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It's interesting to note that the effect of this transaction tax would be to 'reduce volatility' in the market. I say this because recently I watched the Author

• AnthonyMouse 14y ago
  I think it's important to distinguish between volatility within a market (e.g. hog futures) and volatility in The Market, meaning the whole economy. The first is perfectly normal and its absence across the economy would be very strange if not dangerous. The second one is the problem -- when it happens it's because you're on the losing side of a systemic risk. It isn't that hog futures go up or down but everything is still fine for normal people because the DJIA only moves by a tenth of a percent, it's that some jackass causes a panic and a trillion dollars disappears out of the economy for no good reason. The latter is something everyone should want to prevent, which is why all the talk at the individual level about diversification and hedging. But the same goes at the macro level: We need to "diversify" the banks and major industries so that no individual company is too big to fail anymore, so that we can have volatility within specific industries without it breaking the whole world economy. And the sort of volatility HFT creates is the second kind. When something bad happens, it happens across the board, regardless of the "fundamentals" of the underlying industries. Even when it's "working" the result is only to transfer wealth from ordinary stockholders to high frequency traders, which is a net loss for anyone who isn't a high frequency trader.
  • daemin 14y ago
    My understanding of the point in the video is that the volatility resulting from the systematic risk is a symptom of the market not having enough normal/baseline volatility to clear out the dead wood, so to speak. Quite analogous to forest management, where more smaller fires clear out the fuel on a regular basis so that a large scale fire cannot occur. Now it is probably the case that the HFT traders make The Market far more intertwined than is sensible, and hence far too combustible as a whole. In the video Taleb points out that he favours many smaller organisations over fewer larger ones for the simple fact that within an ecosystem a few small systems can fail with little negative effects on the whole. Where as if a large system fails it is far more catastrophic. So perhaps the solution here is to make some sort of upper limit in financial (HFT, Banks, etc) firms so that there would be more smaller ones, where failure would be more common and the destruction of smaller companies should not disasterously affect the system as a whole. That said, the recent wiping of trillions of dollars in value, seemed to be an effect of the many years of apparent calm. With a lot of companies creating new derivatives with the appearance of safety but were anything but safe. To bring it back to the parent article, I do agree that everyone on the exchange should be paying some sort of transaction fee, I have to pay one when trading shares, and so should other traders.