The great debate: Combating HFTs image

The great debate: Combating HFTs image

Accusations and Reactions

  • Brad Katsuyama and Michael Lewis are accused of falsely accusing and scaring investors in order to promote a business model.
  • Bill O'Brien criticizes their tactics of fear, mistrust, and accusation.
  • Bill questions Katsuyama's belief in the markets being rigged, but Katsuyama confirms his belief.
  • Katsuyama explains the responsibility of exchanges to fairly price trades and how some participants have an advantage over others.
  • Katsuyama challenges Bill to explain what market data Direct Edge uses to price trades.
  • Direct Edge uses direct feeds and the SIP (Security Information Processor) in combination for pricing trades.
  • Katsuyama argues that the view of the Market by exchanges is slower than that of the fastest traders and collocation diminishes the ability to fairly price trades.

Competition and Market Structure

  • Katsuyama clarifies that IEX uses direct feeds to price trades and has slowed down high-frequency traders' ability to react on their exchange.
  • Katsuyama disputes the notion that they are trying to eliminate intermediaries, as they work with brokers and investors to manage risks.
  • Katsuyama argues that their solution is about the industry coming together to provide a better and fairer marketplace.
  • Bill emphasizes the benefits of electronic trading and the reduced risk it brings to the market.
  • Both Katsuyama and Bill agree that the market is not perfect, but competition and a focus on data and analytics can help improve it.

Impact and Confidence in the Market

  • The conversation addresses the concern about the term "rigged" and the impact it may have on investor confidence.
  • Katsuyama asserts that providing more information and better transparency can help restore confidence in the market.
  • Bill points out the improvements in trading costs and believes that better information will lead to better decisions for the public.
  • Michael Lewis indicates that the book doesn't suggest that people should flee the market, but rather work to fix it.

High-Frequency Trading

  • Michael Lewis mentions that high-frequency trading provides liquidity but questions the extent to which it adds value versus scalping activities.
  • It is acknowledged that certain firms use high-frequency trading as a clever strategy to bring prices in line, while others primarily engage in scalping.
  • The difficulty lies in distinguishing between the useful and non-useful aspects of high-frequency trading.

Government Response

  • Michael Lewis mentions that there is an ongoing FBI investigation and interest from the New York attorney general.
  • The conversation touches on the lack of response from Congress on the issue.

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