Yeah okay Mr. Stuyvesant Football Team QB...
Of course you do. This isn't surprising.
Suggested reading material:
http://www.amazon.com/Empirical-Mar...1641/ref=sr_1_1?ie=UTF8&qid=1369818249&sr=8-1
Also if I may add - there are VERY heavily regulated markets out there that have been around for ages. Perhaps take a hard look at them? You can't regulate away basic mathematics...
I understand Lyosha that you have an agenda to push, to protect your job and the place that HFT and algo's have in the market place, as more regulation will cut profits for people who work at such firms, which I am guessing that you do.
But at the loss of your economic benefit, I think that the market will be better off and more stable and inspire more confidence with rules being tightened around automated trading.
As there was another flash crash today in the market in two stocks
http://blogs.marketwatch.com/electi...ike-again-this-time-at-williams-sonoma-hyatt/
I know you're going to say that this was caused by humans and not computers but considering how flash crashes of 100ms it is the fact of electronic trading itself that creates this paradigm.
I can pretty much assure you that a crash back when stocks were traded via the phone, did not take 100ms nor recover as fast. Everything is faster, fast to the point of separating and diverging from the original purpose of the markets into a vehicle for manipulation today by people who add no value to the market themselves
As we all know the markets exist for people to come together and agree upon the future value of a security through their voting actions of purchases and sales, Im sure you know markets are forward looking discounting processes.
The market is not better off, having computer execute trades in ms, nor are investors or the confidence such fragility and lack of meaning that such events inspire in people.
Prices of stocks are supposed to represent something, but automated trading destroys faith, manipulating prices causing wild swings in ms that a stock worth $90.00 at 9:45:01 AM, then worth $3.00 at 9:45:03 AM then worth 90.00 again in a few seconds.
I dont think we need to go back to the phone and trade like we did in the 80's but we do need to make sure that automated trading is prevented from warping the market to the point that any price of a stock can be destroyed in ms.
Its an issue of investor psychology, and less of math and equations.
When I put money into the market, I want to know there are other traders who are human and taking the other side of my trades. We are disagreeing on the value of the stock. But when I buy a 100 shares there is a computer on the other side that is taking the bet against me. Almost all the volume is done by computers on the exchange.
This computer was designed to provide liquidity, and take a zero directional bias, or to trade around my ideas of what something is worth. The algo's are not contributing any knowledge to the market, they try not to take any bets in one direction. There by acting in many cases as a tax and a leech to those who want to participate in the auctioning process.
I again reiterate that for this reason many people have lost faith in the markets, and believe them to be manipulated, and why lots of volume has moved into dark pools.
I don't think we need to get rid of computers in trading, in fact I know that the algorithms that I use, help speed the execution, but if you take what I am doing and multiply it by 100X then the net cumulative effect of everyone using rapid fire computers is more volatility and loss of confidence in the markets.
I propose a speed limit to the markets for the sake of preserving investor faith.
Any true investor, and any true participant that has a idea behind his decision will not need to get in and out of the market in milliseconds. Anyone looking to profit from micro pennies is not contributing anything positive, which is different from making the spread.
Does the spy really need to be traded every millisecond, can a firm that buys 1,000 spy turn around and sell it 5 seconds later after having detected an order flow imbalance, with offers stacking up against the bids, but then using sniffing techniques to see that the offers were indeed fake from other computers and then buys more spy.
The markets are a place where people can battle on their ideas, not battle each other on speed and technology scrimping pennies here and there while others try to participate in the auctioning process.
Nothing in the transactions mentioned above are the larger ideas of where the economy is headed or the health of stocks being represented as those decisions are devoid of such considerations.
Its a fast paced game of musical chairs.
Hence there is no added value in my opinion and again I reiterate that a speed limit be enforced on trade execution.
A person who will add value to the market by putting his money where his mouth will not need to trade in ms.
I am not alone in this thinking as well,
http://www.theaustralian.com.au/bus...requency-trading/story-e6frg916-1226656516550
This is just one article, you can visit zero hedge which is very anti-hft and has devoted lots of time and energy to building a case against them being in the market.
Again I also understand this is a quant board, people who want to engage in these type of activities so I know I will not garner any agreement. But that is not my purpose, but to educate those participants to let them know, that the voices of those who oppose what you do, is growing and your industry faces threat and you are hard pressed to defend yourself against logical arguments that others can make much better than I.
I am pretty confident that in a few years we will see more regulation, hopefully restoring faith in the market.
