December 15, 2010
With regards to the concept release on equity market structures, on page 41 it asks about the fairness of technology and speed in markets as it relates to long-term investors. There are two relevant points to consider with regards these questions.
First, any advantage which is legally obtained and is accessible to other market participants is a legitimate and acceptable advantage. Market participants who invest in speed do have an advantage over others, but this is the nature of a free market. It is not illegal to invest in technology, nor does it block others from doing the same. To limit the use of technology in trading because of this advantage would be similar to stopping banks from using ATMs because they have an unfair speed advantage over bank tellers. There may be legitimate questions to consider with regards to limitations of the use of speed for manipulative practices, such as providing false liquidity through the submission and immediate cancellation of quotes, but the use of speed in and of itself is not unfair or illegitimate.
Second, the use of technology and speed does not significantly or materially harm the interests of long-term investors. These investors are, by their nature, not reactive to market events. They are seeking steady, annualized growth in their investments, and are not inherently concerned with the minute price differences in execution caused by a lack of speed. While these price differences may be costly to those investors commiting large amounts of capital to the markets, it still does not materially detract from the long-term growth they are seeking. If investors do find themselves concerned with those minor price changes in execution, they are fully capable of investing in technology themselves to obtain this same advantage. However, it is not necessary that long-term investors utilize speed to achieve their goals in the market, and therefore they are not significantly disadvantaged by its presence.