Yesterday’s #Hash-Crash has brought the tough reality of just how entirely mechanized the so-called equity ‘markets’ have become in the US to every mom-and-pop who watch nightly news. Mainstream media is even discussing the correlations between JPY carry trades and equity indices now as CNBC’s Rick Santelli notes “the high-speed casinos our markets have become”. All things we have discussed for years. But there is one potentially fascinating insight from the ongoing robotization of the TBTF banking sector – Wall Street jobs are now at an all-time record low. Once again, it would appear, that cost-cutting demands (and a government backstop and huge subsidy no matter how bad the things are that you do) trumps any job creation. As Joe Saluzzi explains to CNBC’s Rick Santelli in this excellent clip, the “liquidity is fickle” – the fake-tweet was a mere catalyst, he added, “we see these flash-crashes every day.” The benefits for the major exchanges far exceed the conflicts of interest of these so-called “market-makers” who front-run their clients millisecond by millisecond.
“The desire is to drive the cost of executing a trade to its lowest point — this means automating the system and getting rid of the traders.”
Santelli’s frustration on “the high-speed casino our markets have become”… “I can’t believe this continues to happen. I thought [this would stop] after the flash crash.”
Joe Saluzzi and Rick Santelli explain, in three minutes, what the SEC and CFTC seems incapable (or simply unwilling) of comprehending…
“We have all the diverse pools of liquidity that are real shallow – all owned by for-profit organizations like you mentioned. We used to have a market with deep liquidity with different types of investors. But now the liquidity centers get pierced easily because now it’s the same trader and a lot of scalpers. We’re seeing these flash crashes constantly and it’s due to the structure. There is no doubt in our mind that the market structure that we developed over the last 15 years which was basically started by the SEC in the mid 90s has created this type of situation.”
“Only 4% of the flow is coming from institutions – it’s volume that is fickle.”
So, let’s get this straight; HFT provides no benefit of liquidity when it is most needed (as was clearly shown yesterday); pays no commissions; creates job losses; and increases volatility. But apart from that – the exchanges earn fees on the co-location centers…
As Saluzzi notes, perhaps the ‘Stock’ Exhcnages should be renamed ‘Data’ Exchanges…
Chart: Bloomberg
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