Strongly Regulate High Frequency Trading
In Regulation: Don’t Throw the Baby Out With the Bathwater, Progress CTO John Bates illustrates the principle of advocating a position based on a natural conflict-of-interest and then wrapping “the package” in rhetorical phrases.
First of all, the US economy (read individual investors) would be much better off if financial services firms (or anyone) were not permitted to use computers next to stock exchanges to seek split second “get rich quick” opportunities that the normal, traditional investor does not have. The only “economy” that benefits are entities that participate in this type of activity and the technology firms selling the hardware and software to make “all the madness” possible.
Many technology companies make a living selling software that facilitates high frequency trading. This is the same type of trading that continues to destabilize stock markets and injure investors. But, investing in equities should mean investing in the companies, not electronic signals. Unfortunately, high frequency trading is not investing, it is a type of electronic game where the winners are the companies with better technology and the losers are individual investors, retirees, mom-and-pop businesses, and everyone else.
The stock market was created for the purpose of public ownership in businesses, not to be a tit-for-tat game of “who has the best technology to exploit signals”. What we are seeing in high frequency trading is an abomination of the principles of investment. The poster’s closing statement on the topic is revealing:
“[we need]…. new approaches to markets surveillance across fragmented markets and real-time pre-trade risk management.“
Which simply translates to,
“We want to sell you more software.”
Let’s their be no mistake about it, companies working in the high frequency trading domain do not care about the economy, individual investors, or the principles of stock ownership. They care about making as much money as they can. They care about profit.
This is precisely the reason that I voluntarily stepped down from my active leadership role in CEP. CEP was originally based on the need to protect networks and computers. This is exactly what DARPA funded and academics like David Luckham were funded to research. Unfortunately in the marketplace, the term CEP was hijacked by software firms selling to financial services and has become a distasteful abomination of a once promising industry.