The Securities and Exchange Commission has proposed halting high frequency and flash trading.

In response, Nasdaq (and others) are now prohibiting flash orders. Supposedly, the NYSE is also considering banning the practice.

This was a given. The real question that remains unanswered and demands a thorough investigation is this: WHAT EXCHANGE OFFICIALS APPROVED THIS? WHO BELIEVED THAT ALLOWING FAVORED FIRMS TO FRONT RUN OTHER INVESTORS WAS OK?

Quite bluntly, the clueless dolts who allowed this to occur need to be publicly excoriated, fired from their job as exchange officials, and driven out of town on a rail. Oh, and, all the gains from this organized theft should be clawed back from all the front-running firms that stole this money — THAT’S RIGHT, ITS THEFT — one quarter cent at a time. Put the recovered ill-gotten gains into the SIPIC fund that compensates investors who have been defrauded by their stock brokers.

Stop for a moment to consider what sort of massive disregard for the investing public is required to permit this kind of trading. The sheer hubris that finds no problem in this exchange permitted encouraged theft is hard to fathom.

One of the problems with the most recent crisis is that there have been no shaming of the responsible parties, no disgorgement of ill gotten gains, no perp walks. We need to change that pronto.

The WSJ had an Op-Ed last month, In Defense of ‘Flash’ Trading, that suggested that “Flash trading is like offering to sell your house to your neighbor before you officially put it into the real estate listings.”

That description is, of course, utterly false. We have alternative exchanges where you can offer stocks privately to other willing buyers (i.e., Instinet).  Flash trading is more like having access to private info from the sellers, knowing what they will accept, stepping in front of legitimate buyers, and then flipping the house to those buyers while capturing 0.001% of the transaction. No benefit to the seller, to the neighborhood or to anyone else — all at a small cost to the buyer.

Oh, and that article defending Flash Selling? It was written by Donald Luskin — so you know its utterly wrong, morally contemptible, and guaranteed to lose you money.

Quod Erat Demonstrandum . . .

>

Flash Trading

epitaph courtesy of Josh at Reformed Broker

>

Sources:
Flash Trading Halt Backed for Nasdaq, Bats as SEC Proposes Ban
Whitney Kisling and Jesse Westbrook
Bloomberg, Sept. 18 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=aCHizjnQq73E

In Defense of ‘Flash’ Trading
CHRIS HYNES AND DONALD LUSKIN
WSJ, AUGUST 27, 2009

http://online.wsj.com/article/SB10001424052970203706604574374431720968204.html

Category: Really, really bad calls, Regulation, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

83 Responses to “So Much For High Frequency Trading”

  1. dead hobo says:

    BR noticed:

    The Securities and Exchange Commission has proposed halting high frequency trading.

    reply:
    ———-
    HFT + liquidity = a rising stock market. HFT is analogous to the velocity of money. It is a simple inflation formula applied to the stock market, especially when dark markets are thrown into the mix. Without HFT, the rally wouldn’t have occurred and it will end when liquidity is removed. Without HFT, the market might have shown elements of a liquidity trap.

  2. call me ahab says:

    good post BR

  3. SINGER says:

    Remember that white paper you posted a long time ago on the subject?

    Here is a link to the Themis Trading LLC white papers which are short and everyone should read…

    http://www.themistrading.com/

    Good post…

  4. dead hobo says:

    Co-location WILL be the next HFT type scandal. Simple physics is the reason for this. The speed of light seems fast, but have you ever noticed the short time lag when satellite communications occurs.

    Assume a satellite 22,000 miles up. The round trip is 44,000 miles. Light travels 186,000 miles per second. The round trip takes 44,000 / 186,000 seconds, or about 1/4 second.

    If you communicate by satellite with the exchange and your competitor is in the same building, then your competitor will know about orders and prices 1/4 second before you without even taking into consideration the speed of the computer. This is basically the same advantage provided by HFT.

    Thus, the SEC should add co-location to the list of things to consider when thinking up rules that level the playing field. Otherwise, their efforts will be a simple waste of time.

  5. titles of Themis Trading’s white papers:

    Themis Trading Mini White Paper: Why Institutional Investors Should Be Concerned About High Frequency Traders

    Themis Trading Mini White Paper: Where has all the volume gone?

