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The Trading Mesh

Maybe markets are unfair, but are they rigged?

Wed, 02 Apr 2014 05:50:22 GMT           

This article was originally published at the Fidessa blog, and is reproduced here with permission.
By Steve Grob

The publication of Michael Lewis’s new book Flash Boys has reignited the whole HFT/dark pool debate (actually, maybe it’s never really gone away). The point people seem to continually miss in this debate is the distinction between “unfair” and “rigged”.

To me the term rigged implies some malevolent conspiracy between certain members of an ecosystem aimed at taking advantage of an identified target. In this instance, the ‘patsy’ in question is supposed to be the retail punter and the ‘conspirators’ are the electronic trading firms that exploit the little guys’ inability to act as quickly as they can. Isn’t this just part of the natural world order of winners and losers, especially in a free market economy? Firms that invest their own money in technology to exploit the fragmented nature of markets deserve to make a profit just as much as anyone else.

The argument goes up a notch when you consider the institutional investment community, some of whom complain that they are left chasing a trail of small droplets of liquidity laid down by the HFT boys across the lit/dark spectrum. My response to this, as demonstrated by those more technology-savvy buy-side firms, is tool up and get into the fight. The only other alternative would be to replace the capitalist underpinnings of financial markets altogether, but in this case those same investment firms probably wouldn’t be needed at all…

The opinions and writing contained in this article are of the author alone and do not necessarily represent those of The Trading Mesh.


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