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 ...
For those of us who are regular readers of Karl Deningers site,(market-ticker.org) it has been very well documented and laid out exactly how the HFT SCAM has been playing out and STEALING from everyone. Unfortunately KD closed his forum so you can’t go read all the previous articles on this subject. But HFT IS FRAUD AND THEFT in it’s purest form.
Sorry, I can’t agree with you on this. Why someone buys or sells, or how often, is their own business. If you’re a buy-and-hold investor, then you should be looking to buy stocks at a price you think will allow you to sell at a profit later. If you think these high-frequency guys are driving up prices, making you pay more, then aren’t those same guys keeping prices up, making it more lucrative when you sell? Or aren’t people that are selling today getting a higher price than they would without the HFT’s?
The reality is that we used to pay 6- to 10-cents PER SHARE to trade, and bid/ask spreads on NASDAQ or OTC stocks were 1/16th (6.25-cents) or 1/8th (12.5-cents). Now just about anything you want to buy can be had for flat-commissions, and bid-ask spreads are a penny or less. That’s because the HFT guys are doing with computers what floor brokers and retail brokers used to do all the time. They just do it more quickly, efficiently and cheaply.
If you’re an investor, then these guys have virtually no impact on your long-term returns, and maybe even help them, because the market is priced more efficiently by their presence.
You apparently believe in free lunches. The HFT guys are a net minus in terms of dollar flow into the market, otherwise they wouldn’t do it. Brighten up, they drive up the price I pay and drive down the price when I sell. It’s heads they win, tails I lose, that’s the whole point. Just because they only took a penny each way from everybody in the entire market doesn’t mean they aren’t stealing.
The market and all the securities within it are net priced based on money flow in versus money flow out. These guys are essentially taxing the market, without adding value. Your price stability argument is bs because the stock will be priced by demand no matter what the HFT guys do. The amount of volatility they tax can’t and won’t stop major sudden shifts, and minor shifts would not be harmful with or without HFT.
The cost of trading comes down regardless, as brokers will always look to attract investors with better pricing and the only thing HFT provides is a technology for removing a percentage of investors money from their accounts.
Go sell crazy some other place, we’re all stocked up here.
So if I speak 500 words per minute, my burger will be 1/2 the price of the southerner’s?
Free lunches? Not at all. They’re a part of the trading eco-system, just as long-investors are. They provide liquidity into the market just by their presence and, yes, they take a little whether money is moving in, or moving out. If anyone is looking for a free lunch, it seems it would be you. You’d like to buy or sell, and without the people in between you and the trade counter-party to be compensated for the service they provide. HFT’s make sure your trade is filled nearly instantaneously, at a price you’re apparently happy to have (else, why did you trade at all?).
In the pre-HFT days, the “tax” was 10 times worse, as “market makers” only let you buy at the ask, and sell at the bid, and they kept the spreads a mile wide. They’d pocket the difference. Until ECN’s, you couldn’t really see depth-of-market, so even small trades could move a market as some crook-in-a-suit sniffed your intention, and pulled away their bid, so you’d have to pay even more.
My point is that you should have an idea of what you’re willing to pay for your investment. It’s either a good deal at a given price, or it’s not. If it’s not, then don’t do it. No one is holding a gun to your head and forcing you to buy anything, let alone line the pockets of a HFT. But if you want to buy a stock, some broker(s), market-makers, or HFT is going to nick you a bit - same as always.
Where HFT is dangerous is that they will immediately sniff-out an imbalance, and pull all their bids and offers, and stand back while the market goes nuts. In the pre-HFT days, one of the responsibilities of the market makers was to maintain an orderly market, and they were required to maintain a 2-sided book at all times (posting both bids and offers), sometimes (though rarely) getting the short-end of the stick. There is no such requirement for HFT’s, though it’s been discussed. Today, if the market gets spooked, they can stand back and watch chaos ensue.
