Corporate Media Spotlights Distortion of Market by High Frequency Trading → Washingtons Blog
Corporate Media Spotlights Distortion of Market by High Frequency Trading - Washingtons Blog

Thursday, July 23, 2009

Corporate Media Spotlights Distortion of Market by High Frequency Trading

The corporate media - after ignoring the fact that high frequency trading skews the market - is now starting to spotlight it.

Bloomberg interviewed the former head of Nasdaq, who says that high frequency traders account for 73% of the volume on the stock market, and skews the market when it gets out of balance.

The New York Times hits the issue pretty strongly, writing:

Nearly everyone on Wall Street is wondering how hedge funds and large banks like Goldman Sachs are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer [My Comment: Tyler Durden has shown that Goldman Sachs is by far the largest program trader in the market, twice as large as the next biggest. Tyler also publicized the issue of high frequency trading long before almost anyone else, so I am really just summarizing what he has previously said] ...

Yet high-frequency specialists clearly have an edge over typical traders, let alone ordinary investors. The Securities and Exchange Commission says it is examining certain aspects of the strategy.

“This is where all the money is getting made,” said William H. Donaldson, former chairman and chief executive of the New York Stock Exchange and today an adviser to a big hedge fund. “If an individual investor doesn’t have the means to keep up, they’re at a huge disadvantage”...

PCs have been unable to compete with Wall Street’s computers. Powerful algorithms — “algos,” in industry parlance — execute millions of orders a second and scan dozens of public and private marketplaces simultaneously. They can spot trends before other investors can blink, changing orders and strategies within milliseconds.

High-frequency traders often confound other investors by issuing and then canceling orders almost simultaneously. Loopholes in market rules give high-speed investors an early glance at how others are trading. And their computers can essentially bully slower investors into giving up profits — and then disappear before anyone even knows they were there...

High-frequency traders also benefit from competition among the various exchanges, which pay small fees that are often collected by the biggest and most active traders — typically a quarter of a cent per share to whoever arrives first. Those small payments, spread over millions of shares, help high-speed investors profit simply by trading enormous numbers of shares, even if they buy or sell at a modest loss...

The rise of high-frequency trading helps explain why activity on the nation’s stock exchanges has exploded. Average daily volume has soared by 164 percent since 2005, according to data from NYSE. Although precise figures are elusive, stock exchanges say that a handful of high-frequency traders now account for a more than half of all trades...

While markets are supposed to ensure transparency by showing orders to everyone simultaneously, a loophole in regulations allows marketplaces like Nasdaq to show traders some orders ahead of everyone else in exchange for a fee...

Andrew M. Brooks, head of United States equity trading at T. Rowe Price, a mutual fund and investment company that often competes with and uses high-frequency techniques [said] “we’re moving toward a two-tiered marketplace of the high-frequency arbitrage guys, and everyone else.”


  1. The current emphasis on high frequency trading is an obfuscation taken to imply, if high frequency trading is somehow corraled, the markets -can return to performing their public function better.

    If not an intentional ruse, this is surely a stupendous misconception. And more likely it is the former.

    The much deeper question about any possibly proper function of the markets in today's complex societies -is the only question to ask at this juncture.

    Addressing high frequency trading as if it might be some required-cure instead of a symptom -will merely run the plague-infested rats out of the ship's galley and send them again down into humanity's sleeping quarters.

    Step back, -and ask yourself- Does the market serve ANY function other than to enable and provide for a complex venue of swindles and syphoning of humanity's potential to get along in this world, -without debasing the future?

    Take a look around.

    Take a good look around.

    If you will look with sharp eyes, you will find there isn't a single publicly traded company anywhere that enhances humanity's prospects.

    The corporatization of the world economy has made every human a slave to endless bureaucracy.

    We all live in a Hell made of endless voice messaged customer services relating to products none of us really wants or needs.

    And the new gamut of our enslavement is forcing all of us to accept Internet-provided virtual customer services that are even more draconian.

    The current emphasis upon high frequency trading is a ruse meant to make you think the beast can be tamed.

    You're a f-ing fool as big as those who play the market -if you believe that.

  2. this is exactly why insitutionals need to be scrutinized. seeing orders before they happen should be made illegal...its cheating really isnt it??

    that guy at has been right about this all along...and say it will soon change.

  3. Sorry

    I agree the small investor does not partake in the markets on an equal footing. There does need to be put into place- checks and balances.

    ENRON caper helps us understand that the smartest guys in the room will take advantage of those less saavy and embrace this as the "American Way".

    The fix will not be an easy one.

  4. High frequency specialists clearly have an edge over typical traders. The SEC says it is examining certain aspects of the strategy in public works environment.


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