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SEC Chair On HFT: 'The Markets Are Not Rigged' 303

Posted by Soulskill
from the everyone's-equal-once-they-invest-a-billion-dollars dept.
Hugh Pickens DOT Com writes "Reuters reports that U.S. Securities and Exchange Commission Chair Mary Jo White told a U.S. House of Representatives panel that she flatly rejected claims that retail investors are being fleeced by high-frequency traders who can use their speed to jump ahead with buy and sell orders that fetch better prices. 'The markets are not rigged,' says White. 'The U.S. markets are the strongest and most reliable in the world.' White's comments to the House Financial Services Committee mark the first time she has directly responded to allegations in Michael Lewis' new book Flash Boys: A Wall Street Revolt. The book alleges that high-speed traders are engaged in a form of front-running, in which the firms are able to quickly identify an investor's desire to buy a stock, rush to buy it first and then sell it back at a higher price. The SEC has been reviewing equity market structure issues, particularly following the May 6, 2010 flash crash incident when the Dow Jones Industrial Average sharply plunged before quickly rebounding. Although staff at SEC are considering whether to launch some pilot studies to test different regulatory proposals, there are no immediate plans to issue rules to crack down on high-speed trading or trading in unlit markets. 'I want to be very clear that the market metrics suggest that the retail investor is very well-served by the current market structure.'"
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SEC Chair On HFT: 'The Markets Are Not Rigged'

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  • Not a surprise (Score:5, Insightful)

    by cHiphead (17854) on Wednesday April 30, 2014 @08:17AM (#46877211)

    Looks like she's bought and paid for.

    It's insanity, we are watching real life crazy people.

    • Re:Not a surprise (Score:5, Interesting)

      by TemperedAlchemist (2045966) on Wednesday April 30, 2014 @08:36AM (#46877355)

      The cute part is that she thinks she can get away with it. She's not screwing over your average American household, she's screwing over investors who have money and power.

      • Re:Not a surprise (Score:5, Informative)

        by Anonymous Coward on Wednesday April 30, 2014 @09:10AM (#46877651)

        She's screwing YOUR retirement/pension plans. These are the folks who are getting fleeced by HFT.

    • by NotDrWho (3543773)

      Not just her, but also the members of the House Financial Services Committee who she's testifying before. They're putting on a nice dog-and-pony show of looking like they give a shit. But at the end of the day--they're going to do nothing, go home, and collect nice fat campaign contributions from the very crooks that the SEC is supposed to be stopping (and fat high-paying jobs from them when they leave Congress too).

      All part of the circus to convince the gullible American people that Congress represents *th

      • Re:Not a surprise (Score:5, Insightful)

        by FriendlyLurker (50431) on Wednesday April 30, 2014 @09:15AM (#46877681)

        All part of the circus to convince the gullible American people that Congress represents *them*, and not just the oligarchy.

        A circus that we the people have no say in whatsoever [slashdot.org]. Akin to serfdom of old, only with some modern conveniences.

        "Researchers from Princeton University and Northwestern University have concluded, after extensive analysis of 1,779 policy issues [commondreams.org], that the U.S. is in fact an oligarchy [wikipedia.org] and not a democracy [wikipedia.org]. What this means is that, although 'Americans do enjoy many features central to democratic governance,' 'majorities of the American public actually have little influence over the policies our government adopts.' Their study [princeton.edu] (PDF), to be published in Perspectives on Politics, found that 'When the preferences of economic elites and the stands of organized interest groups are controlled for, the preferences of the average American appear to have only a minuscule, near-zero, statistically non-significant impact upon public policy.'"

    • Yep. And what makes me even more surprised is these bought and paid people wanting us to believe in them.
    • by Type44Q (1233630)

      Looks like she's bought and paid for.

      It's insanity, we are watching real life crazy people.

      Huh? She's bought and paid-for; how insane is that? Evil, perhaps; sociopathic, certainly...

      No, the ones who tend to be insane are those watching the real-life evil people.

