One firm has proposed a "tiny" solution to the huge problem that high-frequency trading (HFT) poses to individual investors, challenging the way every other stock exchange does business.
Will the SEC allow this company to revolutionize how stock exchanges are run... or will it once again side with the big banks, hedge funds, and HFT companies?
One firm has proposed a "tiny" solution to the huge problem that high-frequency trading (HFT) poses to individual investors, challenging the way every other stock exchange does business.
Will the SEC allow this company to revolutionize how stock exchanges are run... or will it once again side with the big banks, hedge funds, and HFT companies?
The UBS dark pool fine announced last week is yet another example of the U.S. Securities and Exchange Commission dropping the ball on one of the biggest schemes staring them right in the face.
The SEC came down on UBS Group AG (NYSE: UBS) for not following the rules and regulations that make markets fair and orderly - and also for not being honest to its clients.
But this "record" fine wasn't really newsworthy - in fact, it was pretty absurd...
Most people who are just "in the market" don't understand high-frequency trading (HFT) and dark pools.
My knowledge of HFT and dark pools dates back to the late 1990s, when I was trying to figure out how to get better executions on the large trades my hedge fund was generating. I consider myself a bit of an expert.
So, for all of you who want to know more, I’m going to share some of that expertise…
Today, Shah Gilani let some wicked punches fly, debunking the legitimacy of Wall Street's "Dark Pools" on NPR's popular talk show On Point.
As Shah himself said: "This is about how the market has been undermined and how it could collapse one day, literally, and trillions of dollars could be lost in a matter of days."
High-frequency trading (HFT) has an evil cousin: dark pools.
While dark pools are not inherently bad, the abuse of dark pools by the high-frequency traders has created a whole series of problems that can harm both large and small investors.
Large investors are already starting to take steps to protect themselves, but most small investors have no idea of the harm these activities pose to them.
You're either the predator or the prey...
by Greg Madison, Associate Editor, Money Morning
Everything runs on liquidity. Unless you know something I don't, that dollar bill in your pocket is just as likely to buy a can of Pabst Blue Ribbon today as it was yesterday, and will be tomorrow.
Or you could sell 1,000 lbs. of gold - if you have that lying around - without fear of completely scuttling the global gold market. Your bank has to have cash, liquidity, lying around somewhere in the back if it wants to stay in business.
And in many cases, it's easy to see or verify this liquidity. It helps everyone feel better about doing anything.
But there are markets where this liquidity is kept off the open exchanges, where it can be used to juice up huge deals. Or it can prevent these huge deals from having the impact that they "should" have, keeping the hands of large traders hidden.
These are the sinister-sounding dark pools of liquidity.
Dark liquidity is generated and stored in a variety of ways, most of which are possible due to the huge variety of trading venues, electronic and traditional.
With dark pools, neither the size of the order nor the entity making that order can be known until the order is completed. Rosenberg Securities Inc. estimates that fully 15% - trillions of dollars - of all trades occurring on American exchanges, every day, utilize dark pools.
And the markets, like nearly everything else, operate on the wide availability and transparency of good, reliable information. A poker game gets its lurid thrills from the partial presence of that information, or the possibility that the information could be faulty. You wouldn't want to play with all your cards face-up. You just don't know, and that's why it's fun to play poker.
But the markets, despite some inkling to the contrary, can't function with true optimum efficiency if good information isn't available to the widest possible group of participants.
It's not that a player has to have the information, but it should be available to the player if things are going to work the way they should. One is a vying, gambling game, and the other is a free market. We should be able to tell the difference.
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