Days after the "flash crash" on May 6, veteran high-frequency trader and exchange entrepreneur Dave Cummings sat down with Traders Magazine to discuss a bevy of issues facing the equities markets. Cummings started the HFT firm Tradebot Systems and launched the ECN BATS Trading.
On what makes for a strong marketplace–
Having thousands of different people playing for all kinds of different reasons and all kinds of different time frames and all kinds of different correlations and models–that’s what makes a robust market. Markets are all about transferring risk. And the more people you can pass that risk around to, the more value is created by the whole system. It’s more than just a big poker game.
On May 6 and circuit breakers–
The market definitely needs better circuit breakers. Anytime you break trades, that’s really bad. It’s bad for the markets and the public’s confidence in the markets. The answer is not to go back and break the trades where somebody after the fact on some committee–without any transparency–decided these must be errors and these must be good. The answer is to build logic into the matching engines that doesn’t let errant trades happen in the first place.
On a unified surveillance system–
The markets need good regulation. Sometimes, some competition among regulators gives more efficient solutions, too. Any time you have one system, it never seems to catch the one thing that the bad guys are doing, because they’ve designed what they’re doing to circumvent the one system out there.
On regulators monitoring individual trades–
You’ve got real issues of intellectual property leakage if you let different regulators or others start snooping through everybody’s trading styles. There are questions about what they are doing with that information, or what controls there are with that information. There’s clearly a revolving door between regulators and the industry. Is it fair to have a regulator look at a bunch of trades and then go take a job with a competitor? Whatever system is in place must have information barriers that don’t let that happen.
On sub-penny trading in the public markets–
I’m generally not a fan of sub-pennies. It lessens the public understanding of the market. It’s very natural to go into the stock market and see prices in dollars and cents. If you’re talking a 5-cent stock, then maybe it makes sense to have prices in fractions, but I just don’t think there’s the public outcry there.
On the value of manual intervention to slow markets down–
There’s no market participant that can hold up a trillion-dollar market. The high-frequency trading guys can’t. The specialist can’t. Slowing down [the market] gives the whole community time to react.
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