Econintersect: When faced with guests who are in agreement on a certain point, does a moderator have an obligation to play devil’s advocate? If so his role in the 10 minute discussion on the 12 July 2013 Kudlow Report on CNBC is possibly understandable. The discussion addressed the fairness of high frequency trading (HFT) and the early release of tradable information to those who can afford to pay for it. The two guests (Bill Black and Abigail Doolittle) as well as CNBC staffer Courtney Reagan all were in solid agreement that HTF and selective information asymmetries were damaging to the operation of fair markets.
Excerpt from video which can be viewed at end of article.
Bill Griffeth asked who is hurt if HFT traders have an advantage and Bill Black answered that it’s a disadvantage to the guy on the other side of the trade. Black also pointed out the very high volume of cancelled trades points to market manipulation by HFT.
Abigail Doolittle pointed out that she feels HFT diminishes the value of fundamental and technical analysis.
Courtney Reagan suggested that there were significant psychological affects on everyday traders and investors.
Bill Griffiths said he didn’t see how any of the concerns raised proved anything wrong with information asymmetry and HFT. He said somebody gains and somebody loses on every trade. He said:
“How can anyone be hurt if the market has achieved all-time highs?“
The other three made their points in rebuttal, which you can catch in the video below.
Editorial note: Econintersect suggests there is at least one question that could be asked of Bill Griffeths (and then a possible follow-on:
- Question: Is it okay for HFT to skim a fraction of a point from most trades which comes out of the pocket of the traders on the other side? This skim is in addition to the bid-ask spread which is a published figure.
If Griffeth says anything but “No” then see follow-on question #2 below. Otherwise see follow-on question #1:
- Follow-on #1: So if the skim is okay, then why not just have each broker-dealer or floor trader (market maker) just take a fraction of a point from every trade without disclosure? Wouldn’t this be fraud? Wouldn’t this land people in prison?
Follow-on #2: If the skim is not okay then how can you say the order time and information asymmetry of HFT operations is not a concern?
At one point Griffeths asked the question:
“How does this hurt my grandmother’s portolio?“
The answer of course is that your grandmother occasionally will buy or sell stocks. And each time she may give up a fraction of a point to the HFT brigade. Fractions of points from millions of grandmothers’ trades will mount to dollars over the years. Let’s say that 100 million individual investors average $20 in “skims” over a number of years. That is a negligible impact on the individual portfolio that might be $50,000 or $100,000 or more.
But the fact that the investor can “afford” to be defrauded such a small amount should not be a justification for the HFT group dividing up the $2 billion in spoils described in this hypothetical example.
Note: Bill Black (William K. Black) is a Global Economic Intersection contributor.
Hat tip to New Economic Perspectives.
