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Under the headline, "The Wolf Hunters of Wall Street", The New York Times Magazine is running this review of a new book. It tells a long story that ends in the creation of IEX (Investors Exchange), a new stock exchange with the intent of bypassing the unfair advantages that co-located high-speed traders currently have. After a few weeks of operation near the end of 2013, their volume was larger than AMEX(!!)
Here's a quote from near the end of the book review:
IEX had made its point: That to function properly, a financial market didn't need to be rigged in someone's favor. It didn't need payment for order flow and co-location and all sorts of unfair advantages possessed by a small handful of traders. All it needed was for investors to take responsibility for understanding it, and then to seize its controls.
"The backbone of the market," Brad Katsuyama (President & Chief Executive Officer, IEX) says, "is investors coming together to trade." While the article is long, I enjoyed the story. I have no connection to this company, but here's their website.
(Score: 1) by SplawnDarts on Wednesday April 02 2014, @06:09PM
A lot of HFT activity is because of the extreme LACK of profit in market making in stocks these days. Back before decimalization and electronic markets, the spreads on many stocks were 1/8 of a dollar or higher. Which made it very worthwhile to make a market - any vaguely balanced order flow was profitable. Any idiot could make money as the market maker. Now those spreads are now frequently $0.01 on decimal electronic markets. Not so worth it any more.
The beneficiary of that market change was of course the investor - saving $0.05 or so average per side per share on every transaction. That's a HUGE deal. The market makers were the corresponding losers, and as a result started looking for other ways to make money. All these order queue and rebate games that are now being played (buying order flow via dark pools etc.) are basically just carving up that last $0.01 of gap into ever smaller pieces and trying to get a chunk for yourself. It's not exactly a fair game, but it's very non-harmful to the customers compared to the old game.
There are some HFT practices however, like order flooding, which are clear garbage and need to end.