Nov

29

This is an interesting piece by Mike O'Hara that underscores the danger of grouping all algorithmic trading with HFT. One of the largest concerns regarding HFT is that it competes with legitimate market makers during normal trading, thus reducing incentives, and then leaves the market during abnormal trading, or worse taking liquidity to close positions when a market makers job is most important. This legislation, in an effort to make it impossible to side-step the responsibility of providing liquidity, would actually require a broker executing VWAPs all day to provide liquidity. Based on the below quote, one simple sidestep would be to start your algo a minute after the open and stop it a minute before the close, but doesn't this defeat the point?

Steve Ellison writes: 

I have thought for some time that high frequency traders play a similar role in the market ecosystem to stock specialists. Stock specialists can profitably trade based on their knowledge of order flow, but in return are obligated to use their capital to preserve an orderly market. This proposal seems conceptually to be trying to impose similar obligations on high frequency traders. 


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