The fact that many people are saying these practices don’t worry them, is a testament to how clueless the consensus view is today. Let’s face facts. We know the HFT firms are making a fortune skimming money off the market. We know they have increased the risk of crashes and dislocations significantly. We know they have undermined confidence in public markets, and we know that the exchanges have so far been happy enough (foolishly) to degrade their integrity in order to pick up the change HFT’s toss at them as they scream wildly round the track. We know that HFT is violating the spirit of insider-trading bans by buying access to information about orders that other investors do not have. See: FBI investigating high speed trading outfits.
But we should make no excuses here: investors get zero from HFT–except greater capital risk. If HFT is to be condoned it should be restricted to separate exchanges where computers can play high risk games, battling and duping each other far away from traditional traders and investors. The algos have come to use the public as unwitting camouflage at their disposal. The fact that many of them are working at tax-payer backed “too big to fail or jail” banks is further insult to injury. Time to separate banks from trading, restrict algos to their own exchange, increase the bid ask spread and cut the parasites loose.
“The risk isn’t so much about the small investor,” he said. “The risk is all these different high-frequency traders playing a game with their algorithms, trying to trick each other, to get in front of each other to make that trade.” Here is a direct video link.
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