    Themis Trading White Paper: Toxic Equity Trading Order Flow on Wall Street
    ~~
    and, http://www.thefreedictionary.com/Quod+erat+demonstrandum

    as well, Nice post~

  6. Semantic says:

    Flash trading only accounts for 2-3% of HFT. Gaming rebates and front running bid/offer spreads make up a far larger chunk.

    It’s been an interesting trend for those familiar with emerging markets: http://www.ft.com/cms/s/0/2180820c-a2d9-11de-ba74-00144feabdc0.html

  7. dead hobo says:

    Back to Co-location issues, assume a situation where the same 100 HFT firms that make up 70% of the volume on the NYSE today all co-locate.

    Given the physics that provide up to 1/4 second of privacy compared to those in the outside world, these 100 firms could have a private game going on within the 4 walls of the co-location building, and, in theory, they could play games with the rest of the world at will. Imagine a case where a few HFT firms are batting a few stocks around and a hapless trader walks in with a market order expecting a price that existed a second ago. Or, imagine a case where several thousand trades could occur before anyone on the outside even knew they existed.

    This would be essentially the same as HFT, only concentrated in one location.

  8. dead hobo says:

    To level the co-location playing field, all it would take would be for the SEC to require a 1 second delay, applied to computers co-located with the originating exchange. Thus, non-co-located firms would see it and be able to react to it with equivalent efficiency.

  9. Robespierre says:

    It is always attractive to rip off main street and the tax payers. As soon as you have banned HFT they will come up with a different way to steal from all. The real solution to all this escalation is to create punitive taxes on very short term gains of any kind. For instance gains on transactions lasting less than 1 day (duration) tax them at %95; 2 days %94; 3 days %92; 2 weeks %90. Once you do this IBs and hedge funds will not be able to side step the spirit of the law like they do today.

  10. dead hobo says:

    Robespierre Says:
    September 18th, 2009 at 8:21 am

    For instance gains on transactions lasting less than 1 day (duration) tax them at %95; 2 days %94; 3 days %92; 2 weeks %90. Once you do this IBs and hedge funds will not be able to side step the spirit of the law like they do today.

    reply:
    ———
    Assuming away the lackey Republican outcry, I wonder if all this would do is widen the spreads and/or increase the volume to make up the tax costs. I other words, I suspect the HFT thieves would just pass along the higher cost and Uncle Stupid would now be an integral partner in seeing the theft continues.

  11. torrie-amos says:

    Standard Operating Procedure, you can make a list of 100 things the governement has done that is beyond logic in the last ten years…………and it is all blessed as okay………….laws we don’t need no stinking laws…………..

  12. GregMoon says:

    @Robespierre

    And those of us that choose to swing trade should suffer the same tax burden? Most of my trades are 5-7 trading days in duration. I should pay 95% tax on my gains? Your proposal would be like killing all of the dogs in the city because a couple of pit bulls got out and chewed grandma’s face off.

  13. Robespierre says:

    @GregMoon

    The goal of capitalism is to allocate capital (in theory scarce resources) to produce the most benefit for society and individuals. I fail to see how trading that happens in such a very short time is capitalism. Just because you make a good living out of it does not make it right or desirable

  14. dead hobo says:

    Robespierre,

    HFT trades run full cycle in a few seconds or less … both buy and sell. There is no accumulation unless that is a part of a secondary agenda. HFT is based on massive volume and liquidity. I suspect most secondary agendas last only a few minutes unless some ballsy moves to try to jump the market are being attempted.

    The concept of a 2 day old HFT trade does not exist, unless someone makes a mistake.

  15. bubba says:

    thanks barry. to whoever that poster was from several threads ago that wanted examples of wallstreet “cheating”…this would qualify.

  16. davossherman@gmail.com says:

    Super read, thanks!

  17. Robespierre says:

    @dead hobo

    I was actually extended trades that last a few days into the HFT mix not because they were HFT per se but mostly because in my opinion very short term trades add nothing to the economy as a whole. Now may be I was to drastic with the tax schedules :) May be a better thing will be to tax at almost %100 anything that produces any type of gains within seconds or minutes and be kinder on things that are days in duration. Now the concep of taxing short term gains already exists in the tax code. My proposal is just to make it more granular.

