Man Vs. Machine: How the Crash of ’87 Gave Birth To High-Frequency Trading

A small coterie of savvy investors smelled an opportunity. Since the SOES trades were automated, meaning they received almost instant execution, and were given priority ahead of the rest of the market, a fast-moving trader could move in and out of stocks using SOES at a far-more rapid clip than large investors, generating big profits. (CNBC)



SOES Bandits revisited

Who remembers Sheldon Maschler?  Harvey Houtkin?  They were the original SOES Bandits.  Sheldon headed up the infamous Datek Securities.  In 1989, with the help of two boy wonders, Jeff Citron and Josh Levine, they created Watcher, a software program that allowed day traders to take advantage of a weakness in the SOES system: relatively slow updating of price quotes.  SOES was intended for small orders, but Datek was using the system for large trades, buying stocks and then selling them again within seconds. (Themis Trading)


All-Tech’s Harvey Houtkin Agrees to Fine, Suspension

Securities regulators took a high-profile stand to stamp out alleged abuses in the freewheeling business of “day trading” of stocks. In two separate legal actions, All-Tech Direct Inc., one of the nation’s largest day-trading firms, and several of its executives agreed to pay a total of more than $600,000 in fines to settle regulatory charges of arranging improper loans to clients, among other things. Harvey Houtkin — All-Tech’s chairman and chief executive officer, and the self-proclaimed father of day trading — agreed to a $50,000 fine and a 15-day suspension from the securities industry as part of a settlement with the National Association of Securities Dealers. (Wall Street Journal)


Day-trading’s father: All-Tech chief Harvey Houtkin is a hated man on Wall Street

After the crash of 1987 – when the finger was being pointed at market makers who refused to pick up their phones as the markets went into freefall – the Small Order Execution System (SOES) was made mandatory and a 1,000-share limit imposed. Market makers had to execute trades at whatever price they had posted. Since SOES was done over computers rather than telephones, it also meant instant execution. All-Tech chef Harvey Houtkin realized that if you could catch the market makers napping you had a discrepancy between the actual price of a stock and a price someone had to take. It was the perfect arbitrage, and it made Houtkin a fortune. (New York Post)


‘SOES Bandit’ Firms To Tap IPO Market

They’ve often been called SOES bandits on Wall Street, but now two of the biggest electronic day-trading companies are taking another step toward the mainstream, unveiling plans to tap the IPO market. Momentum Securities Management Corp., of Houston, is considering an initial public offering that would raise $25 million, its president, James Lee, said. Momentum Securities is following the lead of All-Tech Investment Group Inc. of Montvale, N.J., which filed plans for an IPO with the U.S. Securities and Exchange Commission in late May. (Wall Street Journal)