The Wall Street Code

A genius algorithm builder who dared to stand up against Wall Street. Haim Bodek, aka The Algo Arms Dealer. From the makers of the much-praised Quants: the Alchemists of Wall Street and Money & Speed: Inside the Black Box. Now the long-awaited final episode of a trilogy in search of the winners and losers of the tech revolution on Wall Street. Could mankind lose control of this increasingly complex system?
Here is a direct video link.

This all sounds very smart and sophisticated until you realize that everyone else using capital markets for conventional or legitimate economic or investment purposes are being used at our peril by those in possession of advanced technology and preferential access from the exchanges. The traders take the profits, the taxpayers have backstopped the losses, and investment markets are left a less stable and far more risky place for the rest of us to try and use. The public becomes the unsuspecting dupe.

This is actually pretty simple to fix by widening the bid/ask spread back to the historic norm of several cents rather than the fractional spreads now being used. In this way, a huge amount of present HFT trades would not be viable and would stop. In addition, anyone using HFT technology and platforms should be forced to trade on a separate exchange against each other and far away from everyone else’s life savings. Lastly, conventional deposit- taking bank activities that are backstopped by deposit insurance should be separated off from investment banking and trading activities (ala the old Glass Steagall-like division) so that the partners, shareholders and bondholders of risk-seeking firms all bear their own investment risk–live and die by their own algos.

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