Last week, I watched a great technology-related segment on The Daily Show.  The subject was flash trading - the algorithm-based automated trading of securities executed by high-performance computers on high-performance networks at certain exchanges – done at an extremely fast pace.

It’s not something those involved want to make too much noise about, but countless such trades are being fired off by machines continually throughout the trading day – and it’s on the rise.  Often, these are trades you or I might be interested in making – but flash trades execute just a few crucial milliseconds before ours would, often adversely affecting the prices we get in (or out) at.  Reported by a cow suit-wearing Samantha Bee (‘cash cow’, get it?), last week’s segment on flash trading was The Daily Show at it’s finest: intelligent coverage of an otherwise under-reported issue, all wrapped in a layer of funny.

It got me thinking about technology …and gaming the system.

Trading of this type of course comes at a price, and is entirely unavailable to the individual retail investor with a DSL line and an E*Trade account.  Whether this represents the inevitable march of technological progress or something more sinister is open to discussion – but it’s safe to say that there’s a technological arms race in both software and hardware underway between the firms involved (flash trading currently goes on with zero additional regulatory attention, although a new – and presumably less sleepy – SEC is hoping to change that).

I’m reminded of a similar situation in which I saw technology-based gaming of the system affect – no, make that entirely supersede – an existing business model.  About a year ago, my wife wanted to surprise me with IMAX tickets to the latest Batman movie within just a week or two of its release.  She later told me she had been hitting the ‘official’ online ticket site at precisely the published time each morning (to the second) that batches of these very high-demand tickets were to be released, only to find them repeatedly already sold out. Bought in blocks by hi-tech scalpers, these tickets would then inevitably appear for sale on craigslist, at  roughly a 400% markup.  She ultimately sprang for a pair of the scalped  tickets (best. wife. ever.), and she later told me about all the trouble she had getting them, I was struck over how the snapping up of these tickets by tech-savvy scalpers had rendered a major site such as fandango.com completely pointless.  Looking into it a bit further, it appeared that these co-opted online ticket sites (much like the SEC of the previous administration) were either helpless or otherwise disinclined to do much about it (I wrote a bit more about all this at the time here).

Fast-foward to a year later, and the current concern over flash trading – the same issue, really, albeit on a much grander scale (this isn’t a night out at the movies we’re talking about,  these are your retirement funds).

It is, and will continue to be, an ongoing cat-and-mouse game, this technology-based gaming of the system:  as recently as this past Monday, Craigslist filed suit against 4 companies involved in the sale of tools to enable automated spamming through the popular classified site.

Expand the scope yet a bit further to include the internet media space, and we see similar concerns underlying the whole issue of net neutrality.

As computing and internet technologies continue to develop and evolve, what constitutes innovation and what constitutes gaming the system?

These are complicated questions – and they’ll be with us indefinitely.