Thursday, Apr. 3, 2014

The current debate about High Frequency Trading (HFT) is Wall Street in a nutshell. A little history that I have observed during my career is in order. When I entered the business in 1972 commissions were fixed meaning Wall Street had a monopoly that forced every investor to pay the same commission to every firm when they executed an order. In 1975 this legal monopoly came to an end with the advent of negotiated rates for stock trades (May 1, 1975). Lost in all the hue & cry in re this new system was that orders were still routed through the fixed exchanges, mostly the New York Stock Exchange (NYSE), and the American Stock Exchange (AMEX or "the curb"). This was the most rigged system in the world, because a handful of "specialists" had a monopoly right to trade certain stocks and they were allowed to trade for their own account while they were executing orders for buyers and sellers. In any other business this would be criminal. Once electronic markets were developed, the monopoly power of the NYSE was broken and investors were matched up through computers without the specialist being able to cherry pick the market.

Today's markets are much more efficient and cheaper than anything that existed since the exchange moved indoors from under the buttonwood tree.Yet, it seems that Wall Street has not met a system they didn't want to game and somehow give themselves an unfair advantage. What is occurring today is a group of traders intercepting orders from investors and running ahead to scoop up the available stock to resell at a higher price to the original investor. It borders on the criminal... it is wrong... it needs to be stopped. If you come across anyone defending this type of activity steer clear. What they are defending is Wall Streets right to rig the game and deny the investor a fair and open market.