02 September 2014

Fidessa Fragmentation Index

Steve Grob - Fidessa

97 | posts 295,157 | views 3 | comments

Maybe markets are unfair, but are they rigged?

02 April 2014  |  1544 views  |  3

The publication of Michael Lewis's new book Flash Boys has reignited the whole HFT/dark pool debate (actually, maybe it's never really gone away). The point people seem to continually miss in this debate is the distinction between "unfair" and "rigged".

To me the term rigged implies some malevolent conspiracy between certain members of an ecosystem aimed at taking advantage of an identified target. In this instance, the 'patsy' in question is supposed to be the retail punter and the 'conspirators' are the electronic trading firms that exploit the little guys' inability to act as quickly as they can. Isn't this just part of the natural world order of winners and losers, especially in a free market economy? Firms that invest their own money in technology to exploit the fragmented nature of markets deserve to make a profit just as much as anyone else.

The argument goes up a notch when you consider the institutional investment community, some of whom complain that they are left chasing a trail of small droplets of liquidity laid down by the HFT boys across the lit/dark spectrum. My response to this, as demonstrated by those more technology-savvy buy-side firms, is tool up and get into the fight. The only other alternative would be to replace the capitalist underpinnings of financial markets altogether, but in this case those same investment firms probably wouldn't be needed at all...

TagsTrade execution

Comments: (3)

Tom Saar - Newstream Systems Inc. - | 03 April, 2014, 18:17

Exchanges were supposed to be neutral, between buyer and seller.

Today, the sell side has destroyed the 'neutrality' concept through their ownership of the exchanges; and they have further tilted the field in their own favor by 'selling' priviledged access to the highest bidders.

Tom Saar - Newstream Systems Inc. - | 03 April, 2014, 18:18

Exchanges were supposed to be neutral, between buyer and seller.

Today, the sell side has destroyed the neutrality concept through their ownership of the exchanges; and they have further tilted the field in their own favor by selling priviledged access to the highest bidders.

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 04 April, 2014, 18:38

Fully agree. This post echoes my thought when I sent the following tweet yesterday: "Is this guy Michael Lewis a Luddite or what? What's wrong in using technology to acquire competitive advantage?" While I've bought Flash Boys, I'm debating whether to read it and spoil the good opinion I'd formed of Michael Lewis after reading his "The Big Short".

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Steve Grob

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Director of Group Strategy

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Fidessa

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