This page has been archived and commenting is disabled.
“The Chief Executive of One of the Country's Biggest Block Trading Dark Pools Was Quoted Two Weeks Ago as Saying That the Amount of Money Devoted to High-frequency Trading Could ‘QUINTUPLE Between this Year and Next’"
In a must-read essay,
Senator Ted Kaufman reveals that - despite all of the talk coming out
of Washington - high-frequency trading is set to explode:
We've
gone from an era dominated by a duopoly of the New York Stock Exchange
and Nasdaq to a highly fragmented market of more than 60 trading
centers. Dark pools, which allow confidential trading away from the
public eye, have flourished, growing from 1.5 percent to 12 percent of
market trades in under five years.Competition for orders is
intense and increasingly problematic. Flash orders, liquidity rebates,
direct access granted to hedge funds by the exchanges, dark pools,
indications of interest, and payment for order flow are each a
consequence of these 60 centers all competing for market share.Moreover,
in just a few short years, high frequency trading - which feeds
everywhere on small price differences in the many fragmented trading
venues - has skyrocketed from 30 to 70 percent of the daily volume.Indeed,
the chief executive of one of the country's biggest block trading dark
pools was quoted two weeks ago as saying that the amount of money
devoted to high-frequency trading could "quintuple between this year
and next."Mr. President, we have no effective regulation in these markets.
Last
week, Rick Ketchum, the Chairman & CEO of the Financial Industry
Regulatory Authority - the self-regulatory body governing
broker-dealers - gave a very thoughtful and candid speech, which I
applaud. In it, Mr. Ketchum admitted that we have inadequate regulatory
market surveillance.His candor was refreshing but also ominous:
"There is much more to be done in the areas of front-running,
manipulation, abusive short selling, and just having a better
understanding of who is moving the markets and why."Mr. Ketchum went on to say:
[T]here
are impediments to regulatory effectiveness that are not terribly well
understood and potentially damaging to the integrity of the
markets...The decline of the primary market concept, where there was a
single price discovery market whose on-site regulator saw 90-plus
percent of the trading activity, has obviously become a reality. In its
place are now two or three or maybe four regulators all looking at an
incomplete picture of the market and knowing full well that this
fractured approach does not work.Mr. President, at the
same time that we have no effective regulatory surveillance, we have
also learned about potential manipulation by high frequency traders.Last
week, the Senate Banking Subcommittee for Securities, Insurance, and
Investment held a hearing on a wide range of important market structure
issues.At the hearing, Mr. James Brigagliano, Co-Acting
Director of the Division of Trading and Markets, testified that the
Commission intends to take a "deep dive" into high frequency trading
issues, due to concerns that some high frequency programs may enable
possible front-running and manipulation.Mr. Brigagliano's testimony about his concerns were troubling:
[I]f there are traders taking positions and then generating momentum
through high frequency trading that would benefit those positions, that
could be manipulation, which would concern us. If there was momentum
trading designed - or that actually exacerbated intra-day volatility -
that might concern us because it could cause investors to get a worse
price. And the other item I mentioned was if there were liquidity
detection strategies that enabled high-frequency traders to front-run
pension funds and mutual funds that would also concern us.Reinforcing
the case for quick action, several panelists acknowledged that it is a
daily occurrence for dark pools to exclude certain possible high
frequency manipulators.For example, Robert Gasser, President
and CEO of Investment Technology Group, asserted that surveillance is a
"big challenge" and that improving market surveillance must be a
regulatory priority:"I can tell you that there are some
frictional trades going on out there that clearly look as if they are
testing the boundaries of liquidity provision versus market
manipulation."But none of the panelists, when asked, felt a
responsibility to report any of their suspicions of manipulative
activity to the SEC. That is up to the regulators and their
surveillance to stop, they apparently believe.Finally, at the
end of the hearing, Subcommittee Chairman Reed asked about the reported
arrest of a Goldman Sachs employee who had allegedly stolen code from
Goldman used for their high frequency trading programs.A
Federal prosecutor, arguing that the judge should set a high bail, said
he had been told that with this software there was the danger that a
knowledgeable person could manipulate the markets in unfair ways.The
SEC has said it intends to issue a concept release to launch a study of
high frequency trading. According to news reports, this will happen
next year. Mr. President, I don't believe next year is soon enough. We
need the SEC to being its study immediately. Where is the sense of
urgency?Mr. President, our stock markets are also opaque.