  18. [...] So Much for High Frequency Trading (The Big Picture) [...]

  19. FrancoisT says:

    @GregMoon
    “And those of us that choose to swing trade should suffer the same tax burden?”

    “Choose” is the key word here. My daughter wanted to graduate in Art History. I told her it was fine and far out to “choose” that line of work, but don’t expect any living wage out of that. I’m sure it was quite valuable trade during the Renaissance Era, but not now.

    Same here: society can decide that swing trading does not add anything of value and should be taxed accordingly.

    NOTE: I’m not entering into a debate about the value of short term investing. Just saying that society at large may well decide that it is not adding value.

  20. Transor Z says:

    Where’s Kid Dynamite?

  21. sysin3 says:

    @Robespierre

    Stock trading of any sort adds nothing to economic activity. Stocks are just pieces of paper. Whether you hold that paper for a day or a decade, you have created nothing.

  22. dead hobo says:

    Robespierre

    I see your point. Me, I don’t care about day traders. In fact, if everyone who traded has millisecond access and complex trading strategy programming available on their home PC and access to hundred of millions of dollars in value at risk capital, so that everybody was the equivalent of GS or others like GS, OK by me.

    They key is – that would be a level playing field.

    Since what I just described is impossible, then the next best thing is to remove the unfair advantages from the iBanks. Then they would have to rely on hunches and fundamentals and magic charts like everyone else and everybody would see the same information at the same time. They would still have massive value at risk capital, but the ‘risk’ would be real for a change. Today, the risk is minimal, and likely non-existent.

  23. Transor Z says:

    The ZH crew just cost people with no senses of humor some serious bingo.

  24. CTX says:

    how do you stop flash trading? that is how does one techincally/physically stop it? Is that possible?

  25. dead hobo says:

    Transor Z Says:
    September 18th, 2009 at 9:03 am

    The ZH crew just cost people with no senses of humor some serious bingo.

    reply:
    ———
    What a bunch of pricks. (HA HA)

  26. VennData says:

    …but, but.. by ending finance’s dominance of the nation’s earnings to 21% of the S&P earnings at its peak…

    http://www.theskilledinvestor.com/wp/the-financial-services-industry-is-still-the-largest-sp-500-sector-even-after-the-collapse-of-its-stock-values-255.htm

    … the people who helped make this happen feel the change…

    As Riches Fade, So Does Finance’s Allure

    http://online.wsj.com/article/SB125322372695620969.html

    …so you’re relegating these nano second arbitragers… or as Kurt Vonnegut called them, in ‘Hocus Pocus’ MicroSecond Arbitragers (things were slower then)

    http://en.wikipedia.org/wiki/Hocus_Pocus_(novel)

    … so instead of incarcerating them. Make them get a real job. That would teach them a lesson; what could be more humiliating than that?

  27. I guess I should cancel that Mac I had on order

    how do you stop flash trading? that is how does one techincally/physically stop it? Is that possible?

    It’s always been my belief that as long as you have raincoats and human nature, you’ll have flashers

  28. The ZH crew just cost people with no senses of humor some serious bingo.

    They were running out of small Caribbean islands to hide it anyway

  29. cheese says:

    I never had a problem with the flash. However, I did have a problem with the “rebate”. I don’t think specialists were ever paid to trade.

  30. constantnormal says:

    I don’t understand (he naively said) how this is so difficult for people to understand.

    The market is a zero-sum game. When a set of people employ a tactic that consistently extracts profits from the market, SOMEBODY is losing to provide those profits. HFT, flash-trading, and their ilk are all restricted to market makers and others in privileged, trusted positions.

    So the picture seems pretty clear — the ones using these methods are using methods not available to others, by virtue of their privileged status, to loot the public. I’m sure that the SEC and others have been aware of this from the start, but it’s difficult to tell your masters “no”.

    You stop it the same way that you stop any illegal activity. You monitor the trading, with audits and examinations of the trading software and facilities by competent auditors (granted, there is a small number of network geeks with trading experience, but not so small as one would think, and people can be trained to perform this work. But the real method of stopping criminal activity is prosecution and jail time.

    Not that I ever expect to see that from this goobermint.

