorton says, in between sips of
organic blood-orange soda as he leans forward in a wicker chair.
He's upset that his business is being "tarred" by the bad publicity
plaguing the rest of Wall Street. "What we're doing is a net
positive for the world."
This is an interesting complaint because in many ways Mark Gorton
is the new face of Wall Street. Gorton is a high-frequency trader.
His company, Tower Research Capital LLC, with its 275-person global
staff of engineers and computer science and physics majors, is part
of an industry that today is responsible for more than half of all
stock trading in the United States, according to the Tabb Group, a
financial markets research and strategic advisory firm. Gorton's is
an industry under scrutiny.
People like Gorton are increasingly replacing the traders in
traditional stock exchange pits -- those nervous-looking people in
vests, furiously hand signaling buy and sell orders in a sort of
rapid-fire sign language. But instead of huddling on the floor of
an exchange, high-frequency traders sit at their computers tweaking
and retweaking algorithms that do the buying and selling
electronically far faster than any human can.
The idea behind high-frequency trading (HFT, as it is known) is
that if you can buy and sell stocks, bonds and derivatives at the
speed of a supercomputer -- literally executing trades by the
millisecond -- you can make money off each of the tiny little
movements in price. Taken individually, each trade nets only a few
pennies. But some high-frequency trading firms can trade as many as
100 million shares in a single day, according to Manoj Narang, who
runs such a firm in New Jersey called Tradeworx. Those pennies add
Gorton's job then is not to buy and sell stock, but rather to
oversee a business filled with programmers who devise the
algorithms to automatically trade those stocks, bonds and futures
far faster than his competitors. "What we do is try to identify
patterns and trading strategies that might work in the market, and
if we find something that works, we deploy it," Gorton says
matter-of-factly. "We're really an engineering company. We have a
lot more in common with Google than we do with one of the big
But try as Gorton might to distance his firm from the rest of the
finance industry, high-frequency trading has attracted unwelcome
attention. In recent weeks, critics and regulators have been
scrutinizing Gorton's company about as closely as they might
Goldman Sachs. In February, for example, Mary L. Schapiro, chair of
the Securities and Exchange Commission, told reporters that high-frequency
trading "worried" her and floated the idea of implementing new
curbs on the practice -- such as charging a fee every time a
high-frequency trader cancels a trade.
That was followed by news that the SEC had reportedly launched a formal
investigation into the relationship between some major
high-frequency trading firms and the electronic exchanges that host
their trades. Gorton says he is not involved in that SEC inquiry.
(The SEC declined to comment on the matter.) At the same time, Gary
Gensler, chair of the Commodity Futures Trading Commission, has
said that his agency might begin monitoring high-frequency trades
much more closely than it has before and could start
considering new rules by July.
Critics of Gorton's industry have taken the newfound regulatory
interest as an opportunity to slam his business, arguing that
high-frequency trading firms -- which range in size from relatively
small shops like Tower to major hedge funds -- can cause mayhem in
the markets and put average mom-and-pop investments at risk.
"We call them parasites," Joseph Saluzzi, a founder and a partner
at institutional stock and bond brokerage firm Themis Trading, says
about high-frequency traders. "They've "turned Wall Street into a
hyper-speed casino." Saluzzi complains that people like Gorton --
computer people -- are taking all the humanity out of what used to
be a very human business. "There's no accountability," he
complains. "No one knows who they are ... There's no faces; they're
Gorton, 45, is trim with dark curly hair and rimless glasses. He
favors rubber-soled shoes that he can wear on a bicycle (Gorton is
an avid cyclist whose passion outside of business is advocating for
more bike lanes in New York) and seems to prefer slacks and
buttoned-down shirts to suits.
He speaks with the thoughtful skepticism of a young Ivy League
professor, and when he is unconvinced of an idea or a criticism, he
wrinkles his brow -- squints, really -- and shrugs. In recent
weeks, Gorton has had a lot of opportunity to squint and shrug. "I
feel like there are a lot of criticisms [of what we do] and most of
them are invalid," Gorton insists. "I'm not saying high-frequency
trading is perfect, but I feel like … this whole idea that
everything is a disaster is just not true."
Gorton thinks a lot of the recent anger directed at his industry
stems from the fact that high-speed trading represents something
new and different from the way trading used to be done. And new can
be threatening. Modern stock trading has been transformed by people
who might identify more with, say, Egon, the laconic inventor in
"Ghostbusters," than Gordon Gekko of "Wall Street" fame.
And yes, the computers -- programmed by folks like Gorton -- are
taking jobs away from traditional traders. "There are some people
in the market structure whose jobs are being automated, and people
are speaking up," Gorton says. "A lot of those people are claiming
that the public is being harmed when really what's happening is
it's costing a lot less to trade stock. And some highly paid guys
on Wall Street are not collecting the giant checks that they used
Bryan Harkins, chief operating officer of DirectEdge, an electronic
stock exchange, puts it this way: "The floor of the New York Stock
Exchange is basically a television studio right now," he says,
meaning that most trading today is done by computer, making the
floor of the NYSE somewhat like a CNBC soundstage.
Harkins, who certainly has a business interest in writing the
epitaph for traditional stock exchanges, says that much of the ire
directed at high-frequency traders results from a lack of
understanding of what they do exactly and from a resistance to new
competition and a change in the business model. "What became
unprofitable for a human became profitable for a computer," Harkin
says. "If you go over a bridge and they have E-ZPass now, people
complain you're eliminating jobs of toll takers. That's true, but
what about the people making those E-ZPass
Gorton was the captain of his math team in high school. He has a
bachelor's in electrical engineering from Yale University and a
master's degree in the subject from Stanford. For a time after
graduate school in California, Gorton worked as an engineer at an
But Gorton has a background in finance, too. His first job in the
industry was at the proprietary trading desk of First Boston (which
later became Credit Suisse), where he worked in a back room using
advanced math to devise new investment strategies. But even in the
booming 1990s, Gorton was never part of the finance culture there,
he says. "We didn't interact with customers; we didn't interact
with the rest of the bank. We were just sort of sitting there doing
our own thing," he recalls.
