Saturday, April 5, 2014

Some Common Sense on High Frequency Trading

High frequency trading (HFT); talk about much ado about nothing…. Finally, some common sense, courtesy of Doug Noland:

April 3 – Bloomberg (Silla Brush): “The U.S. Commodity Futures Trading Commission is reviewing futures markets to ensure high-speed trading isn’t violating the law, acting CFTC Chairman Mark P. Wetjen told reporters… ‘I don’t have the impression at the moment that futures markets are rigged,’ Wetjen said… He was responding to comments by Michael Lewis, author of the book ‘Flash Boys,’ that investors are being robbed by traders using advanced computers to jump ahead of their trades.”

Charles Schwab stated that “High-frequency trading is a growing cancer that needs to be addressed… High-frequency traders are gaming the system, reaping billions in the process and undermining investor confidence in the fairness of the markets.”

If this is such a problem, isn’t it up to the exchanges to deal with it?  If Charles Schwab believes it is a cancer, can’t his firm send all trades of its customers to exchanges that disallow this?  Of course, to truly disallow it could likely mean going back to paper trade tickets and $250 commissions, but still – if it is a cancer – isn’t this a small price to pay?

What does Noland think?

I’m definitely no fan of high-frequency trading (HFT). Still, it’s difficult for me to get all that worked up on this particular issue. I guess I’ve seen too much during my going on 25 years in the financial markets.

This is how I have felt about the entire subject. 

This week Michael Lewis created a firestorm with his assertion that markets are “rigged.”

So why am I writing about a subject for which I care little?

It is a distraction; depending on your tin-foil-hat quotient, a purposeful distraction.  It is one more narrative designed to keep focus away from the only financial / economic / market issue worth discussing. 

Compared to the government enforced monopoly of money and credit, who cares?  Yet, the mainstream press and several somewhat alternative sites have focused and, with the release of this book by Lewis, now have been given rocket-fuel to increase the focus on this almost insignificant issue – insignificant when considered in the larger context of market rigging.  Countless thousands of hours and millions of words will be spent on a distraction.

I discovered this article via Ed Steer’s Daily, so my next statement might seem a bit ungrateful, or ruse to my host….

This is precisely how I feel about complaints of gold market rigging.

So the gold market is rigged.  I believe it.  When money and credit is rigged via a government enforced monopoly, you tell me what market isn’t rigged?

All of these are side issues, distracting to the only issue that matters.

End the Fed.

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