  31. constantnormal says:

    @Transor Z 9:03 am

    It’s a pity that there are no awards for investigative journalism (or speculative journalism) that spotlight criminal activity and force the goobermint to act. ZH would be a shoo-in.

  32. Here’s another idiotic defense of Flash Trading:

    A Short History of Fast Times on Wall Street
    http://www.nytimes.com/2009/09/18/opinion/18silver.html

  33. jdmckay says:

    One of the problems with the most recent crisis is that there have been no shaming of the responsible parties, no disgorgement of ill gotten gains, no perp walks.

    Yah, ok… but upside is the recession is over!!!

    We need to change that pronto.

    (slaps forehead)… why didn’t I think of that.

  34. constantnormal says:

    D’ya think GS (and the other perps) will throw a hissy fit, and crash the markets?

  35. beaufou says:

    Why would you even call those people traders?

    Computer programmers or mathematicians would be a better suit.

  36. sjones045 says:

    The title seems off. I don’t think HFT is going away (the liquidity argument being the biggest reason). Unfortunately, HFT and Flash were used synonymously. The disappearance of Flash Orders will affect some big hedge funds and what remains of the I-bank proprietary trading desk. But I doubt much of their revenue was from executing Flash orders. If anyone has some numbers around this it would be appreciated.

  37. It’s the same attitude that prevails in this country.

    The rich are different. The rules don’t apply to those with clout.

  38. The Curmudgeon says:

    Remember the “efficient markets hypothesis” that states with perfect information, prices will perfectly account for and discount all risks such that they truly reflect the value of the underlying asset?

    HFT, although defended by market idiots like Luskin, actually impedes any chance that perfect information will be achieved. It is insider information, which is traded accordingly. The HFT’ers should be prosecuted under insider-trading prohibitions. But don’t expect anything out of the SEC. They simply exist to rubberstamp the activities of their overseers, like the BofA and Merrill imbroglio recently demonstrated.

  39. torrie-amos says:

    morining fellow communists, it seems to slowly be dawning on most we mus adopt our commrades mantra, screw the state before they screw us……….dog eat dog, yada yada………….thanks hank for deciding laws weren’t important, without the rule of law we have lawless rulers, let the games begin

  40. [...] It strikes me as odd in an environment where industry is constrained and unemployment is high, that the regulatory bodies that be would be so intent on cracking down on profitable businesses.  These profitable concerns are required in a broad assortment of industries in order to promote employment and pull our economy out of recession.  Chemists who develop a cure for diseases should be able to profit from their hard work, and this profit will encourage even more discovery.  Physicists who develop fuel efficient technologies should be able to sell their patented technique to manufacturers at a profit.  And exchanges who use technology to benefit their clients should be able to operate in this manner and receive revenue from offering better execution. Other Articles of Interest ZachStocks: Flash Trading Drives Profits Reuters – Regulators Propose Flash Trading Ban Bloomberg: Flash Trading Halt Backed by SEC Ritholtz: So Much for High Frequency Trading [...]

  41. DallasDog says:

    Congress does much better than the rest of us when playing the stock market too….

    http://marketplace.publicradio.org/display/web/2009/09/17/pm-inside-dope/

  42. zenfurni says:

    “The Securities and Exchange Commission has proposed halting high frequency and flash trading.”
    Correction: The SEC has banned flash trading, there was no proposal about high frequency trading. Also, how do you define “high frequency trading?” If we ban the fastest trading, what do we do with the trading that will then be the fastest? Should all trades be entered manually?

    “In response, Nasdaq (and others) are now prohibiting flash orders. Supposedly, the NYSE is also considering banning the practice.”
    Correction: “prohibiting” is a misleading word. They stopped offering flash orders. That’s like saying that McDonalds is now prohibiting the mcRib sandwich; no, it’s just not on the menu anymore, regardless of whether the government allows it to be added again. The second sentence is analogous to saying that Burger King is considering banning the McRib… um, ok, they never offered it.

