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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.'"
Looks like she's bought and paid for.
It's insanity, we are watching real life crazy people.
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Of course the markets are rigged. It has always been that way all the way back to the 1920s. Most often the regulators where former insiders themselves, in which case they were complicit in the buddy-buddy world of Wall Street. This woman, however, just seems to be an imbecile. [I'm a 30 year veteran of Wall St and have worked on the trading floors in most of the major firms.]
Yea, somehow banks are using HFT to magically pull money out of thin air, definitely not at the expense of traders, because traders are being so well served.
That definitely makes sense and doesn't sound like complete bullshit at all.
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Nothing to see here, people. Move along. And could you put that Social Security Trust Fund money here before you go?
Either people are being front run, or they are not being front run. Can't the SEC grow a pair and actually say definitively whether people are being front run or not? I don't think the concept of front running is an obscure concept that is up for debate. Come on SEC, investigate and pass judgement. Don't give us these weasel words.
Officer I was not speeding. Yea, that's what they all say. So, what did you expect the SEC Chairperson to say. Anything but "the markets are not rigged" would gave caused a panic. Congress took away her option to say nothing. Of course the markets are rigged in favor of the HS traders. Why else would you do HS trading but to gain an 'unfair' advantage? Let's have a regulation that requires investors to keep what they buy for 30 days before they can sell. No penalties for early sale. You just can't sell it for 30 days.
HFT is another sound argument for Network Neutrality. Fair open markets can not exist on top of a network where superior bandwidth and latency decide market winners instead of legitimate market forces.
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So, if the market's not rigged and HFT is a feature, what's wrong with introducing random delays of tens of milliseconds into their data streams? Robustness testing, don't ya know. Since there's no way to guarantee flawless links you need to stress the system to locate problems.
The likely outcome would be that the markets would continue to perform as expected while a number of HFT firms would go belly up. Who would miss them?
are trading houses spending hundreds of millions of dollars on high speed, fiber optic, trunk lines, in an effort to cut milliseconds from their transaction times? Give me a break puddin cake!
The USA is only 4X older than me...perspective
You don't understand the issue or you are making money from the technique and have fully disconnected yourself from the ethical implications of HFT scamming.
I'll use plain english terms to describe it since I'm not in that industry and never remember the fancy facade of names used to obfuscate investing practices and technical points from non-industry people.
You can check the bid/ask prices, the type of HFT process that screws you happens entirely AFTER you press the buy button, they see your buy at one data exchange location and literally outrun your network packets to remaining exchange points to buy up what you just clicked 'buy' on. You end up with a portion of what your lowest bid was, but suddenly the other locations that have the product to fill the order are all priced higher from the HFT gamer. This requires special high speed access and high speed API access to the data exchange points.
It's rigging the system. It's a great hack if you are making money for yourself but it's more than just unethical, it utterly destroys any usefulness of financial investment markets, and also leads to caustic disruption of real world economic data.
Cheers.
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The only problem with that argument is it ignores the liquidity and spread reduction produced just by having HFT in the market.
God i am sick of this BS being trotted out every time someone wants to defend HFT. Liquidity as a useful metric is *never* measured in milliseconds. It could be easily argued that measuring less than a minute is simply not understanding what liquidity even is.
If information wants to be free, why does my internet connection cost so much?
The stock exchange is a zero-sum game, at least in the short term. Contrary to popular views, no profits of the company being sold, nor even dividents granted to shareholders, inject any money into stock exchange -- they change only the perceived valuation of shares, and the only new money comes from the Ponzi effect.
And in a zero-sum game, if someone is skimming, everyone else loses.
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