The 12/21/12 WSJ had an article (Open Trading Still Hallmark of a Fair Market) that quoted some who have been involved in trading prior to the advent of the more automated means. The article says: Many in the securities business would ... [maintain] that electronic trading and computers have made the business cleaner, more efficient and less prone to abuse.
I would maintain that these ones (the above 'some') are those who benefit from the new methods and are not those who are involved with the technical details. Let's take each of those and consider their belief.
- cleaner business - There is less shouting, saliva spitting, and such. As well, the floor isn't covered, at the end of the day, with cast-off trade sheets and notes. The underlying basis, though, is very dirty, about as opaque as are the dark pools (representing almost 1/2 of the trades, daily) that some of these people love so much. When it comes to computation, things are more hairy than we allow ourselves to recognize (see FAQ at Princeton). There are those who manipulate the game (markets, et al) through knowledge that the underlying complexity will most likely shield their introduction of 'lemons' despite efforts by the vigilant to prevent such gaming of the system.
- more efficient - Trades can happen at the blink of an eye, and less. That is, when they're let go (you see, pre-looks hold things up until the manipulator figures out a paying position), trades happen fast. Yet, there is no accounting daily. How can there be when derivatives are piled one upon another? Too, those dark pools aren't giving us any accounting that is worth much at the end of the day.
- less prone to abuse - This is almost laughable if one considers lemons which are easier to foster on the investor and the public under the automated means than in any other way. The stage is being set for major exploitation of the markets far beyond what we believed was possible.
CSU Archives/Everett Collection
One ought not complain without having a solution. I have one and am ready to stomach the demands. Briefly, it would go like this.
- First of all, accept the reality of complexity (see FAQ at Princeton). The cards are stacked toward those who want to game the system (we'll gladly go through the history of this).
- Let the boys and girls play, but they have to account every day. Yes, the system doing the checking would be expensive, but, hey, it's just a matter of bringing the 'real' costs out (as in, seeing near zero for what it is).
- The checking system would be run in a non-profit sense with people who are smart and not after unworthy gains. Yes, there are plenty of these, folks.
- Have regular snaps of the entire system (of course, a quiescent point is necessary) with which ex post facto studies will improve the foundational issues.
- Quiescence? Possible? Yes, recently there were two days down. Post 9/11, there was an outage. We can schedule these. Then, we can turn loose analysis (actually, jobs, folks) to look for mischief.
01/15/2013 -- Force quiescence on the thing, regularly.
12/31/2012 -- The high-frequency people are trying to get themselves seen as necessary, even beneficial. The prime benefit is to those who run such, since they're able to pull off from the top. What we need, actually, is some type of quiescent period, often (daily?) during which snapshots and analysis could be done.
12/27/2012 -- Businessworld graphic on the new market.