Monday, July 27, 2009

Danger of Not Having High Frequency Trading

Ever since the likes of New York Times and Forbes Magazine started to yak-yak about High Frequency Trading (as if this were a brand-new innovation just hitting the market), my fear has been that the regulators will come bumbling in and do what they normally do (i.e. something stupid), and pop goes the weasel (i.e. the stock market). I was not alone in that fear.

This from Zero Hedge:

Raymond James On Implications Of Flash Elimination - NYSE Biggest Winner... (7/27/09 Zero Hedge)

"...Although once the debate moves away from Flash to its natural progression into dark pools and ultimately HFT, watch out below: "Any move to restrict high frequency trading could have a significant impact on exchanges’ transaction fees as well as revenue earned from co-location; there is also the chance that efforts to restrict HFT in the equities world could bleed over into other asset classes as well, including futures. We view potential regulatory changes as a net negative for exchanges, but it is far too early to assess the impact of potential regulation on these two issues."

The 2-page Raymond James brief is at Zero Hedge, and here's the link.

Right before the quote that Tyler Durden made in the paragraph above, there is this from the Raymond James brief: "While dark pools represent ~10% of all trading volume currently, HFT volume is estimated to represent ~70% of market trading volumes."

Now you see what I mean by "pop goes the weasel?" Without HFT volume support, the market may indeed revisit March low, and this time it may not stop there. There are posters on Zero Hedge site who recall a "no bid" market during 1987 October market crash.


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