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Because barriers to trade have worked so great in the past... This is just another fluff piece without too many rational arguments, based on a completely irrat

by tomp 11y ago

Because barriers to trade have worked so great in the past... This is just another fluff piece without too many rational arguments, based on a completely irrational fear of HFT. Arguably, HFT and hedge fund have made the markets much more micro-efficient in the past decades (as wittnessed by the difficulty of finding new arbitrage opportunities); we have to thank the central banks and big institutional investors for macro-inefficiency. > one that applies a tiny tax rate to an array of transactions and is split between buyers and sellers I think the current situation, where exchanges basically "tax" those who take liquidity and reward those who provide it (i.e. the fee of a market order is split between the exchange and the person who entered the limit order) is much better at providing stability to the market. > which generate windfall profits on small and fleeting differences in prices at the expense of ordinary investors and market stability Well, the idea behind is that prices (e.g. same stock on different markets) should converge. If you don't want that, by all means, tax the market. > The burden of this tax would be concentrated at the top, because that’s where the ownership of financial assets is concentrated Nope, it doesn't matter where ownership is concentrated. What matters is where trading is concentrated. E.g. HFT or every time you get paid and invest a portion in your income in a stock index-backed pension scheme.

qpsk88 11y ago
> I think the current situation, where exchanges basically "tax" those who take liquidity and reward those who provide it I like you explaination, but exchanges are nowadays mostly private companies so the 'tax' goes to shareholders and not to the state.
- tomp 11y ago
  Exactly, which encourages competition - exchanges can either reduce this tax (earning less per trade, but encouraging more volume), or maybe even increase it (rewarding liquidity more, and so improving the trading process).
  - qpsk88 11y ago
    Point taken, but competion is not a value by itself, tax money is.
    - tomp 11y ago
      I disagree, I think orderly markets are the goal. Ideally, the government should collect as little tax as possible, while providing rules that promote the good (e.g. competition) and discourage the bad (e.g. violence, externalities).
EliRivers 11y ago
Because barriers to trade have worked so great in the past... Without commenting on this particular barrier to trade, it's certainly the case that in the past, some nations have put up barriers to trade that have worked out very well for them.
- JBReefer 11y ago
  Such as?
  - EliRivers 11y ago
    A number of nations that have managed to push themselves from impoverished status to first world over the last 60 or so years did it by shielding their nascent industries with various protectionisms. Japan and South Korea spring to mind.
  - n4r9 11y ago
    Banning the transatlantic slave trade has had its perks. That's just my opinion tho.
mabbo 11y ago
I think the worry about HFT is mainly that the value to society of adding liquidity does not outweight the cost of the money being extracted by these companies. It doesn't feel like a good deal- it feels like we're all being cheated. The hard part about analysing whether is actually is good is in trying to figure out just what value we should place on added liquidity. Can you explain why the value to society of the additional liquidity from HFT outweighs the cost (large profits to companies doing nothing else)? Not being facetious, actually interested in hearing your thoughts on it.
- ConfuciusSay 11y ago
  Except that even the Fed now admits that HFT's only add liquidity precisely when it's least beneficial (when nobody needs it) and reduces it when it's needed. Don't buy into the HFT "adding liquidity" myth.
  - phil21 11y ago
    Yep. At risk of adding a "this" comment I've spent years reading on the subject, talking to some of our customers who are HFT, and generally just thinking and learning about it. I still can't figured out a single value-add they bring to the table, much less to justify their insane compensation or the incredible technology budgets they carry. It's simply sad to me to see some of these brilliant minds (at least on the tech side where I interact) essentially engaged in ripping off fellow citizens at worst and rent-seeking at best. Of course if you engage them, they will get all hand-wavy about "liquidity" - but I think it's striking that not a single person I've talked to has been able to distill the benefit they bring to society in a simple sentence or paragraph. It always ends with the "most people can't understand" which as I get older I've learned is a euphemism for either "I don't know" or "I don't want to tell you the truth". Either way, so many billions of dollars taken from the economy and put into useless activity. Absolutely no one will be able to convince me we need millisecond-level liquidity for markets to function efficiently.
    - tomp 11y ago
      HFT don't provide liquidity for liquidity's sake. They make markets more efficient, i.e. closer to the "one true price" (not necessarily the fair price, because there's no way HFTs can outbid all the money collected in index/sovereign founds or printed by central banks). They also reduce the spreads. For an ordinary person, they improve the markets. The complaint about "brilliant minds being wasted" rings true, but you could make the same complaint about all of finance, and even most of Silicon Valley focused on extracting rents by serving ads - both are ultimately zero-sum games where insiders profit at the loss of society. I think the ultimate problem is, there are no real problems that smart people could work on and make a contribution (and earn a good living) - or at least I don't see any.

