April Fools joke highlights how high frequency trading is no laughing matter: High frequency trading is the Wild West of our financial markets: opaque and unregulated. Sound familiar? It should because in many ways it’s like the OTC derivatives market before the 2008 financial crash. Every day, firms and big banks on Wall Street use high speed computers with special algorithms to maximize short-term profits, moving tens if not hundreds of billions of dollars in the blink of an eye around the globe, with billions being moved from the pockets of investors into their accounts with no apparent value added.
We saw the impacts of high frequency trading last week when Tesla issued an April Fools day press release in the final minutes of the trading day, joking that the company was going to launch the so-called Model W. We humans read the entire press release, saw that the Model W was really a watch, and understood that the entire thing was just an April Fools joke. But computers can’t take a joke. The computer algorithms used to make high frequency trades sent Tesla’s stock on a rollercoaster ride in a matter of seconds. In the minute following the announcement, “nearly 400,000 shares traded in that time, and it was the heaviest one minute of trading volume in the stock since the opening 60 seconds of trading on Feb 12.” A report in Bloomberg View estimated that, “this joke added — very briefly, sure — more than $100 million to Tesla’s market capitalization.”
This is just the latest reminder about how high frequency trading continues to erode investor and public confidence. Too often, regulators have been AWOL as high frequency trading highjacks our capital markets and saddles investors with enormous risks while Wall Street and its allies get all the rewards. The Securities and Exchange Commission recently released a proposal to require high frequency traders to register with a national securities association. This is a positive first step, but only one of many that markets and investors need, including the derivatives markets where high frequency trading is moving. We need securities and derivatives regulators and policymakers to finally get serious about curbing the dangers of predatory high frequency trading to protect investors, retirees and our markets.
Wall Street allies using Financial Literacy Month to further their own agenda: April marks Financial Literacy Month, a time for Americans to take control of their finances and ensure they’re on track to meet their goals, like saving for retirement, buying a home or getting an education. But industry and their allies are using this as just another opportunity to give Americans more false spin about Wall Street and their deceptive tactics.
In a must-read piece out this week, Susan Antilla outlines how groups like the Securities Industry and Financial Markets Association (SIFMA) – one of Wall Street’s biggest lobby organizations – are giving consumers more industry spin under the guise of financial literacy. After all, SIFMA is the same organization currently fighting the Department of Labor’s proposed rule to protect Americans’ retirement security. They’re claiming to work in the public’s interest but they’re really working to protect Wall Street’s interests.
Antilla put it well when she said, “You’d be fooling yourself in any event to expect meaningful education from interested parties like Wall Street lobbyists or credit card companies.” So don’t be fooled. To get the facts during Financial Literacy Month, click here for resources that are free of industry’s spin.
Re-framing the debate on excessive speculation: Before the most recent re-opening of the comment period for the Commodity Futures Trading Commission’s long-awaited position limits rule ended last week, Better Markets weighed in, re-framing the debate about excessive speculation and the glaring exclusion of Commodity Index Funds from speculative limits. Better Markets has submitted a number of comments and completed independent research on the issues surrounding excessive speculation in the commodity derivatives markets, which can be found here.
Better Markets in the News:
Investor Help List — Staying Informed and Knowing Where to Go for Help: TheStreet by Susan Antilla 4/7/2015
SEC’s White Supports Fiduciary Rule for Brokers, Third-Party Audits: ThinkAdvisor by Melanie Waddell 4/02/2015
News You Don’t Want to Miss:
Looking to Get Financially Literate? Don’t Expect Business “Educator” to Help: TheStreet by Susan Antilla 4/3/2015
Can Wall Street Kill a Fiduciary Rule?: HuffPost by Barbara Roper 4/03/2015
Warren Buffett’s mobile home empire preys on the poor: Public Integrity
Hanergy: The 10-minute trade: Financial Times by Miles Johnson and Gavin Jackson 3/24/2015