    • It's well known she was bought and paid for, she came from the private sector. This isn't surprising. What's surprising is I didn't know she was a guy - it takes some serious big balls to make that statement.
    • Absolutely.

      I'm not even an expert but knowing they can look at your market order 20 milliseconds before your order executes and buy the equity and sell it to you at a profit is clearly frontrunning you for profit.

      However- simply buying and selling fast isn't front running. That's a different kind of manipulation which may be legal.

      But being able to see your orders and execute their orders faster. And being able to see your limit orders and executing false orders (and cancelling them before they execute) t

    • Re:Not a surprise (Score:5, Insightful)

      by Kevin Stevens (227724) <kevstev@gmSLACKWAREail.com minus distro> on Wednesday April 30, 2014 @03:56PM (#46883247)

      Are you just some fatass in a chair bitching? Or do you have a real solid, informed complaint about HFT?

      I ask this, as I worked in the algo trading industry for ten years on both the prop (HFT) side and the agency side, where I built tools to counteract HFT players. I recently left as the money dried up, while the hours didn't, and to be quite honest I just lost a lot of interest in the business.

      There are problems with HFT activity, but I believe that overall, they have benefitted the retail investor. Since the rise of HFT and electronic markets, spreads have collapsed to be an insignificant cost of trading. HFT guys ate the lunch of market makers who used to have cushy little businesses and traders getting mid 6 to 7 figure bonuses. My first job involved automating those guys out of a job. Those guys used to legitimately front-run orders, anyone talking about HFT front running is either redefining the term, or doesn't know what they are talking about.

      Guys with a speed advantage have always used that advantage to make money in the stock market. Whether it be guys with faster horses in the pre-railroad/telegraph era (supposedly the rothschilds made their fortune this way, buying up english bonds as they had news that a war had ended first), telephones ripping off bucket shops in the 1900's, SOES bandits in the 1980s, and now HFT today, this has always existed. All those guys who actually used to sit on the floor of the NYSE- why do you think they were there?- So they could trade on the news first (one quote from the book Market Wizards: "First its the floor traders, the next day its the dentists, then after that comes Joe Schmoe.")

      The games that HFT guys are playing is generally sniping a penny here and there. As a retail investor who is buying and holding, their game has nothing to do with yours, and they have eaten the lunches of the market makers and brokers who used to rip you off.

      Are there problems with HFT? Yeah- mainly that exchanges are developing order types exclusively for their use. The fact that they are acting like market makers by providing liquidity and squeezing the legit market makers, but once things start looking weird, pull out immediately (though after the flash crash, many of these guys started becoming legit market makers).

      Net/net though, these guys are good for retail traders. If you disagree, come up with a good, specific, informed reason on how they are hurting you and your orders in the market. If you look at some of the major detractors of HFT like Joe Saluzzi, they are almost always from smaller niche firms who can not afford technology to adequately compete in an electronic world, and are getting squeezed out by the bulge bracket guys.

      The HFT business is drying up as it is though. The arms race has put enough players on equal footing that the low hanging fruit is gone. The major banks have invested enough in their infra that they can't just be picked off by these guys anymore. This is good for the industry in my opinion, maybe the focus can go back to trading smarter, not just saving off ten microseconds on the slice time.

  • by Andover Chick (1859494) on Wednesday April 30, 2014 @08:18AM (#46877219)
    Of course the markets are rigged. It has always been that way all the way back to the 1920s. Most often the regulators where former insiders themselves, in which case they were complicit in the buddy-buddy world of Wall Street. This woman, however, just seems to be an imbecile. [I'm a 30 year veteran of Wall St and have worked on the trading floors in most of the major firms.]
    • by Anonymous Coward on Wednesday April 30, 2014 @08:41AM (#46877395)

      There's also no way SEC can make the claim, since until CAT ( http://catnmsplan.com/ ) shows up, there's really no data to verify whether markets are rigged or not in the way described in the Flash Boys book. A more sensible answer would have been ``we lack the means to verify claims of a rigged markets, but indications point towards minimal or no impact to the retail investor'' (at least that would have been the optimistic truth). Flat out saying that markets are not rigged is just a lie, since they can't even do a study they're claiming to have done.

