HFT “White Hats” or “Black Hats”?


We really liked Bart Chilton when he was at the CFTC.  But since he left and joined forces with the Modern Markets Initiative (MMI), we have been confused about his message.  Just to refresh your memory, the MMI was started by four HFT firms—Tower Research Capital, Hudson River Trading, Quantlab Financial, and Global Trading Systems (GTS) —to demonstrate the benefits of high frequency trading. Chilton hooked up with them last year and has been their high profile spokesperson often praising their virtues.  While Chilton has repeatedly claimed that MMI’s members are the good guys of HFT, he has offered little information on the bad guys of HFT.

We really got confused after reading the NY Attorney General’s case against Barclays yesterday.  It seems that the NY AG has uncovered some information from internal Barclays documents which call into question the role of three out of the four founding MMI members.  Below is a comparison of how Bart Chilton views the MMI members and what internal Barclays documents, obtained by the NY AG, had to say about the members :

–          Chilton:  “I’m really thankful that the Modern Markets Initiative guys are, I think, the white hats in this space.” Bloomberg, October 16, 2014

–          NY AG: “GTS Securities LLC was described as having “known latency arbitrage flow” in the pool.”

–          Chilton: “The Modern Markets guys are all down with ensuring that we have high integrity in these markets, that everyone’s playing by the rules. And that’s why I’m really pleased to be working with them.” Bloomberg, October 16, 2014

–          NY AG: “ On Friday, June 8, 2012, a Barclays employee determined that a high frequency trading firm called GTS Securities LLC (“GTS”) was sending a massive volume of orders to the dark pool, putting stress on Barclays’ computer systems.  Such behavior typically suggests that the trader is engaging in abusive conduct.”

–          Chilton: “For example, even though the New York attorney general’s complaint and the general public conversation use demonizing words like “predatory” and “toxic” to describe high-frequency trading, study after study has proved that modern markets are cheaper and safer than ever before.” NY Times, July 7, 2014

–          NY AG: “One high frequency trading firm, Hudson River Trading, was described in the analysis as “historically…very toxic.”

–          Chilton : “But let’s close the book and look beyond ‘False Boys’ and put the truth and better markets at the forefront of our efforts for the future.” Automated Trader, November 18, 2014

–          NY AG: “For instance, on May 13, 2013, Barclays was approached by a prominent high frequency trading firm called Tower Research Capital LLC, seeking detailed, operational information regarding Barclays dark pool.  Barclays readily provided the requested information.”

We hope that Bart Chilton has had a chance to read the NY AG complaint against Barclays (particularly section 181-197).   Maybe he can then explain to the public what the real difference is between HFT “white hats” and HFT “black hats”.