Streams

The High Frequency High Frequency Trading Debate

Friday, April 04, 2014

Traders work on the floor of the New York Stock Exchange on November 22, 2013. In early trading the Dow Jones Industrial Average was little changed after closing above 16,000 for the first time ever. (Spencer Platt/Getty)

Felix Salmon, finance blogger for Reuters, explains the debate and the backlash - and the backlash to the backlash - about Flash Boys, Michael Lewis' new book about high-frequency trading.

Guests:

Felix Salmon

Comments [19]

Henry from Katonah

Mr Salmon is poo-pooing Mr Lewis's very lucid explanation of what the stock market is like today (fixed). Wrong guest for this segment. Maybe you could try someone else, Brian?

Apr. 04 2014 12:14 PM
Henry from Katonah

Mr Salmon is poo-pooing Mr Lewis's very lucid explanation of what the stock market is like today (fixed). Wrong guest for this segment. Maybe you could try someone else, Brian?

Apr. 04 2014 12:14 PM
Henry from Katonah

Mr Salmon is poo-pooing Mr Lewis's very lucid explanation of what the stock market is like today (fixed). Wrong guest for this segment. Maybe you could try someone else, Brian?

Apr. 04 2014 12:13 PM
Henry from Katonah

Mr Salmon is poo-pooing Mr Lewis's very lucid explanation of what the stock market is like today (fixed). Wrong guest for this segment. Maybe you could try someone else, Brian?

Apr. 04 2014 12:13 PM
Richard from Levittown

Since the "selling" of the American Public on the evils of a guaranteed pension we are all now in the hands of the speculations in a 401K, 403B accounts or others. For those of us who are retried and depend on the vagaries of a "market" economy and the "wisdom" of the stock market and its traders, Jack Bogle (Vanguard) had it right- we are all in a "rent a stock" environment and hope we spend our golden years in a bubble economy. The saddest part is that all our working lives we have to invest in complex investment markets that few of us have time, skill, or knowledge to wisely guide. Lewis' book just increases our anxiety and suspicion of the equity and hedge funds and their compatriots. And we debate in the congress the need for that terrible enemy- social security??????

Apr. 04 2014 12:08 PM
Jack from Manhattan

I love when Brian attempts to discuss financial matters on his show. He really shows his ignorance. That said, when I found out about High Frequency Trading, I figured that someone was gonna leverage it to game the system. I just didn't know how. Now we know thanks to Katsuyama and Lewis. Perhaps, regulation isn't necessary here and that the IEX will earn the trust of major traders, alienating the traditional exchanges. Wouldn't it be ironic to see say, NASDAQ fail as investors run from imbalanced exchanges, hoisted with its own petard of unmitigated greed.

Apr. 04 2014 12:05 PM
Stephan from Queens NY

All these big companies want to be co-hosting. What do you expect in an environment that regulates themselves. These companies all want to put their serves in the cage with the exchanges. It's all about greed.

Apr. 04 2014 12:00 PM
Bob from Huntington

Should have called this segment: The Speed of Greed

Apr. 04 2014 11:57 AM
BigGuy from Forest Hills

It's not taking millions away from the market. It's taking Billions away from the market.

40% of daily trading volume is HFT -- about 3 billion shares. If HFT results in profits of 3 1/3 cents per share, that's $100 million a day, EVERYDAY.

$25 billion a year. World wide in all financial markets, over $50 billion a year, at a minimum.

Apr. 04 2014 11:57 AM
Andre from Park Slope

What are the legal implications? Who's responsible?

Apr. 04 2014 11:56 AM
Proxi from Surveillance NYC

This person sounds like he's trying to sound neutral but if you listen to his words he's very much opposed to Michael Lewis' stance. I heard the financial networks are united against Michael Lewis's opposition to HFT.

Apr. 04 2014 11:54 AM

The opportunities for multi-exchange, multi-range arbitrage due to HST & the new private exchanges which are only nominally regulated by the SEC or DOJ are amazingly broad.

