High Speed trading ‘risky and unfair’ by AFP

This is the title of an article written by Agence France Presse a couple of months back. The gist of the article was about American finance experts raising the dangers and risks of high speed trading in Congress and warning of the consequences. They were all crying foul about how dangerous this animal is and that it must be put down. What they failed miserably to say was that this is cheating and an offence against trading rules and by laws, and against the principles of fair play, a level playing field that all regulators are expected to enforce to protect the traditional and retail investors.

‘”US equity markets are in dire straits. We are truly in a crisis,” said Mr David Lauer, a former trader and now a consultant on markets and high frequency trading at Better Markets ….High frequency trading now accounts for 50% to 70% of the volume on markets each day…But it simultaneously works in “dark pool” trading operations away from regulated markets, with computers able to work at hyper speed to exploit price anomalies and take advantage of buyers and sellers trading in traditional ways.’

This was what Lauer said to the Senate Committee on Banking. He was simply saying that the regulators of the exchange were working hand in glove with the high speed traders using computers, dark pools and tweaking the trading system, to cheat on the traditional traders. To put it even simpler, the regulators are part of the crime syndicate that were exploiting the trading system to cheat the traditional traders and getting away with it with the US Govt either sleeping or closing an eye to their crimes.

‘The effect is that traditional retail investors have pulled out, frightened by the volatility brought by HFT and the perception of unfair pricing…Mr Andrew Brooks of brokerage T. Rowe Price told senators “the almost myopic quest for speed has threatened the very market itself. There is a growing distrust of the casino like environment that the market place has developed over the past decade. We worry that the erosion of investor confidence can undermine our capital markets, which are so important to the economy.”’

Unfortunately all these efforts were in vain as Congress was a lame duck as many congressmen have vested interested to allow the cheating and crime to continue. Some could have participated in the crime themselves. The traditional investors would continue to be cheated and the stock market will continue to wind down to a stand still in time to come. By the end of the day when it becomes unbearable, it would be too late. And the criminals would have walked away with their loot, with the blessing of the US Govt and the appointed regulators to keep watch on the cheats. Who is there to watch over the regulators who became partners of the crime?

Is our market going to suffer the same fate? Are there any similarities?

What is this nonsense called unfair trading? There is no such thing as unfair trading in the stock market. Unfair trading is cheating and is an offence. Even keying in and withdrawal of orders with no genuine intent is an offence to create a false market. Buying and selling without change of ownership is also an offence. Are the computer traders doing this while churning the market and creating a false market? Are they allowed to do this? Anyone with a little privy to price sensitive information and traded on it is committing an offence for insider trading. And high speed trading is doing exactly this, with access to the stock market computer to have privy of orders and to exploit this to an advantage cannot be allowed but is allowed and accepted by the regulators as innocent as a little child.

When would the Americans call a spade a spade that HFT and computer trading are cheating and be made an offence? This is American nonsense at the highest level, allowing the computer traders to cheat on the innocent traditional retail investors. If the American Govt is not going to haul in the offenders, they will pay a very high price eventually with the collapse of the stock market and the end of NYSE.

The Americans must learn from SGX, to ban HFT and computer trading from the market, to protect the interests of traditional retail investors and the capital market. Unfair practices and cheating will never be allowed in SGX. That is why our market is so sound and solid as a rock, with trading volumes increasing and growing.


Anonymous said...

Well written and I think the EU also are looking into this. AS for SGX we have changed our trading GL trading system to window system presumably to cater to the big boys for fast speed trading. Hopefully the CEO of SGX can comment on this, lah

Anonymous said...

I absolutely agree with Chin Leng.

Many people have voiced their concerns with High Speed Trading (HST) & Algorithmic Trading (AT). However, as of now not much action has been taken.

Exchanges all over the world are very short-sighted & are only looking at the immediate increase in Revenue but have lost sight of the longer-term implications.

Market confidence has been severely eroded & these Computerised trading models have wreaked havoc to the markets.

The Authorities need to take concrete action NOW to stop this menace, otherwise the Capitalist model of markets cannot operate efficiently.

Matilah_Singapura said...

I doubt there will be any action to outlaw HFT.

It is the battle of the geeks and their software.

Frankly, I don't want it outlawed. Software evolves. So my take on this is that overtime the software will get better as the bugs get fixed and "lousy" software dies from open market competition.

The days of humans trading are ending. In 10 years time, it'll be ALL algorithmic...get used to it.

Anonymous said...

Yes, very clever. The stock exchange will run with 10 computers trading against one another. No retail traders to be cheated of their money. Who are these 10 computers to make their money from?

Anonymous said...

Risky n unfair?

Then do not play loh.

Why gamble?

Anonymous said...

No wonder they called you are daft.

Anonymous said...

What do you expect from crooks, scoundrels and robber barons? They are all in the forefront of running the American government especially the White House,The CIA and The Pentagon as well as in banking, insurance, stock market , real estate and other big businesses. And these crooks, scoundrels and robber barons can inter transfer their rolls from the government sectors into the business sectors and vice versa. They are causing economic and financial malaise in USA and in Europe and if Asian countries are not careful they will spread their disease far and wide to developing countries in Asia and possibly the whole world. The world must put a stop to the evil negative economic activities of these crooks, scoundrels and robber barons.

Eagles Eye