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As in most things of this nature, I think a good deal is to be learned by who are the most vocal informed opponents. The most vocal market participants against

by davidmr 13y ago

As in most things of this nature, I think a good deal is to be learned by who are the most vocal informed opponents. The most vocal market participants against HFT are usually large, institutional market makers who used to grow fat on $1/16 spreads and liquidity rebates (Themis, I'm looking in your direction). These guys used to not have to work particularly hard for the cash, but they're getting their lunches eaten by new market participants who can do it faster and cheaper and have built their companies around integrating new tech very rapidly. You'll find people trotting out the same old chestnuts (brain drain, unfairness of server colocation, etc.) but those are distractions from the interesting issues. As an aside, I once had the distinct pleasure of watching a conversation on one of the CNBC programs running in our kitchen in which a NYSE floor trader actually used the phrase "we're the institutional investor looking out for the little guy" while managing to keep a straight face. This dude probably would have curb stomped his own grandmother to pick up a $100 bill. Even the usually sympathetic hosts just laughed outright. I'm surprised that the outrage against HFT is so strong given how comparatively little is at stake there. After the HFT's much, much, much larger financial cousins, the "big bank" market participants nearly destroyed the entire planet's financial system, it's quite a coup for them that they've shifted the outrage to the guys competing over less money than some banks pay out in bonuses. I have no love for anyone in the financial industry (I'm a self-loather, if you haven't noticed), but the HFT guys are way, way further down on my list of people to be pissed off at.

Nimi 13y ago
Mark Cuban's criticism may interest you: http://blogmaverick.com/2012/09/21/what-business-is-wall-street-in-3&#x2F http://blogmaverick.com/2012/09/21/what-business-is-wall-str...; TLDR: ... their stated value add of liquidity does not compensate the US and World Economy nearly enough for the risk of collapse they introduce into the system.
- davidmr 13y ago
  I've read this a few times over the last year, and I still don't know how I feel about it. He's obviously a savvy businessman who knows his way around the equity markets a bit, but I can't shake the feeling that he's confusing a lot of issues and ignoring the more pressing ones. Banning HFT or otherwise regulating them out of business will have about as much of an effect at "bring[ing] our markets back to their original goals of creating capital for business" as banning Super Extra Gulp sodas would have in curbing the obesity epidemic. (Incidentally, that quote about the true purpose of a market is a claim I've never seen proven, and even were that true, it would be only true in the case of equity markets, which are not the only kind.) If one accepts that the financial industry is a perversion of its original goals (whatever they may be), I can think of a lot more effective places to start than the HFT guys: the bond ratings framework that nearly helped lead us to economic disaster; the outsize influence that big banks (i.e. not HFT shops) have in our political climate; the irrational insistence that unregulated financial markets are "best"; etc. Blaming the HFT guys seems to be an easy out rather than tackling the more difficult issues. Judging by the regulatory and legislative response to the crisis (or more accurately, the lack of an effective response), that's true. It's a lot easier to blame a technology that isn't well understood by outsiders than to reform the political election funding system, or to recognize that it is an absolutely mind-numbingly stupid idea to have bond issuers pay to have their own bonds rated and allow them to choose what company rates them. Yes, the flash crash and subsequent events have caused some concern, but these events corrected themselves relatively quickly. It's an issue, but the far bigger issue is that we haven't effectively dealt with the thing that very, very nearly put us in a second great depression.

by davidmr 13y ago

Nimi 13y ago

Mark Cuban's criticism may interest you: http://blogmaverick.com/2012/09/21/what-business-is-wall-street-in-3&#x2F http://blogmaverick.com/2012/09/21/what-business-is-wall-str...; TLDR: ... their stated value add of liquidity does not compensate the US and World Economy nearly enough for the risk of collapse they introduce into the system.

davidmr 13y ago
I've read this a few times over the last year, and I still don't know how I feel about it. He's obviously a savvy businessman who knows his way around the equity markets a bit, but I can't shake the feeling that he's confusing a lot of issues and ignoring the more pressing ones. Banning HFT or otherwise regulating them out of business will have about as much of an effect at "bring[ing] our markets back to their original goals of creating capital for business" as banning Super Extra Gulp sodas would have in curbing the obesity epidemic. (Incidentally, that quote about the true purpose of a market is a claim I've never seen proven, and even were that true, it would be only true in the case of equity markets, which are not the only kind.) If one accepts that the financial industry is a perversion of its original goals (whatever they may be), I can think of a lot more effective places to start than the HFT guys: the bond ratings framework that nearly helped lead us to economic disaster; the outsize influence that big banks (i.e. not HFT shops) have in our political climate; the irrational insistence that unregulated financial markets are "best"; etc. Blaming the HFT guys seems to be an easy out rather than tackling the more difficult issues. Judging by the regulatory and legislative response to the crisis (or more accurately, the lack of an effective response), that's true. It's a lot easier to blame a technology that isn't well understood by outsiders than to reform the political election funding system, or to recognize that it is an absolutely mind-numbingly stupid idea to have bond issuers pay to have their own bonds rated and allow them to choose what company rates them. Yes, the flash crash and subsequent events have caused some concern, but these events corrected themselves relatively quickly. It's an issue, but the far bigger issue is that we haven't effectively dealt with the thing that very, very nearly put us in a second great depression.