Watching the U.S. Senate’s the Permanent Subcommittee On Investigations Hearing: Conflicts of Interest, Investor Loss of Confidence, and High Speed Trading in U.S. Stock Markets
Senator John McCain: SEC’s Reg NMS should be changed.
Dr.K: Reg NMS was supposed bring “best price” execution to the equity markets. If advances in technology and market structure changes result in different outcome from the intended consequences of regulation, this does not mean that the new practices, i.e. HFT as Senator McCain suggested, are “bad”. It just suggests that policy/regulation is slow in their oversight of the markets. And law makers referring to the book “Flash Boys” by Michael Lewis as one of their reasoning for a hearing also suggests that regulation/policy making is reactive as opposed to proactive.
Senator Carl Lewin: High Frequency Traders have predatory practices. Co-location is not fair.
Dr.K: Exchanges create the trading structure within the current regulations and given that market structure any trading practice which appears to be taking advantage of opportunities should not be blamed. Co-locating one firm’s server, by purchasing space sold by the exchange, next to that exchange’s matching server is no different than a firm or individual becoming a member (by purchasing a seat) of the exchange and stand on the floor next to specialist to transact during the “floor trading” days.