    • Of course they are. In the markets, there exists the same revolving door between governmental oversight posts and lucrative private industry jobs that has made the segue from government insider to lobbyist virtually seamless.

      And it's not illegal. Although the whole system is tainted by the appearance of impropriety, it could be legislated out of existence with the stroke of a pen.

      Give me control of a nation's money supply, and I care not who makes its laws.. Rothschild

      • Re: (Score:2, Insightful)

        by Charliemopps (1157495)

        This is the fundamental problem with federal regulation. If the government controls how you can make money, those with money will seek to control the government. I'm not suggesting a solution, I don't have one. But understanding that "more regulation" will likely do just as much harm as it does good is important to this debate.

    • by Drethon (1445051)
      I lean toward it takes money to make money and money is power. A pure market still favors the rich and only a market rigged against the rich would allow the less than rich to have even footing.
  • by Anonymous Coward on Wednesday April 30, 2014 @08:21AM (#46877245)
    I highly recommend reading Flash Boys [amazon.com] , mentioned in the Slashdot summary here. While advocates of HFT have always claimed that it provides liquidity, and it did fulfill that role usefully for a long time, we've passed a point where the gains of liquidity are overcome by the overall detriment to the economy: transactions that would have occurred anyway are penalized with what is essentially an extra tax because they came a few seconds later, and people with arcane and specialized equipment jumped the gun.
    • The whole point of HFT is to jump in and buy a stock when someone else is trying to buy it and resell it to them at a slightly higher price. Without HFT, that someone else would still buy the stock.

      HFT has never intentionally provided liquidity to the market. Buying something that has no other buyers is exactly the opposite of what they're trying to do.

    • by dslbrian (318993)

      Indeed. In this article [businessinsider.com] (talking about the same interview), there was this interesting quote:


      Some Congressmen had a looser grasp on the specifics of the issue, but had no problem making their discomfort known.

      Take Massachusetts' *Stephen Lynch for instance.

      "Virtual financial said in 5 years they had one day of trading losses," Lynch said incredulously, "...there seems to be a definite advantage for a firm that can operate for 5 years without any trading losses."

      He meant Virtu, the high-frequency trading firm that has delayed its IPO indefinitely because of the fallout from Lewis' book.

      I'm sure there is a statistician out there who could tell us the odds of running 5 years of trading with only one day of losses, in a system which was not rigged.

      SEC Chair Mary Jo White is full of shit, and quite the opposite of reassuring us all that the markets are indeed not rigged, it just verifies that the SEC is complicit in this whole system.

  • bullshit (Score:5, Insightful)

    by O('_')O_Bush (1162487) on Wednesday April 30, 2014 @08:24AM (#46877265)
    Yea, somehow banks are using HFT to magically pull money out of thin air, definitely not at the expense of traders, because traders are being so well served.

    That definitely makes sense and doesn't sound like complete bullshit at all.
  • Of course not (Score:4, Insightful)

    by beamin (23709) on Wednesday April 30, 2014 @08:27AM (#46877289)

    Nothing to see here, people. Move along. And could you put that Social Security Trust Fund money here before you go?

  • Front running (Score:5, Insightful)

    by countach (534280) on Wednesday April 30, 2014 @08:32AM (#46877317)

    Either people are being front run, or they are not being front run. Can't the SEC grow a pair and actually say definitively whether people are being front run or not? I don't think the concept of front running is an obscure concept that is up for debate. Come on SEC, investigate and pass judgement. Don't give us these weasel words.

    • Re:Front running (Score:5, Interesting)

      by abies (607076) on Wednesday April 30, 2014 @08:43AM (#46877411)

      don't think the concept of front running is an obscure concept that is up for debate.

