High-frequency traders and representatives from HFT firms vigorously and defiantly defended their practices after a speech from the U.S. Attorney office in New York at the Security Traders Association of New York conference last week.
In the back-to-back afternoon sessions at the 78th annual STANY conference, chief of investor protection bureau for the New York attorney general Chad Johnson outlined the NY AG’s concerns about HFT and its impact on the markets. Speaking before a crowd of roughly 200 attendees Johnson touched on HFT and its impacts on the markets. While he did not disclose any plans the NYAG’s office had for prosecuting HFT firms, he did offer hints at what was on the mind of NYAG Eric Schneiderman and his team.
Noting that “in the world of HFT two seconds is an eternity,” Johnson said “latency arbitrage is creating a tiered market.”
Side-stepping any plans of the NYAG to subpoena HFT firms, Johnson did say what the AG’s office was seeking to avoid. “The New York Attorney General does not want to end collocation,” he said.
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Johnson also pushed back at the arguments from HFT defenders who say that high-speed trading only has an impact on other traders and that they provide much needed liquidity. “Some say this is HFT on HFT violence … It doesn’t mean it’s not harming the system,” said Johnson.
Johnson added that some solutions to any HFT concerns could be IT in nature. “There are technological solutions to level the playing field,” Johnson told the STANY audience but he did not detail any solutions.
Johnson did not answer questions from the event moderator or from the audience.
In the STANY conference program, Johnson’s biography mentions: “Johnson and his team have achieved other results related to the distribution of market moving information to high-frequency traders, and the Attorney General has announced that Mr. Johnson and his team are investigating certain arrangements between the exchanges and high-frequency traders which may give high frequency traders an unfair advantage over others in the markets.”
After Johnson’s 20-minute speech, the next panel convened to defend HFT practices and push back against any allegations that HFT was cheating investors. The panel, entitled HFT At a Crossroad, included representatives from HFT firms, exchanges, ATSs, and IEX, the buyside-oriented dark pool that was featured in the Michael Lewis book Flash Boys. The Lewis book ignited a firestorm the previous week with allegations that HFT firms were rigging the U.S. stock markets.
By far, the most vocal defenders of HFT and vocal critics of Flash Boys were Manoj Narang, founder and CEO of Tradeworx, an HFT firm based in Red Bank, NJ, and Keith Ross, CEO of PDQ Enterprises, an ATS that offer HFT to the buyside.
Pushing back against Johnson’s and the NYAG’s desire to create more fairness in the markets for all investors, Ross told the STANY audience that “A level playing field is a myth.”
Narang argued that adding new regulations could hinder the market. As one panelist said, “The harder the regulators try, the more complex the markets.” Narang added, “It’s dangerous to remove skill from the market.”
Another panelist found the notion that so-called “Mom and Pop” investors were being cheated by front-running HFT firms to be overblown. Douglas Borden, managing director, co-head of market making business for KCG Holdings, told the STANY audience that he believes that “99.99 percent of people trading in the U.S. are high frequency traders.”
One panelist did broach the subject that HFT was having a negative impact. Unsurprisingly it came from Donald Bollerman, head of market operations fro IEX, the dark pool lauded in Flash Boys. “We have lost sight of obligations of a steward of the market,” he told the audience.
