Did Electronic Trading Shrink Spreads, or Did HFT? Ask Nanex

In a recent Bloomber TV piece, we spoke with Eric Schatker and Stephanie Ruhle about dangers in high speed trading (Bloomberg TV). In that segment, at roughly the 6:25 mark in, Eric Shaztker put up a chart sent to him by the HFT firm RGM Advisors. This chart demonstrated how spreads have narrowed in recent years. Firms like Richard Gorelick’s, as well as other firms in the HFT Lobbying Consortium known as FIA, have been active in claiming that the narrowing of bid-ask spreads in the marketplace over the last dozen or so years can be attributed to their HFT activities.

Eric Hunsader at Nanex digs into this claim. What are his thoughts? Please read his piece below (HINT: It’s the electronic trading that has narrowed spreads, and not HFT – under whose reign spreads have stagnated and even risen):