Why Is High Frequency Trading Tolerated?


I don’t know if you saw the bombshell segment on “60 Minutes” last night with Michael Lewis, who is plugging his new book Flash Boys: A Wall Street Revolt. In a nutshell he said that the US stock market is rigged, and the culprit is high frequency trading.

Here’s a little snippet of what he had to say.

Steve Kroft: What’s the headline here?

Michael Lewis: Stock market’s rigged. The United States stock market, the most iconic market in global capitalism is rigged.

Steve Kroft: By whom?
Michael Lewis: By a combination of these stock exchanges, the big Wall Street banks and high-frequency traders.

Steve Kroft: Who are the victims?

Michael Lewis: Everybody who has an investment in the stock market.

If you read Zero Hedge this probably isn’t news to you, but it’s something most people might be unaware of, especially people who are only invested through 401K’s or IRA’s. You can read the whole transcript of Lewis’s interview and watch the videos at this CBS link.

Anyway, Rick Santelli explained today why this practice is tolerated by regulators. It’s very eye opening.

Are regulators stupid when it comes to high frequency trade? Well, i think that there was a time where they were a bit slow to the party. But i don’t think it’s stupidity or ignorance or not paying attention. So let’s wipe that off. So the question i’m asking is, why do they let it continue?

Why is it that anybody would want HFT to be unchallenged or at least not challenge it now? My reason, this is just my reason, when i look at the stock market it’s basically at historic highs. When i look at what the federal reserve is doing, it’s mostly to put stocks on all-time highs. When i look at all the debt and all the programs that don’t seem to be making a difference except for putting stocks on all-time highs, i see that you have this tower of power with regard to the stock market. And nobody wants to challenge or alter hft because it is good to go that many days without having a loss. So my guess is when the stock market eventually deals with reality and pricing, which will come at a time when there’s not a zero interest rate policy and we’re long past QE, I think they’ll address it.

Here’s the video, via Zero Hedge where you read much more on the subject.

While on the subject of the stock market, Janet Yellen announced today that the Fed will be giving support to the market for “some time.” She blamed it on the lousy jobs market, but none of what the Fed or Wall Street has been doing has helped the jobs market, so it just sounds like another excuse to keep the party going. I’m sure the .1% are happy. For the rest of us it’s just scary.