Two CEOs of exchanges got in a nasty brawl on CNBC's "Power Lunch" over high-frequency trading.
Posted on 04/01/2014 1:52:28 PM PDT by SeekAndFind
Two CEOs of exchanges got in a nasty brawl on CNBC's "Power Lunch" over high-frequency trading.
William "Bill" O'Brien, the CEO of BATS, slammed Brad Katsuyama, the CEO and president of IEX, and author Michael Lewis.
Katsuyama is the hero in Michael Lewis' new book, "Flash Boys." His firm, IEX, is an alternative exchange.
"I've been shaking my head a lot quite frankly the last 36 hours ... Michael and Brad, shame on both of you," he said, adding that they've possibly scared "millions of investors in an effort to promote a business model."
CNBC correspondent Bob Pisani asked Katsuyama if he thought the markets were rigged.
"I think it's really hard to put a word on it," Katsuyama began.
O'Brien jumped in. "He said it in the book. You said it in the book ... it's disgusting that you're trying to parse your words now. You can't say that ... Do you believe it or not? Because you said it."
"I believe the markets are rigged. And I also think that you're a part of the rigging. So if you want to do this, let's do this," Katsuyama said.
Katsuyama said that it's the responsibility of a venue to fairly price trades between fast and slow participants.
The brokers on the floor of the New York Stock Exchange exploded with cheers at this comment.
"You had a 300-hundred-page commercial, OK? So let me talk," O'Brien shot back later in the interview, referring to Lewis' new book.
During the interview, Katsuyama said he thought we should get rid of the term "high-frequency trading."
(Excerpt) Read more at businessinsider.com ...
Click on this link for the video :
http://www.zerohedge.com/news/2014-04-01/bats-ceo-shame-you-letting-everyone-it
Bill O’Brien couldn’t have looked worse if he tried — petulant, bitter, and obnoxious.
In other words he came off similar to our president?
I’m glad that this is finally getting the airing it is due.
HFT is front-running and bid-rigging, Nothing more, nothing less.
The promised extra liquidity and depth of book we were promised hasn’t materialized and at the first sign of trouble in the “flash crash,” the HFT clowns fled the market.
All orders should remain on the tape for a minimum of 30 seconds or until filled. That’s a tax-free way to put a stop to this.
I read that some 80% of the trades are between computers. Just moving the stock price up and down. Each taking a small cut. The investors are the ones who get shafted.
Agree. Defensive, combative, and pretty obnoxious. I realize he’s protecting his brand but he was way to combative.
It’s been rigged for YEARS. During the 2008 crisis, it was like there was a tank of money over the top of it keeping it all from imploding.
This has been the message to the big companies - get in bed with Uncle Sugar, and we’ll take care of you, if you do what we ask.
Of course its rigged. The entire MBS crisis was ENGINEEERED by PUBLIC POLICY - HOME OWNERSHIP IS A RIGHT!!
The banks said, “Fine, we’ll write the loans you’d otherwise put us in jail for making, and you let us sell them to Wall Street, who will package this reeking bag of shyte into securities, and the entire thing is subsidized by the risk market using Fannie as the underwriter.”
“Done!”, cried both sides of the aisle, and the market went to Pluto - prosperity without end.
Blackpoint used CDS’s to short the entire economy. Those got packaged up into CDO’s, and as soon as the writing was on the wall - that your $14K/year illegal alien strawberyy picker was going to default on the three $750K mortgages he was carrying, the smart money knew that there was more to be made in seeing the people holding the paper defaulted.
And that was it. For a while it looked like FedGov would find a way for the big banks to weasel on the CDS and CDO leverage, but that was a bridge too far for the market.
It still hasn’t unwound, and won’t for another 30 years or so. Next three generations are going to be big renters. Big ones.
Section Eight Nation. That’s where we are headed.
Why the hell should a trading firm be required to hold a bid or offer out there for that long under changing market conditions? Would you?
If you want to slow the markets down, go back to the old days when lead market makers were guaranteed a minimum, meaningful spread. That used to be called 'unfair', too.
