Compliance

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Phil Albinus
Phil Albinus
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Are the Markets Just Too Fast?

Regulators including the SEC and the CFTC are struggling to keep up with and keep a grip on the warp-speed world of high-frequency trading -- and they are considering some severe measures as they struggle to understand just what HFT is.

We live in very fast times. We all rush off to work, demand instant information and feel like smashing our smartphones on the pavement when our wi-fi connection hangs for a minute. In a routine on Conan O'Brien's late-night talk show, Louis C.K. noted that we rely on technology so much that we forget how truly amazing it is. Staring at a man fuming over his lost cell phone signal, the comedian pointed out: "It's going to a satellite in space — can you wait a minute?"

Apparently, we can't. As busy as our personal lives have become, our work lives have accelerated at an even faster pace. Traders today no longer have time to fill out paper forms as did their forebears — rather, they have to decide on which of the three or six or even nine screens on their desks to focus. I remember chuckling when I saw a young trader's desk with three 21-inch monitors that each seemed to be running different iterations of an Excel spreadsheet. Next to her keyboard was a BlackBerry and an iPhone. Excuse me, Miss, are you plugged in enough now?


Slamming the Brakes on HFTFearful that high-speed traders are out of control, the SEC is prepared to implement curbs to slow down high-frequency trading. Download our March 2012 digital issue now.

In the March digital edition of Advanced Trading, we look at regulators' efforts to slow things down a bit. High-frequency trading has no shortage of critics in the halls of Congress, the offices of market regulators, and even across the street at broker-dealers that don't want to trade at the speed of light but must grapple with the wake that trails high-speed traders. HFT proponents claim they provide liquidity, but critics won't have any of it. HFT fragments the market and adds volatility, they insist. Some even make accusations of gaming.

So does HFT hurt the markets? When you look at the number of offers and cancelations made each second of the trading day -- we're talking in the millions -- the people with concerns don't sound like Chicken Little. Industry observers estimate that HFT shops cancel a jaw-dropping 95 percent of their offers only to make hundreds more in the next instant. As one head of a broker-dealer quant desk said at Advanced Trading's Buy-Side Trading Summit this past October, "If a human trader acted the same way as an algorithm, there would be fistfights on the trading floor."

This is no longer about being brash on behalf of your clients; it's about the health of the entire financial system.

Also in the March digital edition, associate editor Justin Grant looks at why, even as the Volcker Rule spurs new launches, it's harder than ever to start a hedge fund. Former AT editor Kerry Massaro Bowbliss reports on a new electronic alternative to RFQs for the Treasury market, I learn how a small credit fund hops from offices in rainy London to sunny Malta thanks to the cloud, and Tabb Group analyst Kevin McPartland says credit default swaps are not as evil as we are meant to believe.

These indeed are fast times. Here at Advanced Trading we try to keep up with all of it with breaking news alerts and instant analysis. But we also strive to step back, take a deep breath and ask some in-depth questions about the issues. It's time to debate where we are headed.

Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio
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