Ok, here is my perspective.
There is nothing wrong with "600 point flash crash" or 40% longer term downdrafts. Those are perfectly normal market behaviors, and happen in all markets, of all structures. Wanting to "do something" about them is wrong because it is messing with the normal, natural functioning of the market. All it can do is distort what the market needs.
I understand people got "hurt" by such events. That can only happen if they were over-leveraged or over-exposed. Both are issues of personal responsibility and choice and have nothing do with HFT. There is no HFT rule theoretical or imaginary that can prevent people from making rash "investment" choices.
Summary #1: Over-leverage is a legitimate systemic risk.
Beyond that, there is no rational reason at all that people's (future) pension earnings should be so intimately tied to the equity markets. As but one example, something like CalPers should not be allowed such heavy participation in the markets. That is simply asking for trouble as it creates inappropriate cross-linkages that lead to "one-legged stool" situations.
As with the previous issue, there is no possible HFT reform, theoretical or fantasy, that can do anything about those linkages. I used pensions as an example, but there are of course many others. Basically, without an updated modernized version of Glass-Steagall, trouble is never more than a heartbeat away.
Summary #2: Cross-linkage (unwillingness to fire-wall) is a legitimate systemic risk.
The plain reality is that the markets need, and have always needed, HFT to function normally. The old floor traders were simply manualized form of HFT, relative to the technologies of their day. There is no other way to maintain anything resembling tight spreads without it. Never has been, never will be.
I've complied with your request for my side of the argument (or at least part of it). I know my mind, I imagine you are quite confident in your own opinion on the issue, so I'm quite happy leaving that at that.
Cheers! |
