Courtesy of Larry Doyle.
Major props to renowned writer Michael Lewis for using his enormous platform to direct light on the scam that has come to define our equity markets under the construct of high frequency trading.
As Lewis states, the scam is not only restricted to HFT activity but rather the market as a whole has become a scam. Powerful words and worth the minute to listen to the video clip below.
But let’s go deeper than that.
I very much look forward to picking up a copy of Lewis’ book when it comes out tomorrow. Yet, based on what we learned this evening on 60 Minutes, the expose laid out has largely been known for the better part of the last 5 years thanks to industry insiders Joe Saluzzi and Sal Arnuk at Themis Trading, Eric Hunsader at Nanex, and the widely followed blog Zero Hedge.
While the scam within the markets is caused by high frequency trading, let’s make no mistake that the HFT activity itself is more an effect driven by other causes. I do not doubt that many individuals and firms both inside the industry and out might now look to take on the mantel of reformists so as to alleviate some pressure brought about by Lewis’ book. Yet, in my opinion, the effect of HFT very much stems from the following causes:
1. self-regulation on Wall Street as overseen by the meter maids at FINRA allowing the large Wall Street banks to answer to nobody but themselves
2. captured regulators both within the aforementioned self-regulator and the SEC
3. the Wall Street oligopoly that allows the banks and exchanges to hoard information (such as equity orders) if even for just milliseconds to generate profits in the multi-billions of dollars
4. equity exchanges that have adopted a for-profit model overseen by captured regulators
HFT is receiving current attention thanks to Lewis’ book and 60 Minutes, but other forms of market manipulation and investor abuse have been ongoing within the currency, commodity, interest rate markets, and elsewhere. What is the right way to go about addressing all of these scams? Certainly the large, powerful, well financed interests on Wall Street will fight tooth and nail to maintain the status quo. Real change never comes from addressing the effects or symptoms. To bring truly corrective measures so as to eradicate corruptible practices such as HFT, the causes need to be aggressively addressed and exposed. From there, the effects can be amended and corrected in due course.
So, how do we address the causes? Just as I lay out in Chapter 12 of my book, In Bed with Wall Street: The Conspiracy Crippling Our Global Economy, we need to bring enormous public pressure on Congress by exposing the real corruption in the system (as I stated the other day on Bloomberg) so that we can pursue the following:
1. end the self-regulatory model on Wall Street
2. implement a Financial Regulatory Review Board to oversee a sole financial regulator housed within the SEC
3. BREAK UP THE ‘TBTF’ banks by reinstituting Glass-Stegall.
Thank you Michael Lewis and 60 Minutes. Get on board and let’s bring real transparency not just to HFT but to corrupted regulators and public officials who have ushered in this scam and so many more.