November 8, 2009
Please take a few moments to see the other side of this regulation.
Please do not eliminate flash trading. Please do not do regulate flash trading.
Many people make the claim that flash trading hurts a number of market participants. It is all theory and rhetoric. It is always damaging to make policy on theory without proof. Has anyone been able to prove flash trading damaged them? Where is the exact time and exact trade that received a bad price that was proven to be caused from flash trading? Until you can prove specific individual damage this regulation is just another knee-jerk government reaction to peoples lynch mob emotions.
Flash trading provides:
1. Better or narrower bid/ask spreads so everyone gets better pricing.
2. A gateway to other liquidity sources not available otherwise like Dark Pools and foreign liquidity pools.
3. Flash trading provides more liquidity in volatile markets so the volatility is less. This is best for all.
4. Keep USA competitive and leader in the world of finance. Many other governments manipulate the markets. It is so obvious China manipulates markets the Obama administration openly talks about it. Russia, Middle Eastern countries have a reputation of manipulation of markets as a government policy. Flash trading and other innovations will keep trading business away from these countries that have policies of manipulation markets.
If flash trading is regulated so that it is no longer effective and useful it will:
1. Wider bid/ask spreads so everyone gets poor pricing. If your prejudice is that the market makers, liquidity providers, dealers etc. are evil, then they will make more money under this regulation.
2. The gateway to other liquidity sources like Dark Pools and foreign liquidity pools will be cut or their usefulness will be much limited.
3. Eliminating flash trading in volatile markets will increase volatility. This will hurt everyone.
4. Flash trading will eventually move offshore to areas where the government policy is to manipulate markets. Do you really trust China, Russia, Middle Eastern countries with their reputation of manipulating markets? If you trust these foreign countries to have an honest market then you are a follower of Walter Duranty or Idaho Sen. William Borah.
I own mutual funds in my modest retirement account. I want the managers of the mutual funds to have the best possible executions of trades at the best prices. I also want them to be able to keep their trading methods private and proprietary. If dark pools and flash trading are eliminated then the privacy of the trading methods of my mutual fund managers will be compromised. How can that benefit me as the little guy??? If dark pools and flash trading are eliminated then my mutual fund managers will not get as good of a price on their trades as before. How can that benefit me as the little guy???
The bottom line in this issue is not facts but emotion. Humans cannot tolerate the idea someone has more than they do. Or someone has an advantage over them. This is envy. This is jealousy. Making decisions based on these emotions always comes back to hurt and damage the one who is jealous or full of envy. Acting on these emotions is self-loathing resentment lust. It may or may not be true that flash trading gives advantages to some. The facts (below) show that it benefits all market participants. Elimination of flash trading will hurt the market participants that this regulation is trying to help.
http://www.bloomberg.com/apps/news?pid=20670001sid=aoCNxtyDXiE0
This article shows that dark pools business is already going offshore. No doubt flash trading will be next. The USA will eventually depend on foreign countries for market services. How can that benefit me as the little guy???
The information below shows flash trading benefits all and helps those that this regulation is trying to protect.
Please take the time to read over this short submission:
http://www.sec.gov/comments/s7-21-09/s72109-51.pdf This explains how flash trading is beneficial to everyone. I do not see anyone explaining in detail how flash trading hurts them. It is all feelings and opinion.
Below are notes from Bloomberg interviews with people knowledgeable about flash trading. Please try to be honest and open to other opinions.
8/6/2009 (Bloomberg radio) 04:30 PM ET Direct Edge Ecn Llc O'Brien, William
Chief Executive Officer
Direct Edge is the third largest stock market in USA (world?). They specialize in providing Flash Trading services. He was adamant that Flash Trading provided retail investors/traders better prices and if shut down retail investors/traders will not get as good price.
Flash Trading provides retail investors/traders access to liquidity not normally available or never was available. Flash Trading provides liquidity to retail investors/traders from block trading desks and Dark Pools. This liquidity never was available before.
He recommends using a broker that give a choice of exchanges and then to chose a exchange that offers Flash Trading services like Direct Edge. A guy IMed a question that when he makes a trade the price goes up when the trade goes through and immediately goes back to where it was. Bad price. William O'Briens answer was to get a different broker. Find a good broker that gives you good prices. (Or uses Direct Edge)
8/6/2009 (Bloomberg radio) 04:00 PM ET Tabb Group Sussman, Adam
Director of Research
Very very good analytical defense of Flash Trading.
By USA federal law an exchange that cannot fill a trade order must pass a trade to another exchange or ECN. Flash Trading is trades that cannot be filled by the exchange are delayed for a microsecond to be flashed to exchanges liquidity providers if they want to take the trade before the trade is directed to another exchange or ECN. This way the trade is registered on the exchanges books and can collect the fees from the broker. If the order was passed on the exchange could not charge any fees even though the order passed through their exchange. Some cases retail trader gets better prices.
The story of flash trading is when this pass-though law was created, the NASDAQ created flash trading proposal to submit to SEC for negotiation of interpretation of the law, not expecting the SEC to accept the proposal but as a negotiation card. To the shock of the NASDAQ the SEC accepted the flash trading proposal as-is. Flash trading was born
To date 50-60% of security market is High-frequency Trading and
3% is Flash Trading.
There are 100s of liquidity providers now. 10-20 years ago was just a few liquidity providers.
If you do not have liquidity you will have more volatility. Flash Trading provides that liquidity.
Schumer regulation proposal will cause good liquidity providers out of the market which will create more volatility.
Volume is a gauge of liquidity. Price of liquidity determines liquidity.
8/20/2009 (Bloomberg radio) 03:00 PM ET Zero Hedge LLC Durden, Tyler
Chief Executive Officer Another good discussion of High-frequency Trading
8/11/2009 (Bloomberg radio) 04:20 – 25 After Paul Wilmott they interviewed Greg Hindy of McCarter, English. Greg Hindy defended it well. Regulation will push it off shore. These mathematicians will always get around regulation by mathematics and new technology.