5, April 2014
Insider Trading
In a recent ‘60 Minutes’ expose’, Michael Lewis, author of "Flash Boys," demonstrated how the US market is rigged in favor of the ‘big banks’, who like competing athletes taking performance enhancing drugs, have rigged the system in their favor. The ‘insiders’ eavesdrop on other traders orders, select the ones that look most promising, then using superior technology, called high frequency trading (HFT), ‘front run’ other traders to the exchanges and then place buy and sell orders cashing in huge amounts of money – all in the blink of an eye. Conversely, the ‘little guy’ is left gasping wondering why his order never got executed. HFT may be legal but clearly is patently unfair. In a zero-sum game, ‘heads I win tails you lose game,’ HFT ensures that billions of dollars are generated executing tens of thousands of orders in nanoseconds skimming dollars of the more routine form of trading. HFT is an artifact of computer technology in the hands of rapacious traders reducing the market to a casino. The current system screams of the urgent necessity of reforms to bring about a level playing field; a small transaction fee should be imposed on all trades to partially mitigate the unfair advantage of HFT. Finally, a new exchange, IEX, established by the ‘hero’ of Michael Lewis’s investigative reporting should go a long way to levelling the playing field.
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