High frequency trading discussion on R4 this evening at 8:00

Lord Myners: "I have been increasingly troubled that we seem to find ourselves in a situation in which shares are to be bought and sold rather than being part of an ownership relationship between investor and a company," he said.

"The danger is that nobody really seems to think of themselves as owners."

Companies could become the "playthings" of speculators because of super-fast automatic share trading, Treasury minister Lord Myners has warned.

The peer, a former fund manager, told the BBC this was one of the main dangers of such a system.

High-frequency trading (HFT) is automated dealing where shares change hands, frequently in microseconds.

Lord Myners said the process risked destroying the relationship between an investor and a company.

HFT is based on computer programmes which, in effect, remove the human element from share transactions by searching for trends in the market and trading automatically in a fraction of a second.

It is estimated that HFT has risen sharply in the USA and now accounts for up to 70% of all share trades and is rising rapidly in the UK and Europe.
http://news.bbc.co.uk/1/hi/business/8338045.stm

this one is old, I ve found it in my folder

Great article - what I took away from it personally is that the problem largely goes away if the buy side get their sh*t together. Problem is, they way those firms compensate, they rarely attract the talent of a sufficient calibre to see their firm compete with the sell side in this algorithmic arms race. But have no doubts - this stuff is here to stay so Myners and his ilk can sqwawk about it 'not being cricket' to their hearts content and it won't make a blind bit of difference.

My $0.02

GJ

GammaJammer said:

Great article - what I took away from it personally is that the problem largely goes away if the buy side get their sh*t together. Problem is, they way those firms compensate, they rarely attract the talent of a sufficient calibre to see their firm compete with the sell side in this algorithmic arms race. But have no doubts - this stuff is here to stay so Myners and his ilk can sqwawk about it 'not being cricket' to their hearts content and it won't make a blind bit of difference.

My $0.02

GJ

Click to expand...

:smart:

I listened to the Sunday repeat of the R4 program about "high frequency trading".

I realise the program content has to be simplified to what the typical listener can understand so they probably left a lot out. I found their explanation of what it is all about totally unconvincing. They made it sound almost like front running of customer orders - which I presume it isn't as that would be illegal.

Also, if these algorithms are both price makers and price takers and their trading volumes are high then their combined effect should be to increase liquidity and reduce spreads which should be to the advantage of other market participants (offset perhaps by an increase in short term volatility).

Did anyone find the radio program convincing ?