Put this Bloomberg piece in the You Don’t Say! category. It reports that high-frequency traders say high-frequency trading is a good thing.
In other news, Realtors say you should buy a house, and used-car dealers really think you look great in that ’05 Malibu.
Frank Troise, the head of electronic equity trading products at Barclays Plc, says using computers to execute orders in milliseconds is no different than brokers jockeying for position years ago on the floor of the New York Stock Exchange.
And who says it isn’t? The suspicions about high-frequency trading, which have been bubbling up for some time now, come not from the speed of the transactions, but from the stacking of the deck that they sometimes entail and/or the potential outright manipulation of markets that they allow.
But Bloomberg doesn’t get to any of that until way down in the thirteenth paragraph:
As the strategies increased in speed, it became impossible for investors without advanced computer systems to get fair prices, according to some market participants. Firms handling large trades complained that brokers using complex algorithms fire off hundreds of orders and immediately cancel them in an effort to trick them into revealing plans to buy or sell.
“If you’re trying to buy a big block of stock, the algorithms notice,” said Bart Barnett, head of equity trading at Morgan Keegan & Co. in Memphis, Tennessee. “It increases volatility and has an adverse effect on the prices customers get on stocks.”
That’s quickly forgotten about as the head of a stock exchange that gets half of its customers from high-frequency trading, extols its virtues:
“The idea of haves and have-nots is just crazy to me,” (Joe) Ratterman said. “Every firm in the U.S. has the ability to invest in the same way that every successful trading firm has done. Trading by definition is a competitive business.”
Somebody with the appropriately named BlackBox Group unsurprisingly agrees:
Ben Townson of New York-based BlackBox Group, which uses high-frequency strategies and specializes in algorithmic trading, says “natural abilities and skills” determine who makes money, not computers.
“You can throw a lot of money at technology, but if you don’t take the time to study your trades, it doesn’t matter,” Townson said. “We’ve built a racecar that is optimized for driving fast. Is that an advantage? Yes. Is it an unfair advantage? No.”
Okay, it’s good, obviously, to take a look at both sides of a story. But this one is too tilted toward sources with obvious and massive biases, to predictable results.
One of the interviewees, Ratterman, defends “flash orders,” which are so obviously bad that the even the major stock exchanges think they ought to be banned—indeed so bad that the molasses-slow regulatory system is moving quickly to ban them after the recent spate of press attention on high-frequency trading (led by the indefatigable blogger “Tyler Durden” of Zero Hedge).
Here’s how The New York Times described flash orders in its page-one story last week:
But rather than being shown to all potential sellers at the same time, some of those orders were most likely routed to a collection of high-frequency traders for just 30 milliseconds — 0.03 seconds — in what are known as flash orders. While markets are supposed to ensure transparency by showing orders to everyone simultaneously, a loophole in regulations allows marketplaces like Nasdaq to show traders some orders ahead of everyone else in exchange for a fee.
Two of the Bloomberg reporters on this story in a separate story yesterday wrote that the NYSE said in May that flash orders hurt investors.
That would have been some nice counterbalance to have in this one.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.