We have watched in recent weeks increased scrutiny to the highly opaque world of HFT. We are happy to have aided many others in shining a light on these murky waters. We are less than happy, however, to hear our name sullied by some, who have accused us of self promotion. We have a history of having our goals alligned with the buyside, and we stand by that history.
We make these observations:
1. In recent years exchanges have become for-profit, and less regulated, and more self-regulated.
2. In recent years trading technology has become increasingly sophisticated.
3. In recent years HFT has taken off. 70% of the tape’s volume is HFT. Their might and “business level” is much sought after among the for-profit exchanges. These exchanges need to show growth and increases to their shareholders. That is a higher priority for them than self-regulating, and providing a level and transparent playing field.
4. Few understand HFT.
5. HFT is highly profitable.
6. Some HFT is rebate driven.
7. The rest of the HFT is predatory (detect institutions and front run those orders).
8. Institutional trading has been decimated in recent years (courtesy of hedge fund deleveraging and a generally shocking market sell off. Their “clout” and power to have their voices and needs be addressed by for-profit exchanges is diminished.
9. Trading institutional orders means managing “wiggle and ripple” more today than ever before. Ask any buy-side trader at the next Trader Forum.
Joe and I did not write the HF computer codes. We are not proclaiming that they should be eliminated. We do not blame HFT for our budget deficit. We don’t question whether HFT falsely proclaimed a lunar landing.
However, Joe and I do question how it came about that a secretive method of highly profitable trading now accounts for 70% of the trading volume today. We question that it is being done by a little understood group, with little understood motives, and with little regulatory oversight and understanding. We question how 70% of the tape will react during a “crash” . Is today’s HFT akin to 1987’s “portfolio insurance trading”? It is good for us to question it, and others to debate it.
We want a market that is fair and transparent for all, with fair an equal access for all. Most of all we want a market that will be fair and thriving for all. Tomorrow, next week, and 5 years from now. We have a history of being agency-only no-conflict brokers for our clients since the early 1990’s. Our goals have been aligned with the buy side community back then, today, tomorrow, and also 5 years from now.
We just wanted to throw that out there. Thanks for everyone involved in the debate, no matter your point of view.
Sal and Joe