People who can be bought off by faster trades, and exchanges that are raking in fabulous profits have no particular interest in systemic issues. Rubes get chickenfeed, the rest get major moolah. The financial sector has learned Vegas' trick - give everybody a cut, and grow the skim. Incentivize risk.
Issues:
[1] The relationship between ETFs and HFT, derivatives and valuation problems in default.
[2] Edges, nodes, cascades and contagion
[3] The fact that HFT only grew to enormous volumes after exchanges were privatized and given financial incentives to accept unproven and failure-prone technology, which continues to fail regularly.
[4] The accepted fact that malicious algorithms (as opposed to mistakes) can propagate effects widely and nearly instantaneously. The only certain countermeasure is to shut down and revoke trades. Too bad for the losers.
It's the technological equivalent of Windows 95. When it locks up (and it WILL), pull the plug. Cancel the trades. Then crank up the 'bots again.
The Blue Screen Of Death at the speed of light.
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"How are the high-frequency traders spotting this order flow? We believe that part of the answer lies in the “smart order router” that many algos rely on for execution. Many of these routers have been compromised due to the economic incentives of the sponsoring broker. In addition, the maker/taker model that most market centers employ is another conflict of interest. In a recent letter to the SEC, Morgan Stanley quantifies these routing conflicts and concluded that brokers have profited $63 million and exchanges $86 million per year due to their poor routing decisions at the expense of the long-term investor."
themistrading.com
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“As a trader, there’s a frustration around feeling like you’re being gamed”... The Thor system counteracts that gaming by staggering the orders it sends out to ensure they arrive at every market as close to simultaneously as possible. That gives the HFTs no chance to react.
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"As the head trader at Hillsdale Investment Management in Toronto, she sees a lot of offers to buy or sell stocks that she knows are from high-frequency traders, firms that use ultra-fast computers to trade stocks thousands of times a day to make money from tiny market changes. She also knows that the HFTs are bluffing: their orders are an attempt to get her to reveal what she wants to buy and sell.
High-frequency traders can then use their faster computers to exploit that information. Once they know Ms. Reynolds or any other investor wants to buy shares of a particular company, they can quickly pull back their offer to sell it to them – only to resubmit it later a fraction of a second later at a less attractive price.
Such bait-and-switch strategies, often grouped under the fancy term “latency arbitrage,” are believed to generate billions a year in profit for high-frequency traders. Critics say those profits come at the expense of longer-term investors such as mutual funds that don’t have the technology to match the speed of high-speed trading firms, which now account for an estimated 30 per cent of stock trading in Canada, and more than 50 per cent in the U.S."
agoracom.com
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Systemic risk? Naaah. Trust the financial sector. It's smarter than you. How do we know? Because you and your children pay for its mistakes. Time after time.
The financial sector has our best interests at heart! Believe it! Be obsequious, unthinking, compliant and faithful to the new economic orthodoxy. Only then can you join those who support increased systemic risk, ruinous economic consequences and another multitrillion-dollar levy on descendants.
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