OK fine maybe a whole city is too big of area, but light travels roughly 300,000 km/sec. Lets say that more than a 10 microseconds is too long. That still gives you a 3 km radius and over 28 km^2 area. Yes that's small enough that land values near the exchange will go up. Land value near all sorts of important resources can go up, but its not so small that you can't fit a lot of traders and trading infrastructure in that area. Its not like one trading company will own everything close enough and shut everyone else out.
Is 10 microseconds an unrealistically long time in this context? I don't think so. But I could be wrong. If you have information about trades going from the trading desk to full execution in nano-seconds let me know.
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"According to Aequitas Innovations, the parent company of Canada’s newest stock exchange dedicated to leveling the playing field for investors, 11% of all 2014 observable orders in the Canadian marketplace lasted less than one millisecond."
equedia.com
This winter, two tech companies hope to launch the lowest-latency link yet between Illinois and New Jersey, a 733-mile chain of microwave towers to hurtle data in 8.5 milliseconds round-trip.
motherjones.com
According to one estimate, having a connection that’s just one millisecond faster than your competition could mean an extra $100 million a year for a high frequency trader.
america.aljazeera.com
This advantage, while just milliseconds (thousandths of a second)...
telegraph.co.uk
More generally on high speed trading -
I'd have a hard time thinking of one good thing that comes from computer programs buying and selling within a fraction of second, surely no economic value for the country so why should it be taxed at a low rate?
That's backwards. If its going to face a special Pigovian higher penalty tax rate you need a specific reason why it causes harm and why the tax might reduce the damage.
And there may indeed be a benefit ----
The major benefit of HFT is it has improved market liquidity and removed bid-ask spreads that previously would have been too small. This was tested by adding fees on HFT, and as a result, bid-ask spreads increased. One study assessed how Canadian bid-ask spreads changed when the government introduced fees on HFT, and it was found that bid-ask spreads increased by 9%.
investopedia.com
So it would seem the extra volume is beneficial beyond just the benefits to the high frequency traders. Yes its only one study, in one country, not exactly definitive, but its the only evidence I've seen directly on that issue. |
