mQ- re: High Frequency Trading / QCOM / Markets
I’ve googled High Frequency Trading this AM – lots of interesting articles with following two some of the most salient / prescient IMO.
From what happened this past Thursday (Dow down ~1,000 points / $700B in 8 minutes, several dropping 60%, some traded at 1 thin cent), it’s should be pretty obvious to most that our equity trading markets are out of control.
In reading these articles, it’s now more apparent to me how easy it is for the speculators/ manipulators/ (fast traders) to move QCOM 20% in a split second after earnings are announced.
It’s troublesome enough to see the ease at which a single companies stock can be manipulated. Now it must be apparent to all –the ease at which the total market can be moved, and virtually any stock—even some of the largest (P&G) can lose 60% of their value in 8 minutes.
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Snips>>>
+ The regulators and the major exchanges have drifted from their original duty: to run a market that gives small companies a way to raise capital and mom-and-pop stock buyers a way to invest for the future on fair terms.
+ “We want to see a big reaction in Washington,” said Saluzzi. “We need to get all these fast-trading jokers out of here.”
+ “I think it would be healthy for our markets if buyers of a stock thought they might have to hold it for a day,” value investor Whitney Tilson wrote in a note to clients Friday.
+ Saluzzi doesn’t like the idea of a transaction tax, but he says there are numerous routes regulators could go to take the market back to less frothy, more sustainable ground.
+ Increasing automation and competition have reduced the NYSE and Nasdaq’s volume in securities they list from as much as 80 percent in the last decade. Now, less than 30 percent of trading in their companies takes place on their networks as orders are dispersed to as many as 50 competing venues, almost all of them fully electronic. Twenty years ago, fewer than 10 exchanges competed for all U.S. equity trades
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MAY 7, 2010, 12:53 PM
High frequency trading: Why the robots must die
The robo-stock market blew a fuse Thursday. Now is Washington’s chance to rewire the joint for good.
Humans? How quaint!
The exact causes of Thursday’s stock market short-circuit remain unclear, but the lesson is unmistakable. The regulators and the major exchanges have drifted from their original duty: to run a market that gives small companies a way to raise capital and mom-and-pop stock buyers a way to invest for the future on fair terms.
Instead, they have created a Frankenstein’s monster that churns away for the sake of volume itself, lining the pockets of nimble, technologically savvy hedge funds, giant investment banks and other players – at the expense of market stability.
“What happened Thursday is much worse than the market makers walking away from their phones in 1987,” said Joe Saluzzi, who runs Themis Trading in Chatham, N.J., and has been a vocal foe of the rise of computerized trading. “When the sell orders came, the buyers disappeared. That’s a broken system.”
Saluzzi says regulators and policymakers must understand that the rise of automated trading – more than half of daily stock market volume is conducted using so-called high frequency trading strategies, according to a widely cited estimate from Tabb Group (see below for the full report) – is driving legitimate investors out of the market.
A study last year by Grant Thornton concluded that a shift in the structure of the financial markets, toward superfast trading and away from regional independent brokerage and research, has suppressed initial public offerings by U.S. companies.
An annual average of 122 corporate IPOs took place between 2001 and 2009, the Grant Thornton survey says. That’s down from an average of 530 between 1990 and 2000.
The IPO market’s decline is “hurting small business by cutting off a source of capital … that in turn would drive reinvestment and entrepreneurship in the United States,” the report by David Weild and Edward Kim concludes. The report presents the collapse of IPO activity as “the perfect storm of unintended consequences from the cumulative effects of uncoordinated regulatory changes and inevitable technology advances.”
This runs directly counter to the notion oft bandied about by the likes of Goldman Sachs (GS) that their activities – which in recent years have increasingly focused on trading – help the economy. Goldman came under fire at its annual meeting Friday for paying out huge bonuses without contributing much to struggling local economies.
The answer, Saluzzi said, is to change a number of market practices that have sprung up in the past decade. Bid-ask spreads need to widen out to a nickel or even a dime from the pennies that are common now, he said. Thinner spreads practically beg for the high-volume abuse of automated trading.
Saluzzi also suggests slapping a fee on traders who cancel trades, as high frequency operations often do, and changing the practice of paying traders for providing liquidity.
Liquidity might suffer, but Saluzzi and others say the last few years suggest the highly liquid markets of the unregulated market world aren’t worth it.
“I think it would be healthy for our markets if buyers of a stock thought they might have to hold it for a day,” value investor Whitney Tilson wrote in a note to clients Friday.
Saluzzi doesn’t like the idea of a transaction tax, but he says there are numerous routes regulators could go to take the market back to less frothy, more sustainable ground.
But they have to get cracking. The Securities and Exchange Commission and the Commodity Futures Trading Commission said Thursday they would investigate, but even now time is a wasting.
“We want to see a big reaction in Washington,” said Saluzzi. “We need to get all these fast-trading jokers out of here.”
wallstreet.blogs.fortune.cnn.com
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Rush for the Exits
bloomberg.com
Snips>>>>
+ The selloff erased $700 billion from U.S. markets in eight minutes after actions by the New York Stock Exchange to slow trading increased volatility on other platforms
+ Almost 1.3 billion shares traded on U.S. markets in a 10- minute span starting at 2:40 p.m., six times the average, sending prices lower on platforms from New York to Kansas City. Nasdaq OMX Group Inc. said it canceled transactions in almost 300 stocks where swings grew too wide.
+ More than 29.4 billion shares changed hands in U.S. markets yesterday, the most since October 2008. In addition to traditional exchanges such as the NYSE, rivals Bats in Kansas City and Jersey City, New Jersey-based Direct Edge Holdings LLC handled millions of trades. About 2.6 billion shares traded on the NYSE, the lowest level relative to overall volume in three years, data compiled by Bloomberg show.
Rapid-fire orders trigger what the NYSE calls liquidity replenishment points, or LRPs, shifting trading into auctions overseen by market makers. While the system is designed to restore efficient trading on the Big Board, selling is so fast during times of panic that orders routed past the exchange may swamp other venues and exhaust buyers, said James Angel, a finance professor at Georgetown University in Washington.
+ Increasing automation and competition have reduced the NYSE and Nasdaq’s volume in securities they list from as much as 80 percent in the last decade. Now, less than 30 percent of trading in their companies takes place on their networks as orders are dispersed to as many as 50 competing venues, almost all of them fully electronic. Twenty years ago, fewer than 10 exchanges competed for all U.S. equity trades. |
