The timing of Schneiderman launching a broad investigation coincidentally comes one week after Virtu Financial, a high-frequency trading firm and electronic market maker, filed an IPO to raise $100 million, which reportedly could rise to $250 million. In the S1 document, Virtu revealed that out of a total of 1,238 trading days,(from Jan. 1, 2009 through Dec.31, 2013), it only had one losing day.
In the prospectus, Virtu attributes these results to its “real-time risk management strategy and technology.” It also explains, "we generate revenue by buying and selling large volumes of securities and other financial instruments and earning small bid/ask spreads." During the press conference, Schneiderman said that high frequency trading firms “appear to trade with no risk.” Meanwhile, the anti-HFT blogging site Zero Hedge chalks Virtu's profits up to an engrained system of front-running, and scalping fractions of pennies. It contends that Virtu’s too-good-to-be true financials are what attracted Schneiderman to open a broad investigation into whether exchanges and alternative trading venues (a.k.a. Dark pools) are providing privileges to HFT.
However, some bloggers are coming to the defense of HFT. Bloomberg View writer Matt Levine suggests the focus on a why HFT is still making money, shows a lack of understanding of the trading business. "Every firm that is in the trading business seems to make money on trading on a whole lot of days, and lose money on a whole lot fewer days," wrote Levine. The same has been said of firms like Morgan Stanley, Goldman and Citigroup, he wrote.
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