    “WHO BELIEVED THAT ALLOWING FAVORED FIRMS TO FRONT RUN OTHER INVESTORS WAS OK?”
    Correction: Favored firms — any firm that chooses to use the offered flash order type. This could include Schwab, Ameritrade, any hedge fund, etc etc. — also, everybody and their uncle’s brokerage is colocated.
    Front running — the use of this term is utterly confusing in this context. I think the preferred term would be “choosing to display a quote at one exchange before sending it to other exchanges”…

    “Oh, and, all the gains from this organized theft should be clawed back from all the front-running firms that stole this money — THAT’S RIGHT, ITS THEFT — one quarter cent at a time.”
    Correction: So the monopoly rights that specialists used to have on the exchange floor were opened to broader competition. Now, instead of one guy making 12.5 cents on every transaction, there are approximately 20 guys making .1 cents… that adds up to less than 12.5 cents. Perhaps this clawback of funds should be donated to destitute former specialists.

    Finally, our point of agreement — “WHAT EXCHANGE OFFICIALS APPROVED THIS?” It took more than two years to debate and examine the merits of the current National Market System, with plenty of vigorous debate.
    Before flash orders were given regulatory approval, there was NO debate — NO advance warning — and NO explanation given to the general public. While wrong on principle, this had another effect — allowing the uninformed public — sorry, Barry, but I am assuming you have never heard of the NMS — to follow the herd and form their own knee-jerk opinions, confusing issues and building a stink about various issues, some of which are actually issues, and some of which are misunderstood technical processes serving as straw men.

  43. CTX says:

    anyone follow the stock JNPR? This is unbelievable the price action it goes up every day? truely weird

  44. mark mchugh says:

    Why am I not the least bit surprised that Don Luskin would defend flash trading? But the chick from the Pretenders, et tu? Seriously good stuff BR.

    Of course another solution to stop the shenanigans would be a trading tax. And before all you super-genius traders get your panties in a twist, make a list of other transaction types that occur tax-free. If our markets are really for investors, make them safe for investors.

    If you make rules that cater to jackals, rest assured, you won’t like the long term results.

    I agree 100% that it was criminal to allow this kind of blatant thievery to exist in the first place, and until I see a whole lot of perp walks, Wall St. will remain a dangerous neighborhood that decent people shouldn’t venture in.

  45. The Curmudgeon says:

    “If we ban the fastest trading, what do we do with the trading that will then be the fastest? Should all trades be entered manually?”

    No, but there could easily be a lag required, such that all proposed sell orders accumulate for a small period of time, perhaps only a second, until execution. The problem of trading profits being generated just by dint of the underlying physics of the exchanges is structural and could easily be regulated away by imposing fairness guidelines. Otherwise, exploitation of the infrastructure by the few (GS and others that specifically co-locate to take advantage of the speed advantage) will impair its usefulness and credibility to the many. If the exchanges don’t do anything, they will eventually suffer, as J6P investors realize this is a game rigged against them, and lose what little faith they had in its fairness to start.

  46. And to think, America was once a nation that would tie you behind a horse and drag you down the middle of main street if you acted dishonorably.

    We need to bring back horses

  47. HarryWanger says:

    WHAT EXCHANGE OFFICIALS APPROVED THIS? WHO BELIEVED THAT ALLOWING FAVORED FIRMS TO FRONT RUN OTHER INVESTORS WAS OK?

    Obviously a rhetorical question. You could ask this of just about all the stupidity that’s been allowed to happen.

  48. alfred e says:

    @Common Man: Yes. We need horses. But it’s never the man that owns the town that gets dragged down the street. It’s some no-name. The elites always have to fall on their own swords. America is yet to execute a millionaire. Our legal system has been for sale for some time. F Lee Bailey.

    @BR: One of your best posts ever. But why don’t you say what’s on your mind?

    And yet the “NEW” SEC is allowing the perps to walk.

  49. Marcus Aurelius says:

    How the Common Man Sees It Says:

    “And to think, America was once a nation that would tie you behind a horse and drag you down the middle of main street if you acted dishonorably.”
    ___________

    That might be true if there was honor among thieves.

    Historically, it was more likely you’d be dragged behind a horse (or worse) if you were black than if you had acted dishonorably. America has always protected the powerful of its ruling class, no matter how despicable their actions.

  50. BG says:

    This is just one more example in the long list of “How the Fuck Could We Find Ourselves Here IF NO ONE Did Anything Wrong???

    Remember the only people who have been prosecuted (with 1 or 2 exceptions) for doing ANYTHING wrong are those who have confessed and turned themselves in to authorities.