      Front running 30 years ago was a simple concept. These days concept is really blurring. From wikipedia
      "Front running is the illegal practice of a stockbroker executing orders on a security for its own account while taking advantage of advance knowledge of pending orders from its customers"
      Please note - 'its' customers. HFT are often 'front running' somebody else customers. They don't know the orders up-front - they observe market and block/execute on other markets fractionally faster.

      I'm not saying it is morally valid - just challenging the statement that 'front running' is a clear concept.

      • by countach (534280)

        I see no reason whatsoever why the concept of front-running should be restricted to a broker and their client. It doesn't make it different just because some other person is front-running.

        • by abies (607076)

          There is a huge difference. In case of broker you give him some information in trust and he has a legal obligation to not misuse this information against you. In case of HFT, people are observing you and using their observations against you.
          It is like a doctor or lawyer confidentiality. There is a huge difference between people doing some things based on fact that you have visited doctor (even if it is abortion clinic) and doctor himself publishing/using your private medical details for his own benefits. In

  • by gstoddart (321705) on Wednesday April 30, 2014 @08:32AM (#46877319) Homepage

    I'm largely of the opinion that HFT is a chance for the banks and trading houses to skim off the top of the stock market, at the expense of the 'normal' investors, and using information and access we couldn't possibly have.

    I don't believe at all that the "retail investor is very well-served by the current market structure". In fact, I believe the retail investor gets fleeced by these trading programs.

    And since there are several well known examples, including the one in the summary, in which these trading programs themselves distort the market and significantly changes the valuations of the stocks.

    HFT is the large trading houses using the money of investors (their own and everyone else in the market) like a Vegas casino slot machine.

    Basically, HFT is vigorish [wikipedia.org].

    • HFT looks like taxation levied by private entities to me. No contribution from those traders other than them taking some cut from all deals they piggy-back on.
    • by MadKeithV (102058)

      I don't believe at all that the "retail investor is very well-served by the current market structure". In fact, I believe the retail investor gets fleeced by these trading programs.

      My interpretation on the first reading of that quote was "dear retail investor, you should be happy you're getting what we've decided to allow you, and now shut up", or in Darth Vader terms "We are altering the deal, pray we don't alter it any further".

    • Basically, HFT is vigorish [wikipedia.org].

      But if that's the case, wouldn't we still be better off letting those entities take their cut, and avoiding the waste of building these HFT systems?

      • by gstoddart (321705)

        But if that's the case, wouldn't we still be better off letting those entities take their cut, and avoiding the waste of building these HFT systems?

        What, exactly, entitles them to a cut? I would say nothing entitles them to a cut.

        You're suggesting we just fork over a fraction of all trades to spare the large banks and trading houses the expense of building the HFT systems to rip us off?

        Hell no.

        I have a better solution, and it doesn't involve keeping HFT or the trading houses getting a guaranteed cut.

        If the

        • What, exactly, entitles them to a cut? I would say nothing entitles them to a cut.

          I'm not saying they should get a cut. I'm suggesting (though I don't really know, so I'm phrasing it as a question) that the HFT is even worse than simply "skimming off the top" because they're also spending a lot of money to develop software and run datacenters to do nothing productive aside from "skimming off the top".

  • by rlp (11898) on Wednesday April 30, 2014 @08:34AM (#46877333)

    Simply tax profits on all equities held for less than 5 minutes at 100%. Problem solved.

    • Simply tax profits on all equities held for less than 5 minutes at 100%. Problem solved.

      No problem is "simply solved" within our tax system. GE would still find a way to get around rules like this.

      When megacorps by the rule-making system, they will never lose.

    • by swb (14022)

      I think this is a sound idea.

      I'm not sure the 100% idea would ever happen, but I know the notion of varying capital gains taxes based on the duration they have been held has been discussed a lot as means to discourage risky, short-term bet-making, market churn and encourage investment.