At the end of the day, HFT’s are doing ALMOST exactly the same thing as the suits that came before them, only the amount they take on any given trade is infinitely smaller than what it was before they were around. This is better, no?
Is it perfect? No. Do they make a ton of money? Yes. Is it better than the old model? 99.9% of the time, yes.
Your entire premise rests on the idea that the price of trading would not have otherwise gone down and the spreads would have stayed larger.
You conflate correlation with causation. The internet made online trading accessible to far more people and online discount brokerages started competing for this new market. Occam’s razor would guide us to that being the cause for lower costs and tighter spreads. HFT is an unnecessary complication of the hypothesis.
Doesn’t mean I’m right and you’re wrong, but the simplest explanation is most often correct.
As for free lunches, your logic would indicate that laws against insider trading are unnecessary, as those traders would otherwise be helping securities to reach the proper price point more efficiently. So I guess we’re all enjoying free lunches compliments of Martha Stewart and Jeff Skilling.
BATS Admits CEO Lied About HFT On CNBC
http://www.zerohedge.com/news/2014-04-03/bats-admits-ceo-lied-about-hft-cnbc
You’re guilty of what you accuse me of ...
Your premise is that the costs, spreads, and speeds would have dropped without HFT’s. I was in the business (not the HFT side), and I know this is not true. Much of the cost of trading is fixed in nature, and very high. Certainly, some of the spend was only there and done to accommodate the HFT’s “need for speed” (NYSE Mahwah data-center, for example, or NASDAQ selling data-center rack-space to trading firms (read: HFT’s), where the price of rack-space went up the closer your rack was to the matching engine rack). I think this should have been banned too - everyone should have level-field access to the exchanges. But, if my algo is better than yours, or faster than yours, or my trade idea is better than yours, that shouldn’t be punished or regulated.
The higher volumes of shares and trades gave an exponentially larger base over which to spread the high fixed costs. Without these larger volumes, the costs embedded in every trade would have been higher - and by more than the HFT’s costs add (IMHO).
And I certainly don’t agree that insider trading is OK. To the contrary - the markets can and should price efficiently when all PUBLICLY available information is known to the most market participants. Insider trading allows a participant to trade off of info that their counter-party doesn’t know and can’t know, which should be punished severely. That said, if they don’t know out of ignorance - well, that’s capitalism.
OK now I get it. It’s just like how much I have to pay the bank to transfer funds to another institution never went down because there were no high speed bankers to raise the volume. Oh, wait a minute, it did go down.
Or maybe it’s like how the cost of tv’s never came down because there was no one to electronically trade them a million times before they get to the customer. Oops that’s not it either.
Oh, well you must be right, the cost of trading technology would never have come down for the first time in the history of any endeavor involving technology. Thank God for those HFT guys. Is there someplace I can send them a card or maybe a gift?
I did not mean to say costs would not have come down. I did mean to say costs would not have come down as much. There was a club, if not cabal, of Wall St. firms that actively acted against electronic trading, ECN’s, ATS’s, and HFT’s - not because they were bad, but because their protected profits from market-making and high commission rates were threatened.
Without these advancements, specifically including the HFT’s and the brokers that embraced them, it’s a fact fully-loaded costs of trade and settlement would not have come down as much as they have.
People complain (as witnessed in this CNBC clip) about the billions that HFT’s make, but say not a word about the 10’s or 100’s of billions saved because of lower aggregate trading costs.
The fact remains that, whatever small cost per-share or trade is resultant from the “friction” of trading (embedded costs), long-term investors should view this as largely irrelevant to their potential or actual investment returns. Don’t believe me - do the math. What does 1/10-cent of incremental cost do to your investment return on stock you buy and hold for 5-years before selling? We’re talking 100ths of a percentage point.
Now if you’re a trader, not an investor, and trying to out-gun a HFT from your e-Trade account while sitting in your home-office, then good luck to you. You’re fighting a nuke with a water-pistol. But then again, individual traders trying to beat the Wall St. pros has never been a reliable avocation.
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