Sister Barbara Is No Fan Of High Frequency Trading
The CFTC has received 27 comment letters thus far on their Concept Release on Risk Controls and System Safeguards for Automated Trading. After reviewing these letters, it is obvious to see that the battle lines are clearly drawn.
On one side we have the high frequency trading firms and their proponents. As expected, since it was their livelihood that the CFTC questioned in their concept release, the HFT proponents were very involved in the comment letter process. Their main lobby group, the Futures Industry Association, submitted an 85 page manifesto applauding the benefits of high frequency trading and warning that slowing down high speed futures trades would hurt investors by driving up their costs. Another trade group, the Managed Futures Association, submitted a supportive letter of the current market structure. Firms like Citadel, KCG, Allston and Geneva Trading all submitted letters that were generally in favor of current market practices and warned that changes like a reduction in order types could harm liquidity. They also seemed to be in favor of not defining high frequency trading.
While we expected a flood of pro-HFT letters, we were quite surprised to find a number of comment letters which were critical of HFT. Better Markets, the Chicago Fed, The University of Michigan, the University of Maryland, George Washington University, and Americans for Financial Reform all submitted comment letters which were critical of current trading practices. There were quite a number of suggestions on how to improve our markets including the introduction of batch auctions, the expansion and standardization of the high frequency trading definition, limitation on order types and a cap on the order/cancellation ratio.
Obviously, you know where we stand on the issue. But we thought we needed an impartial voice, one that hasn’t been heard from before to give an honest and unbiased view of the issue. Who could we turn to for such an opinion? How about the Sisters of Charity who are based in Elizabeth, NJ? No doubt the Sisters would give us an honest opinion.
We happened to find a quote from Sr. Barbara Aires who is the coordinator of corporate responsibility for the Sisters of Charity that fit perfectly with our topic today:
“As a faith-based and values-driven coalition of investors who recognize the social purpose of the sector and are, therefore, concerned with the stability of global markets, risk management was one of the four themes we surveyed to gauge a bank’s ability to withstand financial and non-financial pressures, and to ensure that shareholders and society do not bear the burden of inadequate risk management policies. We found that while banks report some enhancements in their enterprise risk management, to date we have little or no evidence of the effectiveness of these reforms. We were further concerned by the banks’ lack of transparency around high-risk trading such as dark pool operations which are conducted anonymously and high frequency trading which can disrupt market stability through the speed and volume of orders executed within seconds.”
There you have it. We have an answer from a higher authority. Maybe Sr. Barbara will file a comment letter with the CFTC.