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 Ron Johnson: “Where do you get your data?” (in referring to the analysis of order execution costs)

Robert H. Battalio, Professor of Finance, University of Notre Dame: “From a major ibank (investment bank). We don’t have detailed/good data.”

Dr.K: Regulators/policy makers should have a record of all the transactions in financial markets so that their natural duty of ‘market oversight’ is easier to handle. In that case, academic researchers and regulators won’t have difficulty answering questions ‘what happened?’.

Senator John McCain: “Michael Lewis in his excellent book and 60 Minutes interview said markets are rigged. Are they?”

Bradley Katsuyama, President & CEO of IEX Group, Inc: Word ‘rigged’ may be used to describe markets.

Dr.K: Best marketing campaign for IEX exchange.

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.