What's the Big Deal with High-Frequency Trading Anyway?

Monday, August 03, 2009 , , 0 Comments

The robots
have taken over

Well according to this dude, there is no big deal. Tell that to the whiny JP Morgan babies who say hft is cockblocking all their sweet ass profits.

Via NYT's DealBook:

Duncan L. Niederauer, the head of NYSE Euronext, which owns the New York Stock Exchange, says he’s not quite sure what the fuss is about. In an interview with Steve Forbes posted Monday on Forbes.com, Mr. Niederauer said he was “confused” by the recent criticism of high-frequency traders, adding, “I’m not just saying that because some of them are big customers of ours.”

High-frequency trading is driven by powerful computers that can send millions of trade orders each second. It has grown dramatically in recent years, helping hedge funds and large banks make big profits.

Rather than destabilizing the markets, Mr. Niederauer said high-frequency trading adds liquidity to the marketplace and so probably does the opposite, reducing market volatility.

And what about the critique that high-frequency trading allows a few firms to reap profits at the expense of the general investing public?

Not so, the stock exchange chief says:

I don’t think it’s at the expense of traditional investors. I think we’ve got to get away from this notion that everything is a zero sum game. I think most investors I talk to aren’t that concerned about where the next 500 shares trade, and what the bid-offer spread is. They’re concerned about making investment decisions that are typically of a long-term nature. So I don’t think in the microsecond-to-microsecond world the investors that you and I would be worried about protecting are at all disadvantaged by this electronic market making activity.

Mr. Niederauer and Mr. Forbes didn’t spend much time talking about another controversial practice in the market place: so-called flash orders, in which some customers get to see trading data a fraction of a second before the others.

I'm staying out of this argument. Jr Deputy Accountant has bigger fish to fry and full faith in the market's ability to purge the funny business in due time.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.