From Zero Hedge:As everyone knows all too well by now, High Frequency Trading is arguably among the key culprits for all that is wrong with our broken equity market, culminating naturally with the events of May 6, 2010. Therefore, it is not surprising that regulators in Europe, which now has a much more fair and efficient overall capital market than the US, "plan next year to introduce new rules to restrict the trading activities of these traders -- tech-savvy hedge funds that generate huge volumes of orders -- to prevent a repeat of last year's U.S. "flash crash"." However, since HFT is nothing but a cheap way to promote vapor-volume momentum, while frontrunning everyone in the process, it is only natural that Europe's banks would come out kicking and screaming in its defense: "Europe's top banks are warning global regulators against curbs on high-frequency trading firms (HFTs), insisting that so-called "market bandits" are vital for efficient markets...A panel of managing directors from major European investment banks told the Reuters Future Face of Finance Summit on Wednesday that punishing these traders was risky because they were a key source of liquidity that benefits all trading firms." Ah, "providing liquidity" - that universal euphemism for frontrunning, quote stuffing, inducing flash crashes and for pretty much every possible illegal activity, except for... providing liquidity. As for the fact that "market bandits" are "vital for efficient markets"... we'll just leave that one alone.
Some more on the dominance of the "market bandits" in current markets:
These traders use super-fast computers to engage in various trades such as "shaving" -- buying and selling in nanoseconds to chase tiny margins -- and often collect a rebate from the exchange for creating liquidity as they go.
More traditional investors worry such speedy traders are effectively engaging in a legal, computerized version of front running -- where firms glean information about rivals trading plans.
The regulators are considering rules to slow them down and impose extra risk management requirements on them.
High frequency traders have hit the headlines in the past year after being partly blamed by U.S. regulators for the "flash crash" on May 6, when the Dow Jones Industrial Average plummeted 700 points before rebounding in a matter of minutes.
A single, computer-driven sale worth $4.1 billion by U.S. money manager Waddell & Reed Financial Inc sparked a sell-off that was exaggerated and accelerated by the high frequency traders.
A panel of U.S. regulatory experts last month proposed a raft of rule changes, which included imposing extra fees on HFTs -- a suggestion the top U.S. securities regulator, the Securities and Exchange Commission (SEC), acknowledged on Tuesday.
"The idea of a fee on cancellations is one that we have been very informally talking about internally with certainly no proposal to look at or contemplate," SEC Chairman Mary Schapiro told the Reuters Future Face of Finance Summit in Washington.
And while regulators debate, the "market bandits" have moved a stap function lower, and instead of nano seconds, are now dealing in pico seconds.
A second is a long time in cash equities trading. Four or five years ago, trading firms started to talk of trading speeds in terms of milliseconds.
A millisecond is one thousandth of a second or, put another way, 200 times faster than the average speed of thought. In the time it took your brain to tell your hand to click on this article, a broker or market-making firm trading in milliseconds could fill hundreds of orders on an exchange.
Milliseconds, however, are now ancient history. In the past two or three years, trading speeds have been shaved down to inconceivably tiny increments: from milliseconds to microseconds, and more recently to nanoseconds.
But in recent weeks trading geeks have started to talk about picoseconds in what is a truly mind-boggling concept: a picosecond is one trillionth of a second. Put another way, a picosecond is to one second what one second is to 31,700 years.
Speaking at a London conference on Tuesday, Donal Byrne, chief executive of Corvil, a high-speed trading technology company, caused a ripple of audible incredulity throughout the room when he suggested that trading speeds would likely be reduced to picoseconds in the not too distant future.
Why the need for picosecond trading? Why to frontrunning you better of course.
The answer is simple. Firms that trade super fast effectively put themselves at the front of the trading queue and have priority over other orders. This position gives them better information on the trading behaviour of other investors and allows them to react faster.........read on
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