Again, With the Same Old HFT Lie?


For years the investing public has been bombarded with a lie – that high frequency trading has brought down trading costs for all investors – institutions and retail alike. This lie always defines trading costs in terms of bid-ask spreads, and retail commissions. When it is told, it is always  presented in the context of comparing spreads and commissions in modern markets (1.2 cents average spread for a large cap and $8 commission for a retail investor) with the cliché 1987 market (25 cents spreads and $75 retail commissions).


This lie has been repeatedly told on major cable business television, in countless newspaper articles, in SEC comment letters, and of course on industry panels. In fact at a TD Securities Market Structure Conference just two weeks ago, one of the panelists – from the buyside mind you – still repeated the trading cost lie in his defense of HFT, and cited the $8 commission.


In past notes we have repeatedly pointed out how spreads have narrowed due to the proliferation of technology and electronic trading, and not high frequency trading. Nanex also has a nice write-up of how HFT does in fact harm investors – here.


And we repeatedly trot out this spread chart,



which demonstrates that spreads have only decreased in the last decade from 2 pennies to 1.5 pennies, and not from 25 pennies to 1.5 pennies. The above chart also shows that spreads have actually leveled off and even increased since HFT has exploded.


And while Direct Edge’s CEO, Bill O’Brien, continues to advocate the $10-retail-commission-defense of high frequency trading, as he did in this Market Watch blog on November 19th (Investors Aren’t Getting Ripped Off), where he called ICE/NYSE Ceo Jeff Sprecher “irresponsible”, we simply would like to leave this morning’s note  by asking you to look at this picture:




It is an Ameritrade advertisement from 1998 that is advertising $8 trades.