Themis Trading Blog
<< Go Back

Laszlo Birinyi Market Structure Comments from “the next CRASH: II”

28

September, 2012

One of the reasons we wrote “Broken Markets”  was to encourage open debate about our current market structure.  For many years, the debate was held behind closed doors by Wall Street and Washington DC insiders. But since our book was published in May of this year, we have been happy to see the market structure debate being held in public with many new voices entering the ring.  One voice that has been consistent over the years has been that of Laszlo Birinyi of Birinyi Associates.  Most of us are familiar with Laszlo Birinyi’s long Wall Street career as a stock picker and market analyst (and for us old timers, his frequent appearances on Louis Rukeyser’s Wall $treet Week).  But Laszlo has also been a long time critic of market structure issues as well.  Back in December of 2000, he published a study titled “Decimals, ECN’s and 24/7“.  This was followed by other market structure studies including a very prescient study published in August 2007 titled “the next CRASH.”

Birinyi Associates just published a new report titled “the next CRASH:II” which we think is a must read for all involved in the market structure debate.  The report analyzes speed, trading costs and liquidity and is very critical of some defenses that the HFT proponents constantly use.  Laszlo has given us  permission to reprint a few parts of the report:

“Defenders of the new era generally recognize the moles and warts of high frequency trading, fragmented markets, technical glitches but argue that the benefits of faster executions, lower transaction costs, and increased liquidity more than offset the cons.  We wonder.”

 “For one, we totally reject the contention that the bid/ask is a measure of liquidity and cost.”

 “Electronic trading and all of its ramifications (high frequency, dark pools, after hours) too often result in disruptions, egregious executions and tilted playing fields.  While they are not always dramatic they are unsettling, too frequent , and destroy confidence in markets and regulators.”

 “We wonder if academics, regulators and even professional investors are aware of the breaches in the NMS blueprint.”

 Ultimately, we submit, that the SEC’s ambitious intent of creating a level trading field and “democraticizing” investing has been overwhelmed by the world of dark pools, high frequency trading, trading mischief and self-serving instruments.”

Compare the above statements to that of what an HFT proponent, Jim Overdahl, had to say in a recent USA Today  piece:

“But, in seeking ways to improve market infrastructure, policymakers should ensure their actions are based on solid evidence and rigorous analysis…When considering this issue, senators would be well advised to abide by the medical profession’s axiom of “first, do no harm.

We think the better argument is the one being made by Mr. Birinyi who deeply cares about the long term strength of our equity markets.  He is worried about the havoc that HFT has caused and is warning regulators to act now.  Compare that to Mr. Overdahl who just wants to continue the status quo.

 

 

Post a Comment

You must be logged in to post a comment.

Home | Who We Are | The Themis Approach | Market Structure Analysis | Newsroom | Blog | Contact
Member FINRA & SIPC | Regulatory Disclosures | Copyrights ® 2014 All Rights Reserved By Themis Trading LLC
wp_footer()