@ResearchPuzzler recently attended the Chartered Financial Analyst (CFA) Society’s annual conference.
The conference began with a presentation from NYSE Euronext, titled “Has Innovation Helped or Hurt the Integrity of Markets?” and was mostly
a defense of the status quo — other than warning about the growing share of dark pools… The changes in the industry have led to much lower transaction costs, at least in equities. That’s the one shining benefit that gets pointed to as evidence of progress. But at what cost in other ways?
Much of what we call financial services innovation is dealer bookmaking. The foundation of the business relies on prop trading. Certainly, the game of cat-and-mouse with the regulators will continue, but sometimes it seems like the regulators are the mice.
What of high frequency trading?
Without HFT, there is no market. High frequency trading firms are natural counterparties… trying to take the other side of your trade.
Not so positive
Is HFT bona fide innovation?
HFT firms are not liquidity providers, but liquidity takers [and quote spammers too]
No, I don’t think it is.
True innovation involves a rethinking that adds value over time, not just speeding things up to clip basis points for today — and in a business where we are stewards of the capital of others, it should lead to benefits for the many rather than for the few.
I’ve been following @ResearchPuzzler since July 2010, long before OWS. This isn’t a face-saving, or hide-preserving, quick change of attitude. @ResearchPuzzler’s website has no advertising, no (fee-based) subscriber newsletter. He is a C.F.A., not a C.P.A., but he’s rarely off the mark.