HFT has proven to be singularly destructive. Despite the claims of it defenders, it does not increase market liquidity; it merely increases trading
volumes without improving ease of execution. 60% of US stock market trading volume comes from HFT. HFT has undermined how markets operate. Institutional investors have diverted some of their trades to “dark pools” to escape the pred Retail traders have become increasingly distrustful of equity markets, thanks to HFT-related debacles like the flash crash and Kraft’s first trading day at NASDAQ, when its initial trades had to be cancelled.She quotes Bart Chilton, Commodity Futures Trading Commission chairman:
Today I’m suggesting that we look, not at each day of trading as being one violation, but instead look at each second. That’s right: each second. So, for every second that a cheetah trader is engaged in conduct that violates our law, we could fine them the statutory maximum of $140,000—and that could add up to sufficiently high penalties so that they actually mean something. Hey, this type of unfathomably fast trading can reap millions for the guys betting with their algorithms, and at the same time it can wreak havoc on our market players and legitimate trading of investors and consumers—we need to have a fitting consequence for rule violators, a whack that actually has some teeth.
I’m calling today for this new type of calculation, because if we don’t do something like this, our fines can be essentially meaningless—just a slap on the wrist, cost-of-doing-business. It’s this simple: if you’re making millions in seconds, then you should be liable for fines for bad conduct, counted in seconds. I know this is a revolutionary way of thinking about money penalties, but I believe it’s a necessary step to take in order to both deter illegal conduct and assess sufficient penalties to bad actors in our markets.
I think our text would lead us to believe that regulation will eventually be put into place. But the process will take a while.
I think either of these strategies could be very effective, and could be beneficial to our marketplace. High frequency trading makes a mockery out of our stock exchanges, and essentially turns them into casinos wherein the house has no advantage, and the players often get paid just for playing.
ReplyDelete