This Is Why High Frequency Trading Will Never Go Away

Tyler Durden's picture

In April of 2009 we warned very explicitly that reliance on the fake "liquidity" (which was never liquidity per se but merely volume and churn) by the HFT algos that stuff quotes, frontrun each other, spoof, layer, and generally make a mockery out of the thing fomerly known as the market (which is now more than anything a policy vehicle for central planners but that's a different story) would result in tears. A year later the first flash crash happened, and ever since then more and more people have finally realized how our 3+ year long crusade against HFT (which sadly is now a minor distraction against the far greater evil which is central bank dominance of capital markets) was spot on, confirmed by the recent segments (here, here and here) on CNBC which effectively confirmed the markets are not only a joke, but without any real depth, i.e. fake. What is amusing is that people still don't understand why the exchanges, and the regulators (coopted by the exchanges) allow HFT to continue. Here is the answer: in 2011 the CME made 31.5% of all its revenues from HFT, the ICE: 25.1%, the NYSE: 21.4%, the Nasdaq: 17.1%, the CBOE: 22.4%, and so on.

In 2012, according to Raymond James estimates, these HFT-driven revenues will rise even higher. Logically, should HFT be curtailed in any way, the two biggest futures exchanges, where open market manipulation most notably via synthetic, NY Fed endorsed reflexive products such as ES takes place every single day, CME and ICE would collapse (not to mentioin the traditional equity trading venues). So for those curious just why HFT will never go away, until we have the next, and most likely, last market crash, speak to the exchange CEOs. They know the whole story.

Source: Raymond James