    You can not tell me our enforcement agencies are that clueless. There is no way!

    All they do is keep their heads up other people’s asses with their eyes closed.

    I can only deduce as an outsider that they themselves are in on the scheme!

  51. mknowles says:

    “Quite bluntly, the clueless dolts who allowed this to occur need to be publicly excoriated, fired from their job as exchange officials, and driven out of town on a rail. Oh, and, all the gains from this organized theft should be clawed back from all the front-running firms that stole this money — THAT’S RIGHT, ITS THEFT — one quarter cent at a time. Put the recovered ill-gotten gains into the SIPIC fund that compensates investors who have been defrauded by their stock brokers.”
    ~~~~~~~~~~~~~~~~~~~~~~~~~ Thank you for writing it, the blunter, the better!

  52. leftback says:

    Today, The Big Picture, tomorrow the Wall Street Journal, and next week or in a month or so, the NYT?
    What does it feel like to be the source for the entire mainstream financial media?

    Meredith Whitney was on GMA today, now THAT’s mainstream.

  53. gordo365 says:

    This thread has the ideas churning.

    Here’s one for an budding entrepreneur. Donald Luskin toliet paper. Each square has a quote or paragraph that has been shown to be utterly false. There should easily be enough content to fill a roll.

  54. donna says:

    Whatever happened to actually investing in business for the long term, anyway?

  55. ZackAttack says:

    Nothing will happen whatsoever, or the measure will be so completely de-fanged as to allow the behavior to go unchecked. There is too damn much money involved for it to be otherwise.

  56. @gordo365 Says: September 18th, 2009 at 12:22 pm

    EXCUSE ME?! You expect us to soil our butts with his quotes? What is the matter with you man?!

  57. Stroke says:

    Imagine if common sense were to prevail..RIP Flash Trade

  58. BG says:

    Donna,

    Investing is OUT!
    Gambling with other people’s money is IN!

    One last comment on this thread…..Does anybody think we would even know what Flash Trading, Dark Pools or HFT is IF the guy from Goldman-Sachs hadn’t (supposedly) stolen that software?

    Short Answer – NO!

    Wall Street and the agencies who are supposed to be monitoring its activities have allowed the whole industry turn to slim and now the real facts are slowly trickling out.

    The bizarre thing here is that we know what was really going on behind the scenes in regard to HFT only after an employee steals some of their “potentially market-manipulating” software!! Now, doesn’t that make you feel all warm & bubbly inside?

    IMHO, I don’t know where in the hell we are going from here; but, it ain’t good!

  59. I-Man says:

    Cmon Kid D,
    I-Man wants to hear…

  60. Transor Z says:

    From the standpoint of securities pricing, fair market value should be the ideal. Whether a security changes hands once every ten years or ten times every minute shouldn’t matter — if the exchange system fundamentally fosters pricing related to the value of the thing underlying the security.

    It’s the games and games-within-games, fractally multiplying in the absence of regulation, that creates interstitial investing in the electronic shadows. To paraphrase T.S. Eliot, between the bid and the ask falls the shadow. When billions started flooding into those spaces, the exchanges really should have wondered what the larger public utility is, rather than what their cut of the skim was.

    Back in college somebody had an Atari system we would use for creative drinking games, cutthroat competition, or both. I think it was Circus Atari that had a clown on a trampoline that popped square balloons. Somebody found a cheat that scored thousands of points if you bounced the clown a certain way. (It’s been a long time.) The kid that found it (or was told about it) thought that it made him the dorm champion and he never understood why the rest of us called him an idiot a-hole. Now I’m wondering if maybe that kid went on to work at NYSE. :)

  61. Onlooker from Troy says:

    “We need to change that pronto.”

    Won’t happen with the market soaring BR. It’s the true opium of the masses; particularly the political class. “Surely nothing’s terribly wrong; just look at the market”, they say. I hear it practically every day through the MSM.

  62. gordo365 says:

    @Common man – didn’t mean to offend. :)

  63. Onlooker from Troy says:

    “Luskin toliet paper. Each square has a quote or paragraph that has been shown to be utterly false. There should easily be enough content to fill a roll.”

    I’d settle for just having his face on every square.

