January 25, 2010
There are many who contend that increased trading volume (via whatever means, including HFT) increases liquidity and therefore efficiency. That may be so, but market efficiency cannot be considered such a celebrated goal of regulators and certainly not of the champions of Democracy: Congress.
As (High Frequency and other modes of) trading becomes more and more profitable, more and more of the invested billions of pension funds, 401Ks and IRAs, are legally siphoned off by these fast "middle-men". They sweep the 'excess' efficiency right into their personal bank accounts - this is no social service. Just because it can (technically) be done, doesn't mean we, as a society, need it.
The ostensible 'efficiency service' provided by these HFT (and other) systems serve neither the long term nor short term goals of American society that sees stability and predictability as far more important. The average woman or man, we 'little guys' - some 200 million of us, would gladly refuse a little efficiency in the rather slower pursuit of a shared increasing affluence that we are willing to wait, and work for.
Clearly the ability to monitor these extremely complicated and sophisticated systems has to be a first priority - also, new monitoring systems must be instituted if we hope to stem the tide of rampant (anti-social) deceit and fraud perpetrated throughout (it seems) many financial entities. Transparency - sunshine - can make a difference
Lastly, the "uptick rule" would 'smooth' out the ride a bit, although i can't see how it might be implemented today - surely not as it was applied several years ago - systems have changed too much in these last years. In any case, some similar method should be devised.