My man Jeff Carter from the excellent Points and Figures blog watched this Sunday’s 60 Minutes show on High Frequency Trading and reviewed it. This was great because it freed me up to erase it from my DVR so I could watch The Cleveland Show instead.
Anyway, Jeff felt that it was good of the show to bring the issue up, but that overall it was a shallow, unsatisfying look at a major story…
Too many people are protecting too many sacred cows. Those cows need to get gored.
Let’s lay this out simply with some of the good data points 60 Minutes gave us.
First, most of the volume is traded electronically and it is traded away from the regulated stock exchanges.
Second, co-location is a huge issue for the marketplace, and 60 Minutes talked about, but glossed over this issue. There were no solutions to the issue, which should be treated in a Coaseian manner as an externality.
Third, 60 Minutes started the story making value judgements about trading for profit. Designed to grab viewers, it does a disservice to markets, and trading. Value judgements cloud the real issues at stake.
Fourth, 60 Minutes mentioned liquidity, Kaufman touched on it, but they didn’t delve into it at all.
Jeff has the right experience with exchanges and trading to be commenting on this, having spent a great deal of his career on the Chicago Merc. Click over for a good overview of what needs to be addressed and how on the HFT front.