  • by Anonymous Coward

    Officer I was not speeding. Yea, that's what they all say. So, what did you expect the SEC Chairperson to say. Anything but "the markets are not rigged" would gave caused a panic. Congress took away her option to say nothing. Of course the markets are rigged in favor of the HS traders. Why else would you do HS trading but to gain an 'unfair' advantage? Let's have a regulation that requires investors to keep what they buy for 30 days before they can sell. No penalties for early sale. You just can't

  • Net Neutrality (Score:5, Insightful)

    by nickmalthus (972450) on Wednesday April 30, 2014 @08:36AM (#46877359)
    HFT is another sound argument for Network Neutrality. Fair open markets can not exist on top of a network where superior bandwidth and latency decide market winners instead of legitimate market forces.
    • Does net neutrality fix the problem, though? Even with net neutrality, there's still the possibility of someone buying more bandwidth or lower latency. Though I'd agree that getting rid of net neutrality would open the doors for further abuse, but I'd think you'd need some additional measure to solve the problem.

    • by Kenja (541830)
      Wait... you think that net neutrality would regulate everyone to run at the same speed? That's not it at all. The computer closer to the trade will get there first. Period. We're talking about transactions where the speed of light is the limiter.
    • by Rich0 (548339)

      HFT is another sound argument for Network Neutrality. Fair open markets can not exist on top of a network where superior bandwidth and latency decide market winners instead of legitimate market forces.

      While I can see a few parallels, HFT is really an entirely different beast. This isn't about deliberate throttling of traffic. This is more about companies building private microwave relays and such to try to shave a few miles off of runs like Chicago-NYC to get a few nanoseconds less latency in communications, or implementing their algorithms in ASICs. I've even heard people talking about digging deep cables since it is shorter to go through the earth than on top of it.

      Nobody would do this sort of thing

  • Not rocket science (Score:5, Insightful)

    by Anonymous Coward on Wednesday April 30, 2014 @08:41AM (#46877383)

    So, if the market's not rigged and HFT is a feature, what's wrong with introducing random delays of tens of milliseconds into their data streams? Robustness testing, don't ya know. Since there's no way to guarantee flawless links you need to stress the system to locate problems.

    The likely outcome would be that the markets would continue to perform as expected while a number of HFT firms would go belly up. Who would miss them?

  • Front running and adding a spread ?

    Ummmm, aside from it sounds like something different, not much.
    • by abies (607076)

      Transparency. If you are a broker and say to the client "You can buy from market for 101, but if you try, I'll charge you extra 2 each time" it is adding spread (or broker fee actually). If you are a broker and say "You can buy from market for 101 and I'll do my best to do that" and then you are doing side deals buying all the orders between 101 and 103, then selling them to your client for 103 realizing immediate profits and pretending "somebody else bought cheap ones" - then it is front running.

      Of course,

  • Rigged implies pricing is completely controlled by these HFTs which is not true. It is a skimming
    basically these hfts are making pennies per trade but doing so in billions of trades.

  • In further news, the Nevada Gaming Commission claims that the games at the Vegas Casinos are not rigged in the house's favor.

    Film at 11.
    • As well they should, since those games are not "rigged". The odds are publicly available for anyone to review and make a decision whether or not they wish to play. It is no secret that the odds are in favor of the house. If the games were rigged, this would not be the case.
  • As I recall, before computerized trading it was done by human brokers who took a bigger cut than the computerized trades do today. I don't claim to understand either way, but for my occasional trades it doesn't seem any worse, maybe better than the old way.
  • So...Why then (Score:5, Insightful)

    by Grey Geezer (2699315) on Wednesday April 30, 2014 @08:52AM (#46877497)

    are trading houses spending hundreds of millions of dollars on high speed, fiber optic, trunk lines, in an effort to cut milliseconds from their transaction times? Give me a break puddin cake!

  • by Required Snark (1702878) on Wednesday April 30, 2014 @08:52AM (#46877499)
    If you accept that the market system is a way of determining the value of securities, then what does HFT mean? How is it possible for real world value to change over the course of milliseconds?

