Last year, Citi reduced the number of shares by exchanging one share for every 10. That brought its stock price up — $33 on Wednesday — and high-frequency traders stopped flocking to it. Volume on a normal day has dropped to 50 million.
Bank of America went the opposite way in November and December and sold 400 million more shares to the market to raise $3.5 billion and improve its financial stability.
Today, some investors — the human ones — are buying Bank of America because they like CEO Brian Moynihan's efforts to shore up the company's finances. Other investors won't touch it because they are afraid of the billions Bank of America is still spending to fight mortgage lawsuits. Charles Bobrinskoy, director of research at Ariel Investments, even calls the company "unanalyzable."
But none of those groups is driving the stock. Some days, it moves with little or no tangible reason.
On Jan. 5, the stock jumped 8 percent with no explanation. The Wall Street Journal blogged that the stock was rising on "reports/rumors/blind hopes" about President Barack Obama appointing a new head to the federal housing agency.
On Jan. 10, a Barclays bank analyst lowered his price target on Bank of America stock and Morgan Stanley and Zacks Investment Research downgraded the stock. The stock didn't fall — it popped up 6 percent more.
Analysts say high-frequency trading is partly responsible for the huge daily swings in the market in 2010 and 2011. The technique gained notoriety after May 6, 2010, the day of Wall Street's "flash crash." The Dow fell almost 1,000 points in minutes, bewildering traders and inciting panic. The market recovered to close down 348 points.
High-frequency trading was blamed and attracted scrutiny from regulators. The Securities and Exchange Commission didn't ultimately blame high-frequency trading for the crash, but said it exacerbated the decline. Regulators haven't done anything to curb it.
Sometimes high-frequency traders don't even profit from the trade itself. They buy and sell shares at the same price and make money by sending large orders through the exchanges.
NYSE, Nasdaq and others want to attract the most traders. So they offer rebates of 20 to 32 cents per 100 shares to traders who send in large orders. On the electronic exchange NYSE Arca, traders who can move 35 million shares pocket a quick $112,000.
"Rebates will be the same no matter what the price, so the computers keep trading all day long," says Keith Bliss, senior vice president at brokerage firm Cuttone & Co.
Bank of America says it has no position on high-frequency trading. At some point it could reduce its shares, as Citi did. But the bank is focused on strengthening its finances, the reason it sold more shares in November and December.
Bank of America's chief financial officer, Bruce Thompson, told reporters in January that the bank isn't likely to buy back stock this year. So for now, those human investors will have to buckle up for the ride.
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