Again, I refer to Chairman Ketchum's speech: "There are impediments to
regulatory effectiveness that are not terribly well understood and
potentially damaging to the integrity of the markets."He went on to say:
We
need more information on the entities that move markets - the high
frequency traders and hedge funds that are not registered. Right now,
we are looking through a translucent veil, and only seeing the
registered firms, and that gives us an incomplete - if not inaccurate -
picture of the markets.Senator Schumer echoed this theme at last week's hearing:
Market
surveillance should be consolidated across all trading venues to
eliminate the information gaps and coordination problems that make
surveillance across all the markets virtually impossible today.Let me repeat: market surveillance across all the markets is "virtually
impossible today." And none of the industry witnesses disagreed with
Senator Schumer. That is why the SEC must not let months go by without
taking meaningful action. We need the Commission to report now on what
it should be doing sooner to discover and stop any such high frequency
manipulation. Mr. President, where is the sense of urgency? Mr.
President, we must also act urgently because high frequency trading
poses a systemic risk. Both industry experts and SEC Commissioners have
recognized this threat. One industry expert has warned about
high-frequency malfunctions:The next Long Term Capital
meltdown would happen in a five-minute time period. ... At 1,000 shares
per order and an average price of $20 per share, $2.4 billion of
improper trades could be executed in [a] short time frame.This is a real problem, Mr. President. We have unregulated entities -
hedge funds - using high frequency trading programs interacting
directly with the exchanges. As Chairman Reed said at last week's
hearing, nothing requires that these people even be located within the
United States. Known as "sponsored access," hedge funds use the name of
a broker-dealer to gain direct trading access to the exchange - but do
not have to comply with any of the broker-dealer rules or risk checks.
SEC Commissioner Elisse Walter has recognized this threat:[Sponsored
access] presents a variety of unique risks and concerns, particularly
when trading firms have unfiltered access to the markets. These risks
could affect several market participants and potentially threaten the
stability of the markets.Let me repeat that: "These
risks could affect several market participants and potentially threaten
the stability of the markets."Even those on Wall Street
responsible for overseeing their firms' high frequency programs are not
up to speed on the risks involved, according to a recent study
conducted by 7city Learning. In a survey of quantitative analysts, who
design and implement high frequency trading algorithms, two-thirds
asserted their supervisors "do not understand the work they do."And
though quants and risk managers played a central role exacerbating last
year's financial crisis, 86% of those surveyed indicated their
supervisors' "level of understanding of the job of a quant is the same
or worse than it was a year ago," and 70% said the same about their
institutions as a whole.
- advertisements -
Remember the old adage 'But where are the customers Yachts'
Who cares. Somebody has to be on the other side of the trade. Who's that. As long as they make the trade print as it trades I could careless if they want to do trade masterbation.
I understand libertarian thinking. I would prefer that we have no laws than the many that we currently do. That said, markets must be protected from manipulation if they are to function properly. Should we turn a blind eye to attempts by foreign powers to corner whole industries through the use of government-subsidized dumping of cheap goods into our markets? Are you prepared to deal with the long-term consequences of ceding these markets to powers that do not have our best interests in mind? It is the same with financial markets. Do you not think that the cheap money policies of Greenspan's FR have caused much human tragedy that was otherwise avoidable and will cause more before this debt cycle is complete? The predatory trading that is being allowed will eventually wipe out the pension plans and 401(k)'s of most Americans. But I guess we're supposed to leave it to the "free market" to regulate it.
...How do you do, Mrs. Roboto-Jones?
http://ftalphaville.ft.com/blog/2009/09/30/74721/mrs-robo-jones-starts-t...
