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HFT Exposed: Market Is Not Fair; Little Guy Loses

Posted by Larry Doyle on April 8, 2014 8:53 AM |

Of all the questions on all the topics across all the market segments, the one that keeps being repeated by most investors — both institutional and retail alike — is the question regarding the fairness of the game.

That question and others were posed yesterday to James McCaughan who, as President of Principal Global Investors, just so happens to oversee the management of $300 billion and was interviewed by Tom Keene and Michael McKee on Bloomberg Surveillance.

Regarding market fairness in the midst of current high frequency trading practices, McCaughan does not equivocate in stating, “the market is not fair.”

In regard to our favorite punching bag, that being Wall Street’s self-regulatory organization FINRA, Keene inquires, “Will the industry take care of itself and police itself?” McCaughan eviscerates this premise in stating, “The industry won’t police itself because there are industry participants who make money from the imperfections and lack of regulation in the market.”

That statement directly echoes my own. On page 193 of my book, In Bed with Wall Street, I write: “FINRA and the other financial self-regulatory organizations should cease to exist. To think that Goldman Sachs, J.P. Morgan . . . and every other bank can fund a regulator that will, in turn, aggressively oversee their activities is simply ridiculous.”

Shortly after the 2-minute mark in the interview, McCaughan is asked whether the little guys lose as a result of the manner in which high frequency trading operates.

He responds, “I think they do lose.”

McCaughan pulls no punches in this Bloomberg Surveillance interview. The first 5-minutes are an ABSOLUTE MUST LISTEN.

The ruse is laid bare.

What do we learn?  The market is not fair. The little guy loses. Self-regulation is a farce.

Navigate accordingly.

Larry Doyle

Please order a hard copy or Kindle version of my book, In Bed with Wall Street: The Conspiracy Crippling Our Global Economy.

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The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Peter Scannell

    “The reason my office began an investigation into this was
    our emerging awareness of the problems of Insider Trading 2.0, and I am sure some of you have heard about that investigation. Thomson Reuters was selling investors access to the University of Michigan’s surveys, market-moving information, five minutes before it was released to the general public. But Thomson Reuters was also selling to an even more elite group of clients an earlier glimpse and, for an substantial extra fee, these elite market movers were allowed to see the data two seconds before the customers who thought they were first in line who got it five minutes before the general public.

    Two seconds is a lifetime in the world of Insider Trading

    Here’s an example of what happened before and after we
    reached an agreement with Thomson Reuters, which I’m very pleased we have done pending the outcome of our investigation to stop giving that two second edge.
    In July of 2012, when this practice was still going on, tens of thousands of shares of an S&P 500 ETF were traded in the magic two-second window before the University of Michigan Survey was released. That’s July 2012. One year later, after our agreement, the trading virtually stopped. Tens of thousands of shares came to down to less than two thousand shares traded during that two
    second window.”

  • Arkait

    Glad to add another hero , James Kidney, to those breaking ranks with
    the Opaque Fraternity of Wall Street SROs. And our thanks to
    Larry Doyle for keeping the heat on SEC FINRA et al

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