Notes From the Fieldby Martin Weil

March 31, 2014

Yes, Investors Should Be Up in Arms

On “60 Minutes” last night, author Michael Lewis made a bland assertion: High-frequency traders, he said, working with U.S. stock exchanges and big banks, have rigged the markets in their own favor. The only surprising thing about Lewis’s assertion was that anyone could be even remotely surprised by it.

Barry Ritholz, author of the above quote, goes on to explain how The Securities and Exchange Commission has licensed High Frequency Trading firms to essentially steal pennies from every trade on the major stock exchanges. Yes, there is a theoretical benefit to this system of legalized front-running. But it has not proven to have much, if any, value in actual practice.

They are the centerpiece of a flawed system without any socially redeeming qualities.

As I have said all along, while the theft of minute amounts from individual investors should obviously be outlawed, the damage from sanctioning this corrupt behavior is immeasurable to the brand image of the US capital marketplace.  With global competitors from London to Hong Kong, and Sinagpore to Dubai, integrity and the strict rule of law were the supreme competitive advantages for Team USA.  Those longstanding advantages continue to be wastefully squandered by misguided Congressional policies, from the deregulation of derivatives trading in 2000 to the present lack of constraints on high frequency trading systems.

Hopefully, there will be enough outrage over the 60 Minutes segment and Lewis’ new book to empower our more ethical defenders of consumer rights in Congress (I am talking to you, Senator Warren) to enact legislation that reigns in this noxious business practice.

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