New HFT Lobbying Effort in US
We apologize in advance – this note is “link-heavy”; the facts demand that.
You may recall that in August we sent you a note about a new website that had just been created by a group called the Modern Markets Initiative. At the time it did not list its membership, although it proclaimed it was going to shine a light on the positive attributes of high frequency trading. Well, this group has finally gotten off the ground officially, complete with a Wall Street Journal “Coming Out” story, titled High Speed Traders Form Trade Group To Press Case. And their website has a blog defending high frequency trading with a few studies, and it does list its membership, which currently includes:
– Global Trading Systems
– Hudson River Trading
– Quantlab Financial
– Tower Research.
Incidentally, Hudson River Trading, Quantlab, and Tower Research are also members of the European Principal Traders Group – along with RGM Advisors, Sun Trading, Jump Trading, DRW Investments, Infinium Capital, Chopper Trading, and Getco.
It is not surprising that these firms are tired of the negative publicity associated with their industry, and even their own names. After all, the press has reported extensively on how these firms profit from “early peek” economic data, as well as some of these firms’ runaway algos that have wreaked havoc on our markets – as was the case with Infinium. The press has also reported on manipulative practices by high speed trading firms frequently – including a recent CFTC action against PTG Lobbying Group member DRW Investments for “banging the close” and “spoofing.” There are other significant press articles that have not painted high frequency trading firms in a positive light, including this expose on Tower Research’s Mark Groton. I suppose we could keep going, but you get the idea. That is why they feel like they need to go on the offensive and change their image.
This is not the first time these HFT firms have made use of lobbyists, clearly. In the past they have hired lobbyists extensively to affect rule change with law and policy makers, as this Wall Street journal article highlights, as does this New York Times article. However, this Modern Markets Initiative does smell different. They have hired some very big guns in DC to change their image: Kevin Madden and Blue Engine Media’s Erik Smith, who have worked on image at the highest level – Romney’s and Obama’s campaigns. This group’s goal will likely focus less on talking to law and policy makers, and perhaps more on changing perception. This might entail changing the name of high frequency traders (HFTs) to Automated Trading Professionals (ATPs). It might entail attacking critics, such as Nanex and Themis Trading (messengers), head on. We shall see.
For now, just know that their game is being raised, as the stakes are larger than they want you to believe. And know that we will continue to poke holes in their arguments using facts and research, as we have in the past. After all, this debate is not about the messengers; it is about the function and purpose of our capital markets.