For the few of us left who still have faith that we live in a free market, capitalist society, last Sunday’s 60 Minutes presented a story that should give serious pause for thought. It is an interview with Michael Lewis about his forthcoming book, Flash Boys. The title of the interview is ‘Is the U.S. stock market rigged?’ The compelling answer that Lewis lays out is: most definitely, yes. The reason is due to high frequency trading (HFT), which now accounts for half of all stock market activity:
To get a more balanced view of the positive impact that supporters say HFT has had on the market, see this article in Bloomberg Businessweek and this article in The Wall Street Journal. While both articles seek to undermine Lewis’ argument and emphasize the positive aspects of HFT, neither does a good job, I think, of refuting the central claims of the 60 Minutes piece—that high frequency traders are essentially front-running the market. In support of the idea that something is amiss, the article in the url below reports that the FBI is investigating:
“… whether high-speed trading firms are engaging in insider trading by taking advantage of fast-moving market information unavailable to other investors. … Among the activities being probed is whether high-speed firms are trading ahead of other investors based on information that other market participants can't see. Among the types of trading under scrutiny is the practice of placing a group of trades and then canceling them to create the false appearance of market activity. Such activity could be considered potential market manipulation by encouraging others to trade based on false orders. Another form of activity under scrutiny involves using high-speed trading to place orders to conceal that the transactions are based on an illegal tip.”
Have a good weekend
David
David Chandler & Bill Werther
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FBI Investigates High-Speed Trading
By Scott Patterson and Michael Rothfeld
March 31, 2014
The Wall Street Journal
