The Market is Rigged-High Frequency Chicanery
By MIKE WHITNEY
Here’s something to munch on from Dennis K. Berman in last week’s Wall Street Journal:
“Today, small investors are fleeing the equities markets in droves, according to data from the Investment Company Institute, pulling out a net $34 billion from stock funds so far this year…..They say, “I still feel like someone is screwing me……trading feels different than it used to.”
Berman traces the problem to its source, the “inscrutable interplay between myriad exchanges and high-frequency traders, whose volume now accounts for an estimated two-thirds of all trading”…”a market that many perceive as tainted and prone to gaming by a cadre of insiders.”
That sounds like a long-winded way of saying the market is rigged.
High-frequency trading (HFT) is algorithmic-computer trading that finds “statistical patterns and pricing anomalies” by scanning the various stock exchanges. It’s high-speed robo-trading that oftentimes executes orders without human intervention. HFT allows one group of investors to see the data on other people’s orders ahead of time and use their supercomputers to buy in front of them. It’s called frontloading, and it goes on every day right under the SEC’s nose.
In an interview on CNBC, market analyst Joe Saluzzi was asked if the big HFT players were able to see other investors orders (and execute trades) before them. Saluzzi said, “Yes. The answer is absolutely yes. The exchanges supply you with the data, giving you the flash order, and if your fixed connection goes into their lines first, you are disadvantaging the retail and institutional investor.”