It seems our views on the flaws in our equity market structure, and some high frequency trading, has caught the attention of a professor at the University of Houston’s Bauer College of Business – a Mr. Craig Pirrong, who penned a rather nasty and unprofessional note on his blog, the Streetwise Professor. You can read it here. If you read the post, replete with expletives, and you read some of his past posts, replete with expletives, and you read his tweets on twitter (@streetwiseprof) you will get to the essence of Mr. Pirrong – he just rolls that way.
Now, our feelings are not hurt by Pirrong’s attack on us for criticizing the latest BATS system glitch; actually we are amused. We routinely expect adversity, especially when we are speaking out against market microstructure issues of unfairness that damage the integrity of our equity markets, and especially when we speak out against big groups and exchanges intent on protecting the billion dollar investments they have made since 2005.
When Pirrong is not blogging continually during the day, or continually tweeting, he is regarded highly in the field of energy markets research. He holds himself out proudly as an expert witness in “complicated derivatives and commodities regulation.” He has defended high frequency trading in energy markets often, as well. In this video at the 1:15 mark, which is prominently placed on the CME Exchange’s website, you can watch him liken high frequency traders to “automated locals”. LOL. And you can read his some of his studies if you choose, that are also commissioned by stock exchanges, including the CME. That Pirrong is a smart professor, we have little doubt. One might even say that he is one of the smartest professors money can buy!
With regard to our positions on BATS system glitches, we stand behind what we know as traders, and exchange members. While HFT and Exchange apologists prefer to throw out tired talking points (i.e. the markets today are no more unfair than the system that allowed specialists and old boy networks on the trading floors of yesteryear), we deal with the microstructure facts that energy market expert witness/ professors/ study churners might not know about US equity markets. We, as traders and practitioners in the field understand nuances that someone like Cocky Craig might not. Like:
- The Maker Taker Pricing Model, and the guaranteed economics rebate maximization algos it caters to (buy and sell at the same price and still make money).
- Complex, and often undisclosed/undocumented order types designed to insure that certain high speed traders jump ahead in line at each price level.
- The difference between shallow pools of non-diverse fragmented liquidity, versus deep liquidity pools (plural) with diverse participants, and the implications each have for market integrity and robustness during times of stress.
- Fleeting Liquidity that disappears in a microsecond.
- Quote stuffing, and latency arbitrage.
So cheers Cocky Craig, we enjoyed your hit piece on us. While frankly we don’t understand how you could opine how getting confidence in the energy markets back after Enron was so important, yet not have that opinion today with regard to the equity markets. Perhaps the CME didn’t commission you to do studies back then, we guess.
Anyhoo we wish you well. And if we are ever in the market for a commissioned industry expert in the energy field, we will be sure to look you up.