In essence, every trader can play his own portfolio short & long vs. his customers, his employer on multiple exchanges in multiple countries. Thus he can front-run, back-run, hide insider info trades & the sheer volume of HST activity leaves the retail investor unsure of what his "at market" selling price will be. The small guy may follow the stock on NASDAQ or NYSE, but the trade may take place on IEX or other private exchanges after computer trades, corporate brokerage trades, individual trader and/or broker trades

Apr. 04 2014 11:54 AM
john a

Never mind the unfairness of it all, which is one major point well made by Lewis... The Other major point is the extreme likelihood of a historic unrecoverable flash crash.

Apr. 04 2014 11:50 AM
jgarbuz from Queens

Am I alone in being tired of hearing so many people with British accents getting cushy American jobs? Americans worship at the feet of any sod with a British accent.

Apr. 04 2014 11:48 AM
Paul from JerseyCity

Would a financial transaction tax reduce the problem?

Apr. 04 2014 11:47 AM
BigGuy from Forest Hills

High speed trading is NOT gambling. It is not investing. It is trend following.

It is FRONT-RUNNING. It is nearly risk free.

Money is borrowed at the fed funds rate in order to buy millions of shares to be held for 1/10,000 of a second or less to make a tenth of 1% while borrowing at 1/360 of 1/2 of 1% (that's the fed funds rate).

A high speed trading hedge fund may pay $1380 interest on $100,000,000 for one day to make $100,000 front running in less than a second. Done repeatedly, more than million could be made with less than $1400 in interest PER DAY.

When a retail broker buys a 100 shares of T for his mom before he buys 100 shares for his client, that's front running. In anticipation of FB's earnings release, when a GS trading unit buys $1,000,000,000 of 100 different tech stocks at 3:59000000 and sells them all at 3:59000001 for $1,001,000,000, that's okay.

A Billion in the market for 1/10,000 of a second to make a Million. Sweet.

I do not think it should be okay for GS or anyone else to engage in transactions like that. A transactions tax would discourage HFT (High Frequency Trading) like that described above. A tax as small as a dollar per million traded would stop a great deal of trading that does not serve public policy at all.

Apr. 04 2014 11:47 AM
BigGuy from Forest Hills

High speed trading is NOT gambling. It is not investing. It is trend following.

It is FRONT-RUNNING. It is nearly risk free.

Money is borrowed at the fed funds rate in order to buy millions of shares to be held for 1/10,000 of a second or less to make a tenth of 1% while borrowing at 1/360 of 1/2 of 1% (that's the fed funds rate).

A high speed trading hedge fund may pay $1380 interest on $100,000,000 for one day to make $100,000 front running in less than a second. Done repeatedly, more than million could be made with less than $1400 in interest PER DAY.

When a retail broker buys a 100 shares of T for his mom before he buys 100 shares for his client, that's front running. In anticipation of FB's earnings release, when a GS trading unit buys $1,000,000,000 of 100 different tech stocks at 3:59000000 and sells them all at 3:59000001 for $1,001,000,000, that's okay.

A Billion in the market for 1/10,000 of a second to make a Million. Sweet.

I do not think it should be okay for GS or anyone else to engage in transactions like that. A transactions tax would discourage HFT (High Frequency Trading) like that described above. A tax as small as a dollar per million traded would stop a great deal of trading that does not serve public policy at all.

Apr. 04 2014 11:47 AM

It's particularly accurate to call this activity " making money." What it's not is a market. Or investing.

"The biggest fish are caught in the muddiest water" as they say in Asia -- as long as it's legal and encouraged by lack of regulation, transparency and tax, it would be ridiculous for Joe Trader NOT to make money this way!

Apr. 04 2014 10:01 AM

High-speed and high-frequency trading skew the market and make the (literally) less well connected 'take a number' before their trades are executed. This may not be so important when, as an investor, you want to buy in. However, it is grossly unfair when you want to get out. It insures that small and individual investors are the last trades executed.
It is unfair, and should be severely limited and any gains made via HFT should not be taxed as capital gains.

Apr. 04 2014 08:46 AM

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