His candor was refreshing but also ominous: "There is much more to be done in the areas of front-running, manipulation, abusive short selling, and just having a better understanding of who is moving the markets and why."
What a crock of crap! this guy's million $ plus salary is paid for by the SIA...btw Mary Shapiro is a millionaire in Ob's cabinet, she has more money than Biden, imagine, regulating pays big bucks.
It seems to me that, mostly, HFT treats investing as as zero-sum game. It seeks to "win" at the cost of others' losing. As such it produces nothing but extracts wealth for itself, and therefore operates as a tax on the productive economy. Those fools who defend it would kill the goose that lays the very golden eggs they like to harvest.
Taxing authority is very very profitable; in fact, it is entirely profit, and those who have this authority are apt to vigorously defend it, especially when they have in effect a government-granted charter to do so. Yes, I mean Goldman.
The entire thing is a show.
An elegant fix might be to save the penny rule..time and price can still rule. Instead of ripping up size to gain ever more fractional cents and blow the volume stats up, let them make the hard 0.01 the liquid space...sorry only two decimal places, get in line and keep it straight!
You are suffering from wrong thinking. You seem to be under the impression that whatever changes are made will have in mind the best interest of your average trader/investor and not just be a charade to satisfy the demand to make it appear that something has been done. Trust that whatever changes are made will only appear to benefit the average trader/investor while leaving a loop hole big enough to drive a truck through so the boys can continue to rake in the big bucks. You see we have already let them know it is okay to do as they wish by our response to their recent thievery and therefore they will never stop taking until we show them otherwise. We will not show them that it is not okay as long as they continue to allow us the current lifestyle we are accustom to. People arent forward looking enough and so they can destroy our future as long as its okay right now we dont care.
it's time to fight back people....pull your money from tbtf banks and stop buying products from the vampire squids....get out of debt....throw away your credit cards....stop being a consumer!!! you butt stupid morons....
build your own companies on your own exchanges....and no it's not as hard as you think....there are enough people on this board to start an honest bank....fuck the wallstreet punkass bitches....
New tax, one dollar for each transaction and we balance the budget!
That trader tax is the worst idea I have ever heard. That Fazio or whatever his name is should be publicly executed for his ignorance.
Of course I agree ... but I am torn ... do I hate GS, JPM, MS enough to cut my own throat ... maybe.
I would be okay with paying a buck a transaction but not a percentage of the total dollar value traded. At that rate I would have to join that special 10.2% group.
Business is good
For several years Wall Street ran amok and then drove the Nation off a cliff in 2008, crashing and burning the economy. The federal government has not punished the main perpetrators, nor reformed the system. Now we have CEO of FINRA warning about the inability to regulate more concoctions of the Wall Street scam artists. It is sickening to see Congress and the federal regulatory agencies do nothing except bark after the horses have left the barn...after the taxpayers are fleeced again.
it's also disgusting to see stupid americans
voting for the same nazi representatives year
after year....this didn't happen over night...you
live in a one party state where nothing will be
done except to patronize you....
it happened while stupid americans sent their
stupid kids to be brainwashed by evil mind
control experts and the stupid parents demanded
more stupid wealth transfers and worshipped at
the feet of mammon and proclaimed these vampire
squids to be gods and sent their stupid kids to
be just like them....
if you have your money in a tbtf bank, fuck you...
Glad to see you've met all 300 million of us and we're all the stupid same.
Heads-up. There's a squid coming your way. Good luck.
Man, I hate when stupid foreigners say stupid things.
wHAT SWING ? Im trying out the hammock, it pays better.
By the way I posted here months ago that no one knows if the HFT switches were off while some outspoken residents here were proclaiming a win over HFT tyranny.
Whose going to check on that, the SEC? LOL...
The computers have taken over! Small investors trying to minute trade, have absolutely no chance. They figure it out quickly when they realize they are trading against supercomputers!
Swing trading is increasingly becoming the only game in town for the small investor.
time123
"MONEY IS THE GOD OF THIS WORLD AND ROTHSCHILD IS HIS PROPHET"
BENJAMIN DISRAELI