While reading Advanced Trading today we stumbled across the following curious excerpt:
Advanced Trading: You mentioned regulators and politicians are ignorant ...
[ITG's Jamie] Selway: I would say that their knowledge is incomplete.
Advanced Trading: Is this causing HFT to be scape-goated?
[ITG'S Jamie] Selway: Yes, there's a mixture of that. I am fond of saying I am not a huge regulations guy but I am a fan of regulations at an appropriate level that boosts confidence. I for one would prefer to be regulated by the SEC and not by ZeroHedge. So we have a team of experts and multiple agencies that are expert in regulations and know the markets and have the resources.
And here we were thinking that after three years of reading us, at least the supposedly more sophisticated market elements would have moved beyond merely pedestrian stereotypes. Alas, as always happens when we assume anything other than sheer stupidity, we end up 100% wrong.
Here's the deal Jamie: Zero Hedge, knowing full well we are quite mortal, and as like everyone else - very susceptible to temptation - realize we too 'have our price', would have no interest in finding out just what said "price" may be, by succumbing to bribery or any other form of corruption by you and/or your HFT peers and competitors. Nor do we have an interest in pretending to "regulate" you for several years, then submitting our resumes to you, tired of five figure government jobs, and expecting some quid pro quo in exchange for all those years when we saw the HFT 'lobby' engage in gross market manipulation, and demanding some form of equitable recompense, preferably in a far better paying job (for example moving from the NASD to Goldman Sachs... in a purely hypothetical scenario of course) but really anything with a lot of the zeros (that we enabled) at the end of it, would do.
We have no interest in that.
We realize that makes us different than the SEC. Because frankly, just like you, we also realize that the first entity to be purchased in any regulated venue, is none other than the regulator. Which in the absence of the SEC, we assume would be us.
We have no interest in that either.
But more importantly, we would not even dream of regulating you, or anyone else for that matter, because frankly, unlike the collapsing and insolvent status quo, we believe in the myth of a fair market, one where a room full of academics does not believe it is smarter than the collective rational whole of countless unitary market actors.
We believe in a market that regulates itself.
That means that the banks can go hog wild in loading up on CDOs, selling CDS, leveraging themselves 1000x times, and whatever else they feel like doing in pursuit of that ever more elusive ROE, but when they blow up, as they always inevitably do in a world in which they know that the politicians and regulators they have purchased have no alternative but to rescue them, they blow up. Period. Game over: not a penny in taxpayer money would ever be used to rescue them.
That means abolishing the Fed, firing the 10 academics that determine the fate of the world on a daily basis, and letting the market itself determine the true cost of money. Of course, that also would mean scrapping generations of Ivy League-taught economists as their art, pardon science, is exposed to be the flawed and erroneous travesty that has led the world to a precipice, whose outcome could easily be global war next. Just like that last time.
But that is irrelevant to you.
What is relevant, is that we would most certainly let you and your "market-making, liquidity providing" colleagues run amok in the market, sub-pennying each other, stub quoting endlessly, churning and quote stuffing to the point where you and all your HFT peers drive the last remaining real investor out of the market, in the process sending volatility to record proportions and terminally breaking what's left of the a stock market. At that point the real cannibalization can begin, which is the only way that the market can eradicate itself of the scourge that is HFT - because what would happen then is the perfectly normal and long overdue reversion to the mean, long pushed away from its equilibrium point courtesy of endless artificial intervention propping up parasitic trading, or, said otherwise, your quarterly EPS bottom line, which of course, is all your care about.
Incidentally we have seen what happens when HFT is not regulated, such as ever since the adoption of Reg NMS: first an algorithmic take over of all trading, then a flash crash, then hundreds of billions in retail capital outflows as the retail investors figure out what a sham (and scam) the marketplace truly is, and finally the collapse in volume, which as you well know Jamie, is the death knell for you and your peers.
What is most ironic in all of this, is that the second before you pull the plug on your algos for the last time, as the hollow market collapses under its own weight, you will wish that Zero Hedge had been regulating you...
It will be too late.