    When put this way, the only events that qualify are explosions and lightning. Even an earthquake takes seconds to minutes to "change value". Tornadoes take minutes and hurricanes take hours or days.

    HFT is totally removed from real world phenomena. It is a completely fictional construct. Is it any surprise that it is used to fleece the suckers? It has no legitimate purpose because it is not a real world measure of anything.

    • Not every market event is weather related. Once relevant information becomes public, the price changes. For example, the CEO is resigning. The new iPhone specs are released, and company X has the contract to supply chips for it. All that happens in this sort of market is that prices rationalize more quickly in response instead of taking hours or days.
    • If you accept that the market system is a way of determining the value of securities...

      Is that what it is, though? I was under the impression that it was largely a casino dedicated to gambling on economic matters instead of card games or horse races. To that extent, it's not shocking when some rules are arbitrary, based on nothing in the "real world", and it's not surprising that everyone is looking for a way to cheat.

  • Casino Owner on Casinos : The games aren't rigged.
  • and lobbies are not involved bribery. Nothing to see here. Everyone is playing fair.
  • by Vitriol+Angst (458300) on Wednesday April 30, 2014 @09:09AM (#46877633)

    U.S. Securities and Exchange Commission Chair Mary Jo White told a U.S. House of Representatives panel that she flatly rejected claims that retail investors are being fleeced by high-frequency traders

    I'd make a bet with anyone that someone is going to be "shocked and surprised" one day that there was rigging going on just like Allan Greenspan. And just like Allan Greenspan, a certain SEC Chair is going to be miraculously a very wealthy bitch when she retires from a government oversight job.

    Of course, I feel compelled to let you know that the betting process is rigged in my favor.

  • They are guaranteed jobs in HFT firms after they retire from SEC:
      "High-frequency trader Getco hires key SEC staffer"
    http://www.reuters.com/article... [reuters.com]

  • by oneiros27 (46144) on Wednesday April 30, 2014 @09:30AM (#46877813) Homepage

    The whole concept of 'insider trading' is that you're using knowledge that wasn't yet available to others.

    If someone told you, 'hey, we're going to sell in 5 minutes at $100/share', and you went and bought it all up so they had to buy it at a slightly higher price ... wouldn't that be trading on information before it became public knowledge?

    Now, it might not be 'insider', as you're not within the company whose stock is being sold ... and they're legally allowed to release the information ... but there are so many other laws regarding stock sales (eg, 'tender offers', where a company plans to buy back shares at a higher price, and they have to leave it open for a given amount of time), that I'd be willing to argue that it *should* be illegal, even if only to improve 'investor confidence'.

    (ie, why would you trade in the stock market when you're getting scammed every time you do?)

  • by AndyKron (937105) on Wednesday April 30, 2014 @09:57AM (#46878129)
    I don't buy stocks anymore because I KNOW THEY'RE RIGGED.
  • by penguinoid (724646) <spambait001@yahoo.com> on Wednesday April 30, 2014 @10:01AM (#46878187) Homepage Journal

    A 10% tax on selling stocks held less than a month (or whatever numbers you think appropriate) would quickly put a stop to all sorts of shenanigans, while not harming, and in fact benefiting real investors. After all, the whole point of stocks is to allow investors to invest in a company, not some sort of gambling scheme.

  • Thinking anyone believes her.... Sure, hun. Santa Clause is coming. The Easter Bunny is real. There's going to be oil *forever, and the markets aren't rigged.

  • Then again when the regulators have been gutted,bought off, and have former (and soon to be again) Wall Street insiders running them, what do you expect?

    The industry is practically self regulated now, an oxymoron of course, which is to say: they aren't regulated.

    Free markets will solve all -- except of course when our extreme greed causes the excrement to hit the fan and then it is time for the taxpayer to pony up. Bonuses!

  • I'm sure she thinks that America has the best health care delivery system in the world, too.

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