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Ivy Schmerken
Ivy Schmerken
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NY Attorney General Stirs Debate on HFT Perks

Attorney General Eric Schneiderman's office turns up the heat on high-frequency traders and their "unfair" advantages. Traders are fighting back.
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Schneiderman's announcement about curbing HFT's unfair practices this week may have drawn another Wall Street firm into the conversation. On Thursday, Gary Cohn, co-president and chief operating officer of Goldman Sachs, published an op-ed piece in the Wall Street Journal, titled, “The Responsible Way to Rein in Super-Fast Trading.”

Citing multiple technology failures that have occurred in the equity markets, Cohn suggests specific measures “to limit the risk and instability,” caused by the fragmented, complex equity market structure, which is amplified by speed of execution. He calls for “stronger safety net of controls" to cope with sophisticated routing algorithms, constant software updates and an explosion in electronic order instructions.

On the HFT front, Cohn favors applying regulatory fees to the participants that generate excessive message traffic. Even though big Wall Street firms like Goldman subscribe to the faster proprietary feeds, Cohn’s piece surprisingly agrees with the NY AG’s position on market data. “Public market data should be disseminated to all market participants simultaneously,” wrote Cohn, suggesting that exchanges should not provide proprietary feeds that are disseminated fractions of a second faster. ”Reducing the possibility of differentiated channels for market data also reduces incentives that favor investment in the speed of one channel over the stability and resiliency another,” wrote Cohn.

 

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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Becca L
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Becca L,
User Rank: Author
3/27/2014 | 9:16:57 PM
re: NY Attorney General Stirs Debate on HFT Perks
All's fair in love and politics.
IvySchmerken
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IvySchmerken,
User Rank: Author
3/27/2014 | 8:25:17 PM
re: NY Attorney General Stirs Debate on HFT Perks
Schneiderman is taking on other industries and frauds, such as stealing funds from nursing homes, and tanning salons that falselyadvertise that tanning is healthy. But he is pounding the pavement when it comes to financial services. Yesterday he announced a $25 million settlement with Kenneth Lewis, former CEO and chairman of BofA for failing to disclose information on mounting losses at Merrill Lynch during the merger.
Greg MacSweeney
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Greg MacSweeney,
User Rank: Apprentice
3/27/2014 | 7:54:35 PM
re: NY Attorney General Stirs Debate on HFT Perks
The funny thing is that the NY AG doesn't even need to win these cases to gain political points. Sure, a win against a big bank looks great, but the voters just remember that that "Schneiderman guy took on the big banks" ... and that is usually enough to get their vote.
Becca L
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Becca L,
User Rank: Author
3/26/2014 | 5:06:17 PM
re: NY Attorney General Stirs Debate on HFT Perks
While I'd like to think he's simply upholding the duties of the AG office, to my eye, given his outlets to voice his opinions and resulting media coverage his political ambitions are playing a real role in this battle.
IvySchmerken
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IvySchmerken,
User Rank: Author
3/25/2014 | 1:44:05 PM
re: NY Attorney General Stirs Debate on HFT Perks
New York AG's historically that latch onto unfairness or corruption on Wall Street have made a name for themselves. Schneiderman is seen as taking a page from former NY AG Eliot Spitzer's strategy in pursuing wrongdoing on Wall street. Schneiderman could use the Martin Act, a law in New York, as did Spitzer, to protect investors.
The Investor Protection Bureau is charged with enforcing the New York
State securities law, commonly known as the Martin Act. "The Martin Act
gives the Attorney General broad law-enforcement powers to conduct
investigations of suspected fraud in the offer, sale or purchase of
securities," from NY AG's web site. [The Investor Protection Bureau is charged with enforcing the New York
State securities law, commonly known as the Martin Act. http://www.ag.ny.gov/bureau/in...
Spitzer ran for governor and was elected, despite how the rest of it turned out. Everyone has speculated that Schneiderman has political ambitions.
IvySchmerken
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IvySchmerken,
User Rank: Author
3/25/2014 | 2:51:55 AM
re: NY Attorney General Stirs Debate on HFT Perks
In terms of the school of fish point, the idea is that the market digests the information as a result of the HFT firms reacting so fast and that prices balance out. That's the theory of the research. As for average investors, they would need to colocate their automated trading models or use algorithms through brokers. They would need direct data feeds, otherwise prices could already have changed. I don't think the average investor is equipped to compete against HFT.
Becca L
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Becca L,
User Rank: Author
3/24/2014 | 5:45:57 PM
re: NY Attorney General Stirs Debate on HFT Perks
Interesting read! Thanks for sharing, Ivy.

Highlights that emphasize the school of fish benefits.. I understand the point he's making, but I still question the real-world benefits to real average investors. What tools do they need to accurately react to shifts made by HFTs?

"New research
by Austin Gerig, a physicist and quantitative finance expert at Oxford
University, suggests that high-frequency trading improves markets' price
discovery function. It does so by ensuring that the prices of assets
that ought to move in sync actually do so." ... "His point is that synchronization of prices aids decision-making for the average investor." ... " school of fish,
for example, pools resources by scanning its environment with many eyes
all at once, and synchronization enables all the fish to react quickly
to any threat."
Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
3/24/2014 | 5:33:50 PM
re: NY Attorney General Stirs Debate on HFT Perks
New York AG's really like to make a name for themselves on Wall Street issues. Doesn't look like that will change any time soon as long as they can grab headlines with it.
IvySchmerken
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IvySchmerken,
User Rank: Author
3/24/2014 | 2:48:45 PM
re: NY Attorney General Stirs Debate on HFT Perks
Interesting article by Bloomberg View columnist comparing HFT to schools of fish that synchronize information in the marketplace, helping investors make decisions more quickly. Cites new research by Oxford University physicist, quantitative expert.
http://www.bloombergview.com/a...
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