  64. Moss says:

    HFT is simply the pinnacle of the trading frenzy which has taken over the so called rational markets.
    Just look at the average holding period of the stocks in the S&P. The decline of the average holding period is astonishing and is now less than 4 months. There should be no mystery as to why shareholders have exerted no influence on the BOD or other company insiders. Shareholders are all simply squatters. This is why the only thing that matters is beating the quarterly numbers. Any capital gains tax should decrease as the holding period increases.

    Just another lug nut in the rig that needs to be dismantled.

  65. Onlooker from Troy says:

    “There should be no mystery as to why shareholders have exerted no influence on the BOD or other company insiders. Shareholders are all simply squatters.”

    Very good point. There are very few significant shareholders that have a long term interest in the companies’ governance and therefore exert influence on the boards. Most is held in institutional hands and very few of them either hold long enough or could possibly do anything given the hundreds of positions they have. And what about index funds and ETFs? The companies and their boards will continue to look out for the top management, with the incestuous relationships abounding.

  66. Onlooker from Troy says:

    “There should be no mystery as to why shareholders have exerted no influence on the BOD or other company insiders. Shareholders are all simply squatters.”

    Very good point. There are very few significant shareholders that have a long term interest in the companies’ governance and therefore exert influence on the boards. Most is held in institutional hands and very few of them either hold long enough or could possibly do anything given the hundreds of positions they have. And what about index funds and ETFs? The companies and their boards will continue to look out for the top management, with the incestu0us relationships abounding.

    (second submission as the first one appears to have been eaten. Modified the apparent offending word – incestu0us.)

  67. Onlooker from Troy says:

    “There should be no mystery as to why shareholders have exerted no influence on the BOD or other company insiders. Shareholders are all simply squatters.”

    Very good point. There are very few significant shareholders that have a long term interest in the companies’ governance and therefore exert influence on the boards. Most is held in institutional hands and very few of them either hold long enough or could possibly do anything given the hundreds of positions they have. And what about index funds and ETFs? The companies and their boards will continue to look out for the top management, with the in ces tuous relationships abounding.

    (third submission as the first two appear to have been eaten.
    Modified the apparent offending word a little more – in cest uous.)

  68. just-a-thought says:

    The tax code shouldn’t be used to punish certain people more than others because the powers that be don’t see certain activities as beneficial to society. Activities should be properly regulated themselves (for example stopping HFT), they shouldn’t try to be manipulated through the tax code. Drastic changes, like making taxes high on short term gains, always have unintended consequences that can be disastrous like BR talks about in his book. The tax code should be used as an efficient, fair way for the government to raise funds for the betterment of society, not a way to punish activities the party in power doesn’t see as important.

    Imagine the tax rate Republicans would impose on abortion clinic employees once they gained control of Congress if this sort of ‘we’ve got ya now’ taxation started to be popular.

    Just a Thought

  69. Christopher says:

    Luskin….the guy so smart he didn’t even bother to finish college.
    LOL

    When is the official TBP Hall of Shame going to be created?
    This douchebag really needs to be enshrined as the shill he truly is.

  70. jc says:

    More financial “innovation”, like what got us here in the first place!

    Team O’B has been slow to get their arms around this situation

  71. RW says:

    Shorter zenfurni: The foxes “took more than two years to debate and examine the merits of the current” hen-house management system before deciding that many more foxes could be allowed in the hen-house if they each ate less chicken. Naturally the foxes thought it reflected poorly on hen perspicuity when the hens expressed a lack of faith in fox debate as well as the new and improved fox business plan.

    Let me know if I left anything out.

  72. RW says:

    PS: Meant to add that while this may overtly be a fight between NYSE/Euronext and NASDAQ — (there are technical barriers to NYSE/Euronext offering ‘flash trading’ so NASDAQ gains more share implementing the facility) — the larger issue of asymmetric information, unequal status, economic rent seeking and systemic parasitism (no improvement in market efficiency, just more blood tapping) needs to be addressed: The credit crisis was more than a crisis in confidence but a crisis of confidence does remain.

  73. RW says:

    Oh for an edit-after-post function …I meant to write that “I understand there are” technical barriers to NYSE/Euronext offering ‘flash trading’ … and add a hat tip to ‘twofish’ commenting at Brad DeLong’s blog. Sigh …this commenting business is getting complicated.