by tomp 11y ago

qpsk88 11y ago

> I think the current situation, where exchanges basically "tax" those who take liquidity and reward those who provide it I like you explaination, but exchanges are nowadays mostly private companies so the 'tax' goes to shareholders and not to the state.

tomp 11y ago
Exactly, which encourages competition - exchanges can either reduce this tax (earning less per trade, but encouraging more volume), or maybe even increase it (rewarding liquidity more, and so improving the trading process).
- qpsk88 11y ago
  Point taken, but competion is not a value by itself, tax money is.
  - tomp 11y ago
    I disagree, I think orderly markets are the goal. Ideally, the government should collect as little tax as possible, while providing rules that promote the good (e.g. competition) and discourage the bad (e.g. violence, externalities).

EliRivers 11y ago

Because barriers to trade have worked so great in the past... Without commenting on this particular barrier to trade, it's certainly the case that in the past, some nations have put up barriers to trade that have worked out very well for them.

JBReefer 11y ago
Such as?
- EliRivers 11y ago
  A number of nations that have managed to push themselves from impoverished status to first world over the last 60 or so years did it by shielding their nascent industries with various protectionisms. Japan and South Korea spring to mind.
- n4r9 11y ago
  Banning the transatlantic slave trade has had its perks. That's just my opinion tho.

mabbo 11y ago

I think the worry about HFT is mainly that the value to society of adding liquidity does not outweight the cost of the money being extracted by these companies. It doesn't feel like a good deal- it feels like we're all being cheated. The hard part about analysing whether is actually is good is in trying to figure out just what value we should place on added liquidity. Can you explain why the value to society of the additional liquidity from HFT outweighs the cost (large profits to companies doing nothing else)? Not being facetious, actually interested in hearing your thoughts on it.

ConfuciusSay 11y ago
Except that even the Fed now admits that HFT's only add liquidity precisely when it's least beneficial (when nobody needs it) and reduces it when it's needed. Don't buy into the HFT "adding liquidity" myth.
- phil21 11y ago
  Yep. At risk of adding a "this" comment I've spent years reading on the subject, talking to some of our customers who are HFT, and generally just thinking and learning about it. I still can't figured out a single value-add they bring to the table, much less to justify their insane compensation or the incredible technology budgets they carry. It's simply sad to me to see some of these brilliant minds (at least on the tech side where I interact) essentially engaged in ripping off fellow citizens at worst and rent-seeking at best. Of course if you engage them, they will get all hand-wavy about "liquidity" - but I think it's striking that not a single person I've talked to has been able to distill the benefit they bring to society in a simple sentence or paragraph. It always ends with the "most people can't understand" which as I get older I've learned is a euphemism for either "I don't know" or "I don't want to tell you the truth". Either way, so many billions of dollars taken from the economy and put into useless activity. Absolutely no one will be able to convince me we need millisecond-level liquidity for markets to function efficiently.
  - tomp 11y ago
    HFT don't provide liquidity for liquidity's sake. They make markets more efficient, i.e. closer to the "one true price" (not necessarily the fair price, because there's no way HFTs can outbid all the money collected in index/sovereign founds or printed by central banks). They also reduce the spreads. For an ordinary person, they improve the markets. The complaint about "brilliant minds being wasted" rings true, but you could make the same complaint about all of finance, and even most of Silicon Valley focused on extracting rents by serving ads - both are ultimately zero-sum games where insiders profit at the loss of society. I think the ultimate problem is, there are no real problems that smart people could work on and make a contribution (and earn a good living) - or at least I don't see any.