No one is going to provide liquidity when there's no opportunity to make money.
This would be interesting if it was even remotely relevant to the topic...
HFT has been not only known by the SEC, but it has been used by FedGov to spot catastrophic moves in the market and buy them time to place counterbalancing trades to better manage swings.
All part of the general rigging of the markets. You’ve got a fairer shot betting on blackjack in a casino, because the market no longer represents the total knowledge within a market.
Yea, my bids are out there for sometimes at least that long. The difference is, my bids are an honest offer to buy at the limit price I’m specifying. I’m not painting the tape.
I’d go back to a minimum spread in a hot second if I could also get back to open outcry and real human floor traders, because with a human in the trading loop, there’s some common sense in there that says “Bid of $0.01? Bullcrap. Something’s wrong. Let’s find out what.” I never thought that the pre-decimalization spread was unfair, because I knew someone was making small change by using their money to provide liquidity in that spread.
Trading in inherently chaotic and unpredictable at some points, and taking all the humans out of the loop and inserting computers is about as smart as taking pilots out of the cockpits of airplanes. Sure, the FMS can handle most of the situations most of the time. When the “something else the small minority of the time” happens, I’d like some humans in the loop with some experience and common sense to say “Now let’s not panic here...”
If you're sitting in front of a screen with an internet connection trying to click-trade better than the HFT firms (or any trading firm with a co-located connection), well, good luck.
Remember too that the exchanges are baiting the firms to make trades (even losing trades) because the firm gets a kickback in terms of exchange fees or outright payments for luring trading volume onto that exchange (where the exchange get the lion's share of the fees).
Here’s a comment from the site:
“...As far as I’m concerned high frequency trading should be banned ..The point of the markets is to facilitate investment not to act as a Casino, companies are now spending absurd amounts of money to out do one another with ridiculous technology to make “their “ trades first , that kind of behavior has no place outside of a casino....”
It’s not just the ability to place trades first. It’s knowing ahead of others what the trade will be. It’s front running and it is illegal.
When you can see the future before others in a bet, you have the inside advantage. It’s like knowing what cards the dealer is going to pull from the deck before other players know. This is all due to computer speed that is made possible by putting ultra fast servers as close to the floor trading as possible. Technically the HFT players get to peek at the answer before they place their bets.
Wall St. knows the retail investor is spent, wiped out, exhausted. But they need the retail investor to come back if they can ever kick the QE addiction of investment banks channeling QE funds to stocks. At some point the QE originated game has to end. Wall St. needs to lure retail bagholders back to their casino.
More than that, there’s a demographic problem going on for Wall Street.
The Baby Boomers are retiring, and that means they’re not going to be in equities (as a generation) for that much longer. They’re not in the job market for that much longer, and their IRA and 401(k) money is going to come out of stocks and into less volatile asset classes (eg, bonds, Treasury paper, etc).
The following generation is both numerically smaller, and has much less money to put into the markets. As it is, when I talk to young people, their distrust of large institutions absolutely applies to Wall Street, and they “know” that the markets are rigged. They’ve seen a huge melt-down in 2008. They’ve seen how the markets took 10+ years to regain where they were in the early 2000’s. They’ve heard of how the dot-bomb generation created IPO’s with absolutely no hope of ever making a profit, etc, etc.
There’s no way to convince these kids to invest in the markets. They have no trust in them at all - or even any trust in the concept. How do you tell a kid to “trust the markets” when they saw the US government turn itself inside-out to rescue the big banks... only to give the big bankers more power, more money and to screw everyone else in the markets and any savers who want only a few percent on their savings?
Wall Street is dancing on its own grave here.
Bump for later
There is justification for making a trade quickly, but there is no justification for getting in and out and in and out and in and out, etc. quickly.
The easiest solution to me is to either place a small tax on all transactions or a large tax on multiple transactions of the same security. I hate taxes, but I don’t know how else to stop this obscene wealth transfer to whoever has the fastest trade platform and best algorithm.
bkmk
I agree with the kids.
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