ES -- DX/CL -- isee -- cboe put/call -- specialist/public short ratio -- trinq -- trin -- aaii bull ratio -- abx -- cmbx -- cdx -- vxo p&f -- SPX volatility curve -- VIX:VXO skew -- commodity screen -- cot -- conference board

Tuesday, July 28, 2009

 

in defense of high frequency trading


following on the controversy over high-frequency trading stirred at zero hedge but now breaking in mainstream media as well -- an excellent and informed counterpoint by kid dynamite via clusterstock noting that much of the indignation over HFT and supplemental liquidity provision may be more heat than light, ignoring that liquidity rebates and penny scalping done by HFT is in fact a significant improvement over the days of specialists scalping eighths. he also addresses flash orders, which he notes have a long and distinguished history in open outcry. while retaining the proviso...

The problem is if systems receiving flash orders can then turn around and hit that bid in front of the seller. That is blatant front running, and needs to be stopped.


... kid dynamite effectively ends the debate over HFT. i would offer that much of the insecurity surrounding market mechanics has found its way into concerns over goldman sachs, SLP and HFT; much of that might be related to the clear failure of regulatory competence rather endorsed by the bush administration on some level and clearly at work in many aspects of the late-stage boom (as in all late-stage booms). the lack of clarity for many outsider participants in how exactly markets work feeds this insecurity, which is one reason the SEC, as well as its analogs and compliments, has such an important role to play in investor confidence.

at the end of the day, goldman and other SLP designees are changing the way markets are made -- in many ways for the better. that is going to generate friction, however, which as alea has sometimes noted is something old-line market makers and institutional traders can take advantage of.

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insightful analysis, the antidote to hysteria, thank you.

 
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