New York Times article on high frequency program trading

Posts Tagged ‘New York Times article on high frequency program trading’

Wall Street Has a Problem as High Frequency Trading Moves to Washington

Posted by Larry Doyle on July 27th, 2009 11:25 AM |

When a hot financial topic hits Main Street and there are political points to be scored or lost in the process, little wonder it quickly moves on to Washington. I speak of the increasing attention and focus on high frequency program trading.

The serious ethical, if not legal, concerns surrounding high frequency trading hit Main Street this past Friday with a lead article in the New York Times. I highlighted that article along with my extensive writings on this topic here at Sense on Cents in my piece “Wall Street Has a Problem as High Frequency Trading Moves to Main Street.”

Well, we awaken this morning to see the high frequency trading issue making waves in Washington. The Wall Street Journal reports In a Flash, Schumer Warns SEC:

Sen. Charles Schumer (D., N.Y.) told the Securities and Exchange Commission that he will move to limit “flash” orders for stocks if the agency takes no action against them.

The practice routes stock trades through private liquidity pools before being sent onto other exchanges for filling. Critics contend that flash ordering creates a two-tiered system of investors, where those with access get a better price than those without.

“If the SEC fails to curb this practice, I plan to introduce legislation in the U.S. Senate to prohibit the use of flash orders in connection with optional pre-routing programs in order to ensure that trading in U.S. public capital markets is fair and transparent for all market participants,” Sen. Schumer wrote Friday.

While on one hand I commend Schumer for being proactive on this front, I am reminded that he has been one of the largest beneficiaries of campaign contributions and lobbying dollars from the banks and hedge funds engaged in high frequency program trading. Without questioning Schumer’s motivations, is he taking action to curry public favor against his being linked so closely with Wall Street?

Additionally, the fact that Schumer or any other political representative needs to address this issue again brings into question the efficacy of the regulatory bodies charged with protecting investor interests. How can any observer of high frequency program trading believe the investor playing field is anywhere close to being level?

Why has the field sloped? Very simply, as the various stock exchanges compete for business, the officials running the exchanges have traded investor protection and interests for the volume and revenues provided by high frequency program trading.

Who should have been engaged with these exchanges to prevent these abusive trading programs? The SEC and FINRA. Who actually exposed the issues surrounding high frequency program trading? Financial blogs and Joe Saluzzi of Themis Trading. I commend Mr. Saluzzi given his position in the marketplace.

I am excited to apprise our readers and listeners that I will have Mr. Saluzzi as my guest this Sunday evening August 2nd from 8-9pm on my internet radio show, NoQuarter Radio’s Sense on Cents with Larry Doyle.

Perhaps our elected representatives in Washington along with financial regulators at the SEC and FINRA may care to listen and learn.

Related Commentary

Is Uncle Sam Manipulating the Markets?; July 1, 2009

Is Uncle Sam Manipulating the Markets? Part II; July 6, 2009

Is Uncle Sam Manipulating the Markets? Part III; July 8, 2009

Why High Frequency Program Trading Smells; July 14, 2009

High Frequency Trading: Point-Counterpoint; July 17, 2009

High Frequency Trading Debate: Mano a Mano; July 24, 2009

Wall Street Has a Problem as High Frequency Trading Moves to Main Street

Posted by Larry Doyle on July 24th, 2009 6:54 AM |

I am not here to rain on the parade, but I do think developments overnight have the potential to dramatically change the nature of our markets if not our economy. I am referring to issues surrounding high frequency program trading.

Until now, the debate over high frequency trading has largely been relegated to Wall Street periodicals, financial news outlets, and blogs, including Sense on Cents.

Well, this morning America awakens to see this high frequency debate course across the front page of The New York Times, Traders Profit With Computers Set at High Speed:

It is the hot new thing on Wall Street, a way for a handful of traders to master the stock market, peek at investors’ orders and, critics say, even subtly manipulate share prices.

It is called high-frequency trading — and it is suddenly one of the most talked-about and mysterious forces in the markets.

Powerful computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else’s expense.

These systems are so fast they can outsmart or outrun other investors, humans and computers alike. And after growing in the shadows for years, they are generating lots of talk.

Nearly everyone on Wall Street is wondering how hedge funds and large banks like Goldman Sachs are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer.

This article is likely sweeping the globe at this very minute and, in my opinion, is particularly devastating in its tone and delivery . . . and justifiably so.

I can only imagine the commentary this evening at the local Rotary Club, Knights of Columbus, Lions Club, town carnivals, and church fairs. Probably something along these lines:

“Have you heard how Wall Street is screwing us?”

“I knew that game was never on the up and up.”

“What a bunch of thieves.”

Without entering into a debate over the merits or lack thereof of this high frequency program trading, I think Wall Street has a huge problem on its hands. Why? A question of fundamental fairness. With the publication and dissemination of this article, try to explain to the average Joe looking to buy 50 shares of IBM how he is being treated equitably.

As the New York Times reports:

“You want to encourage innovation, and you want to reward companies that have invested in technology and ideas that make the markets more efficient,” said Andrew M. Brooks, head of United States equity trading at T. Rowe Price, a mutual fund and investment company that often competes with and uses high-frequency techniques. “But we’re moving toward a two-tiered marketplace of the high-frequency arbitrage guys, and everyone else. People want to know they have a legitimate shot at getting a fair deal. Otherwise, the markets lose their integrity.” (LD’s highlight)

What do you think? Please share your thoughts and opinions.

Related Commentary

Is Uncle Sam Manipulating the Markets? July 1, 2009

Is Uncle Sam Manipulating the Markets? Part II July 6, 2009

Is Uncle Sam Manipulating the Markets? Part III July 8, 2009

Why High Frequency Program Trading Smells July 14, 2009

High Frequency Trading: Point-Counterpoint July 17, 2009