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High-Speed Firms Now Oversee Almost All Stocks At NYSE Floor (bloomberg.com)
An anonymous reader writes: Barclays, one of the biggest banking and financial services firms in the world, has sold its business on the floor of the New York Stock Exchange to Global Trading Systems. This is significant because it marks a transition between human-based trading and high-speed trading. Now, humans on the NYSE floor have more of a supervisory role, making sure the automated systems don't go haywire. Barclays has been around for hundreds of years; GTS was founded in 2006. "There used to be dozens of specialist firms, as designated market makers were once known, at the NYSE floor. But profits from trading U.S. stocks dwindled, making it difficult to serve as market makers without automation. Although GTS, Virtu, IMC and KCG employ human traders at the floor, their businesses are driven by some of the industry's most sophisticated computer systems."
If computers do trade stocks, isn't that than the same as computers which go to war?
Honestly, they might as well replace all the workers in the trading system with robots. None of this produce real wealth anymore. The original idea of the stock exchange was to allocate capital efficiently from savers to businesses that could use it to create productivity growth. But we haven't had a capital constrained economy for almost two decades now. Banks can create whatever capital they want (or can fool you into believing in) using debt-equity fudges, and current negative real interest rates on cash indicate that the problem is not capital availability but consumer demand.
When you have no capital constraints the stock market 'value' is determined almost entirely by hype. Even worse, private equity funds are so big now that they can ensure the public exchanges never see any of the juiciest profit making companies until they are fully asset stripped and ready to pump and dump.
Predictions about future returns are part of "the value of something right now", so your distinction makes no sense.
No, it doesn't. It introduces delays and dependencies on the future, but people make both kinds of errors on stocks.
In fact, the opposite is true mathematically: longer delays tend to produce bigger swings, for the simple reason that a system can go off the rails longer before the market corrects it.
But there's an even more basic error in your reasoning, namely the assumption that market swings are bad or that we should adopt policies to reduce them.
The faster the trading, the worse the swings will get.
The SEC's investigation into the 2010 Flash Crash, came to the exact opposite conclusion: that HFTs have a stabilizing influence on markets by providing liquidity. One of the reasons for the crash was that when prices moved outside of the expected range, many HFTers stopped trading, and the resulting drop in liquidity, and rise in spreads, caused some investors to panic.
I'd be fine with this, if they weren't allowed to unwind transactions because of "computer glitches". If they wanna automate trading, they should have to take the good and the bad. But now, if their software does something stupid (like repeatedly buying at 25.01, and selling at 25 even) and you take advantage of it, they sue you and get the trades reversed.
Your ad here. Ask me how!
Okay, but can you provide evidence they were wrong about this?
Of course not. He cannot even provide a theoretical reason why faster transactions would lead to instability. Systems with hysteresis, or lag, tend to have less stability (ask any helicopter pilot). In theory, faster transactions should lead to more stability, and this is true in practice as well.
HFT is good for market stability, good for retail investors (far lower transaction costs), and, by making capital markets more efficient, good for the overall economy. The only losers are the old inefficient and expensive brokerages, which mostly no longer exist. Good riddance.