  74. [...] of fraud to drive this rally at breakneck speed. Looks like that advantage is about to end. From So Much For High Frequency Trading by Barry Ritholtz: Flash trading is more like having access to private info from the sellers, [...]

  75. Christopher says:

    I only drink when I’m alone or with someone.

  76. alfred e says:

    @RW: perspicuity

    Haven’t seen that word in years.

    Goof job. Nice to know there are still some literate peeps.

  77. alfred e says:

    Ooops Good job. Not goof job. Thanks wordpress.

  78. “One last comment on this thread…..Does anybody think we would even know what Flash Trading, Dark Pools or HFT is IF the guy from Goldman-Sachs hadn’t (supposedly) stolen that software?”

    http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Dark+Pools+TheDeal

    http://www.thedeal.com/dealscape/2009/07/the_issues_underlying_high_fre.php

    BG,

    LSS: Robert Teitelman, the editor in chief of The Deal, and The Deal magazine, itself, among, few, others, have been tracking, and telling, about these phenomena..

  79. KidDynamite says:

    damn – what a shame – i was out of town and am just catching up to this… Iman, Transor, don’t worry, i’m alive and well. It makes me so sad when i read someone as smart as Barry write a rant like this that’s so far off the mark. without getting off topic: Flash trading is a non-issue. If it’s banned, you will see no chance in anything, and if it exists, no one is getting robbed. Clearly, even Barry doesn’t understand what flash trading is: the order executor is the one who decides if he wants his order flashed. that’s fact 1 and is the most important fact that assailants of flash trading gloss over. NO ONE if giving sneak peaks of your orders to their buddies unless you want them to. secondly, the REASON people want their orders flashed is because it SAVES THEM MONEY – they don’t have to pay an extra fee to route the order outside the target market center. Now, there IS the possibility that some recipients of flash order information could abuse such information, and instead of stepping up to provide liquidity against the flashed order, COULD go the same way as the flashed order and front run it. THIS IS POSSIBLE. Guess what – YOU DON”T HAVE TO HAVE YOUR ORDERS FLASHED! if your orders are getting front run, you will/would stop flashing them.

    it’s not a big deal… it’s become a political point for guys like Schumer to hang a hat on under the guise of helping the little guy – when in reality all it’s doing is HURTING the little guy who wants to keep his execution costs low.

  80. Steve Place says:

    Peter Gibbons Explains Flash Trading

    Peter: Alright, so when the trading algorithm sees a trade com across, right, it puts an order in front of the trade and we make money on the spread. And we drop the spread into an account at Goldman.

    Joanna: So, you’re stealing.

    Peter: Uh, no. No, you don’t understand. It’s uh– it’s very complicated. It’s uh– it’s aggregate, so I’m talking about fractions of a penny here. And, uh, over time they add up to a lot.

    Joanna: Oh, okay. So, you’re gonna make a lot of money, right?

    Peter: Yeah.

    Joanna: Right? That’s not yours?

    Peter: Uh, well, it becomes ours.

    Joanna: How is that not stealing?

    Peter: I don’t think, uh– I don’t think that I’m explaining this very well.

    Joanna: Okay.

    Peter: Um, the 7-Eleven, right?

    Joanna: Mm-hmm.

    Peter: You’d take a penny from the tray.

    Joanna: From the crippled children?

    Peter: No, that’s the jar. I’m talking about the tray. The– You know, the pennies f-for everybody.”

    Joanna: Oh, for everybod– Okay.

    Peter: Yeah, well, those are whole pennies.

    Joanna: Right.

    Peter: Alright? I’m just talking about fractions of a penny here. Okay? But we do it from a much bigger tray and we do it a couple of million times a day.

    Peter: So what’s wrong with that?

    Joanna: I don’t know. It just seams wrong.

    Peter: It’s not wrong. We’re making markets. We’re providing liquidity. Alright? The Fed is wrong. Doesn’t it bother you that you have to get up in the morning and you have to put on a bunch of pieces of flair?

    Joanna: Yeah, but I’m not about to go in and start taking money from the register.

    A little known fact: Ben Bernanke wears 23 pieces of flair.