"When we were at First Boston, we saw some of that," says a former
First Boston colleague of Gorton, Robert Heine, about the Wall
Street culture. "It's not that appetizing."
Now a trader of government bonds, Heine says Gorton "is an
engineer. He likes figuring things out. He likes to be around smart
people. He's intrigued to see how things work."
In 1998 Gorton left First Boston and two years later launched
LimeWire, an electronic peer-to-peer music service. An eventual
successor to Napster, LimeWire allowed people to trade files --
including copyrighted media like music albums -- for free over the
Internet. After a recording industry lawsuit all but shut down
Napster in 2001, LimeWire’s popularity exploded. By the mid-2000s,
the service was bringing in an estimated $20 million, according to
LimeWire brought Gorton his first brush with vilification. In 2006,
the Recording Industry Association of America sued Gorton and
LimeWire. People called him evil. "He's the Bernie Madoff of
Internet crime," the association's CEO, Mitch
Bainwol, told The
New York Times in a rhetorical flourish after a
federal judge ordered LimeWire to pay $450 million for violating
copyright law. "He was thumbing his nose at the rule of law to
As he also says about the founding of Tower, Gorton says that his
motivation in launching LimeWire was to develop an interesting
computer system -- not necessarily to challenge the fundamentals of
the way an industry had been doing business for the last 50 years.
"When I started LimeWire," he says, "it would always shock me that
we got any press for anything. We were a bunch of guys sitting
around doing neat things with computers."
Push Gorton on the subject long enough and one can begin to catch
fleeting glimpses of some sort of unifying philosophy in his work
-- although Gorton takes great pains to argue that there really
Of his battle with the recording industry, Gorton complains that
copyright laws were preventing "a lot of the natural market
efficiencies from taking place." He adds, "You had people doing a
nice cushy thing collecting nice paychecks for maintaining the
status quo, and they reacted very strongly when someone was
upsetting that status quo."
He uses similar rhetoric to describe the net effect of
high-frequency trading."This is what happens when markets get
efficient," he says. "This is the creative destruction of
Superior technology, in other words, makes things more efficient.
And even if people don't like it in the short run, efficiency often
makes the world a better place.
The question at the heart of the current debate about
high-frequency trading is whether the automation of trading -- and
in Tower's case, the ability to maximize profits by executing
trades faster than anyone else -- really does make the world
On May 6, 2010, the Dow Jones industrial average suddenly tumbled
1,000 points in a matter of minutes in an event later dubbed the
"flash crash." By the end of the day, those losses had been
recovered -- but the crash shook the markets and left a lot of
experts scratching their heads. A joint SEC-Commodity Futures
Trading Commission postmortem determined there wasn't much evidence
to suggest that high-speed traders like Gorton caused the event
that day. That dubious distinction went to a computer at a
Midwestern mutual fund that dumped a massive amount of derivatives
all at once, flooding the markets. But high-speed traders seem to
have helped magnify the problem, turning one computer's software
flaw into a stock-market-wide tailspin.
Gorton insists that high-frequency traders weren't to blame. "What
the flash crash showed us was the need to have limits on fat
fingers, limits on robot execution algorithms" like the one used by
the mutual fund, he says. And in any event, Gorton says the
high-frequency industry "doesn't have the muscle to push a market
one way or another."
But critics of the industry, use the flash crash of 2010 as a
cautionary tale -- evidence of the havoc high-frequency trading can
wreak on the rest of the stock market if not properly regulated.
"What was most disturbing about May 6 was we went down in 15
minutes and rallied back in 15. And everyone shook their head and
said, 'What the heck was that?'" says Themis Trading's Saluzzi. The
flash crash, he says, was "all about high-frequency traders. There
was no human intervention to slow [the tanking market] down."
After the May crash, stock exchanges put certain protections in
place, including "circuit breakers" to shut down trading in the
event of market instability. The aim, according to the SEC, was to
to stave off another massive automated sell-off.
For some, those changes don't go far enough. "People are afraid to
put money into the market because they're worried their life
savings is going to fall by 30 percent in a day and they won't
understand why," says Marc Pado, a markets strategist at the
investment advisory firm Dow Bull.
"The problem is computers don't think," he says.
A few weeks after our rooftop chat, we’re sitting in a small
meeting room-cum-library, surrounded by books ranging in subject
from C++ coding to Rupert Murdoch, on the main floor of his
tomb-silent downtown offices -- quarters that he says he has never
referred to as a trading floor.
"Markets have been getting more efficient and there's less
volatility," Gorton says, when asked if high-frequency traders can
cause mayhem. "Empirically it seems that way to me … in the last
few months volatility has been very low."
The conversation switches to how he fits into the rest of the
finance world. What about the loss of trust -- for both the general
public and some traditional traders? Or that some people think
firms like Gorton's are capable of wreaking havoc? And that some
traders think people like Gorton are turning the stock market into
a swarming hive of automatons?
Mark Gorton is squinting again. He insists he doesn't think he
represents anything new. The difference between high-frequency
trading and traditional Wall Street is not much more than "a
difference in skills," Gorton says. "It used to be that firms would
want to hire economics majors and now you hire computer science
majors." That much is different, he allows.
But, he says, for all the faceless computers and soulless
algorithms that companies like his employ, it's still a human
business. "You look at high-frequency trading firms, there are some
that are run by super great people that you'd trust," he says. "And
there are others you wouldn't want to shake hands with."