Southeastern’s Letter on Market Structure and HFT Is A Must Read


It’s been a while since we have heard from the good folks at Southeastern Asset Management.  You may recall that back in 2010, Southeastern voiced their concerns over our equity market structure with a strongly worded  comment letter  to the SEC.  At the time, they were one of the few institutional voices to express their concern over questionable practices like rebates and data feeds. Since then, many more institutional and retail voices have spoken up while our regulators continue to flounder and search for “data-driven” solutions.

We were very happy to see that Southeastern has once again decided to express their concerns in the form of a five-page letter titled “Southeastern’s Perspective on Market Structure and High-Frequency Trading” .

Southeastern addresses four basic questions in their letter:

– How did trading become so complicated?

– What are HFTs and how do they operate?

– What does Southeastern believe can resolve much of the imbalance created by HFTs?

– How does Southeastern manage trading to protect and advocate for our clients?

While they make it clear that they believe that HFT is not doing anything illegal, they do express a number of concerns about the effect that HFT is having on our markets.  They state:

“Technology has enabled the rapidly-repeatable exploitation of structural inefficiencies as HFTs unnecessarily intermediate buyers and sellers, charging an opaque “tax” and hiding behind the veil of regulation. “

Southeastern is concerned about how the tools of HFT (which include data feeds, colocation, complex order types and rebates) are distorting the market.  They are worried that “these tools are powerful when used to exploit the markets’ structural inefficiencies and take advantage of investors.”​

We were happy to see that Southeastern was aligned with Themis Trading in their recommendations of how to fix the market. They don’t believe that a long term SEC overhaul is needed but rather a few simple adjustments, including the elimination of the maker/taker pricing model and the elimination of proprietary data feeds, is all that is needed.

Click HERE to read the entire letter.  Kudos to Southeastern.