Slashdot Mirror
SEC Chair On HFT: 'The Markets Are Not Rigged'
Hugh Pickens DOT Com writes "Reuters reports that U.S. Securities and Exchange Commission Chair Mary Jo White told a U.S. House of Representatives panel that she flatly rejected claims that retail investors are being fleeced by high-frequency traders who can use their speed to jump ahead with buy and sell orders that fetch better prices. 'The markets are not rigged,' says White. 'The U.S. markets are the strongest and most reliable in the world.' White's comments to the House Financial Services Committee mark the first time she has directly responded to allegations in Michael Lewis' new book Flash Boys: A Wall Street Revolt. The book alleges that high-speed traders are engaged in a form of front-running, in which the firms are able to quickly identify an investor's desire to buy a stock, rush to buy it first and then sell it back at a higher price. The SEC has been reviewing equity market structure issues, particularly following the May 6, 2010 flash crash incident when the Dow Jones Industrial Average sharply plunged before quickly rebounding. Although staff at SEC are considering whether to launch some pilot studies to test different regulatory proposals, there are no immediate plans to issue rules to crack down on high-speed trading or trading in unlit markets. 'I want to be very clear that the market metrics suggest that the retail investor is very well-served by the current market structure.'"
I highly recommend reading Flash Boys , mentioned in the Slashdot summary here. While advocates of HFT have always claimed that it provides liquidity, and it did fulfill that role usefully for a long time, we've passed a point where the gains of liquidity are overcome by the overall detriment to the economy: transactions that would have occurred anyway are penalized with what is essentially an extra tax because they came a few seconds later, and people with arcane and specialized equipment jumped the gun.
U.S. Securities and Exchange Commission Chair Mary Jo White told a U.S. House of Representatives panel that she flatly rejected claims that retail investors are being fleeced by high-frequency traders
I'd make a bet with anyone that someone is going to be "shocked and surprised" one day that there was rigging going on just like Allan Greenspan. And just like Allan Greenspan, a certain SEC Chair is going to be miraculously a very wealthy bitch when she retires from a government oversight job.
Of course, I feel compelled to let you know that the betting process is rigged in my favor.
>>"ad space available -- low rates!!!"
She's screwing YOUR retirement/pension plans. These are the folks who are getting fleeced by HFT.
Nope. The 'scam' in the flash boys (from the interviews - as per usual Slashdot expectations I haven't read the book) is that someone places a very large stock order for X at the current ask price that is routed to multiple markets. Let's call them A, B and C. From your trader the delays to those markets are 10ms, 100ms and 200ms respectively (which are ridiculously high numbers for this game). Your HFT trader has collocated servers at markets A,B,C, and minimal-latency links between their servers. So when the order arrives on market A and fills, they think 'Hmm, someone is looking for a shedload of X. They then place instructions to buy on the other markets, followed by orders to sell at a slightly increased price. They have 90ms (- the time for exchange A to match, fill, post market data etc., and the time for orders to be placed on other exchanges). It's like some slow moving person walking from stall to stall in a (physical) market buying all the oranges, and announcing loudly that they are doing so. Is it illegal to run to the next stalls, buying all the oranges and then offering them back to the slow moving guy?
All the information is public. The market data feeds are available to anyone. You pay for more up to date market data (which includes details of fills, not orders placed) - you don't pay for the 20-minute delayed stuff on google/yahoo, but you do if you want it faster. You pay for collocation. You pay for those low-latency connections. You used to pay for a trading desk on the stock exchange floor, guys in coloured blazers who could calculate and make decisions faster. The system has never been 'fair', but HFT doesn't necessarily make it worse.