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HFT Lobby : Waaaaaaaaaaaaaaah!

18

July, 2011

Did you guys get a chance to glance at the NY Times yesterday? In the business section, there was an article by Graham Bowley titled Fast Traders, In Spotlight, Battle Rules. It details how normally secretive high frequency trading firms are trying to improve their image with regulators, the Public, and Long-term investors. As we have detailed in past notes, the HFT
groups have organized a Proprietary Trading Group Lobby, comprising of 31 firms currently, to get the game stacked in their favor in Washington DC.

 

Sigh. They are sad that they are viewed as parasites that have been sucking off the hosts. They are sad that folks are getting educated to their dangers. They are sad that, while initially only
select firms and voices (certainly ours), spoke out against their tactics, now even the large brokerage firms have been forced to admit that their own HFT, as well as the smaller HFT firms, are damaging to investors. They are sad that large brokerage firms have come out with anti-HFT tools with cool names, to protect long term investors from the HFT.

 

Some of the articles more important points:

 

- The HFT lobbying group spent $690,000 last year, double what they spent in 2009.

- They gave $550,000 to lawmaker’s political campaigns in 2010.

- The CFTC’s Chilton calls them Cheetahs who are first to kill markets and may be
gaming the system.

- Says Cameron Smith, ex SEC lawyer in market regulation, and currently Quantlab HFT
employee, “you don’t want to turn the clock back.”

- Some firms have hired SEC staff members as well as employees of foreign regulators:
Getco has hired John McCarthy and Elizabeth King.

- Arthur Levitt and Richard Lindsey, both former SEC senior officials, are advisers to
Getco.

- Iowa’s Senator Charles Grassley had this to say about HFT and Regulators: “It seems
like the revolving door at the SEC is constantly spinning. I am worried. It raises a lot of questions about whether they are doing the work when they are at the SEC.”

- This chart is awesome:

 

The HFT Lobby states that they want to improve their image with Regulators, the public, and investors. But what the lobby states and what it does are not congruent. It appears to us that they are spending their money much more on influencing and buying political and
regulator support
, than they are on fixing their image with the public and investors.

 

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