mis
Sam321
DisruptingWallStreet_HighFrequencyTrading.pptxHigh Frequency Trading
Group 4
Case background
The mild-mannered Canadian went from relative obscurity to a Wall Street celebrity in 2014 after Michael Lewis published "Flash Boys," a book focused on the ills of high-speed trading and Katsuyama's efforts to build a market that protected investors.
Since then, IEX has filed with the Securities and Exchange Commission to become a stock exchange, kick-starting an ugly battle with the incumbent exchanges.
Case issues
Is it fair and unbiased for company using computer system to make high frequency trading in the financial market? Were the markets being manipulated?
high frequency trading?
An automated trading platform used by large investment banks, hedge funds and institutional investors that utilizes powerful computers to transact a large number of orders at extremely high speeds. These high-frequency trading platforms allow traders to execute millions of orders and scan multiple markets and exchanges in a matter of seconds, thus giving the institutions that use the platforms a huge advantage in the open market.
Money and Financial Markets
Money is defined:
“The socially constructed ‘promise to pay’” that the money represents
Meaning whatever amount the money represents
Barter Exchange of Commodities
Eg. an exchange of a goat for a bag of Grain
A form of credit; centrally established, agreed-upon number that represents what is owed or owing.
Monetary exchange
Exchange and trading
Two basic ways exchanges execute a trade:
On the exchange Floor
Eg. stockbroker with an order : “Buy 100 shares of Widgets Inc. at the current market price!”).
Electronically
Most markets trade stocks in electronic form
Eg. NYSE, but also still maintains physical trading floor on Wall street and Trumpets floor
After the introduction of the electronic Trading platform 82% of the NYSE market teding was held electronically
Technology and Financial Market
Financial markets highly rely on computer system to match buy and sell orders
Electronically tardes are more efficient and faster than human trades
Financial exchange electronically allows investors to transact instantaneously avoiding any price fluctuation during the process
Short latency
Reduces trading costs
Algorithm Trading
Relies on proprietary computer programs to trade shares automatically when predefined market conditions are met.
HFT - High Frequency Trading
Used by private financial Investments, and it’s a trading high volume strategy
HFT analyze and synthesize market data faster than any other traders
Can We Trust Trading Markets
First part
Talk about insider trading(define+its a crime+it is very unfair+1% richest ppl in the world living like this)
Can we trust markets facing HFT
HTF anticipate the trading intentions faster than everyone else and typically held the stock for less than one second, using finely tuned software algorithms.
exchanges institutions lease space in their own buildings to the HFT firms, allowing HTF to co-locate their servers and maximize their speed advantage
the new level of exchanges institutions skewed in favour of institutional investors and enabled big institutional traders to compete more aggressively with one other and the average investor actually benefits from HFT, because it provides liquidity and reduces commission fees
not question of morals or ethics,
but a loophole in regulations was lacked
The most troubling issue was not speed at all. There are always going to be some traders who are faster than others. It’s the dark pools and handshakes behind the scenes that effectively eliminate the need for speed since they eliminate competition.
Basically, the regulators are too slow in an industry that moves very quickly, being an enabler that have dramatically improved market efficiencies. When 70% of the transactions in a market are completed by HFT, we must be confident of the HFT system. This requires standardization of the development process of HFT, acceptance of the development process evaluation, and strict testing system.
Second part read the stats and elaborate
Let us here the experts
Munger:
Well, of course they have an advantage. Cleverly obtained. Of course it does the rest of civilization no good at all. It’s the functional equivalent of letting rats into a grainery. (Pause) No, I don’t like it.
Gates:
It doesn’t seem like it’s much value-added because ... when you really need the liquidity it’s not guaranteed to be there. So I’m not an expert on it, but it seems like a strange source of profit.”
Buffett:
I think society generally has been against front-running for good reasons ... Here they gained a natural advantage by speed just by figuring out how the system worked and then getting there first, and that adds nothing to GDP or anything, a real output of goods and services ... On the other hand, the market isn’t regulated. And for the small investor, they’ve never had it so good. And high frequency trading I don’t think costs them a penny probably.27
Questions?
How do you think of the high frequency trading? Is it fair for company using computer system to make high frequency trading in the financial markets?
What's the advantages and disadvantages of the high frequency trading?
If you are a regulator, what measures will you take to increase the price fairness and avoid the inside trade in the financial system as possible?
From the political correctness, the policy environment and the intensity of competition, high-frequency trading has reached a point where it seems to be a sunset industry. Where will this field go in the future?
References
Evans, Brad. “Disrupting Wall Street: High Frequency Trading.” Do Financial Incentives Drive Company Performance?: An Evidence-Based Approach to Motivation and Rewards, 2014, www.iesep.com/en/disrupting-wall-street-high-frequency-trading-118332.
Staff, I. (2009, July 27). What is high-frequency trading? Retrieved July 13, 2018, from https://www.investopedia.com/ask/answers/09/high-frequency-trading.asp
Turner, M. (n.d.). IEX CEO Brad Katsuyama on lies, “Flash Boys,” and egregious
pricing. Retrieved July 13, 2018,
From http://www.businessinsider.com/iex-ceo-brad-katsuyama-interview-lies-flash-b
ys-and-egregious-pricing-2016-6
