In his book Flash Boys, author Michael Lewis alleges that high-frequency traders are using technology to intercept orders that big investors send to exchanges, forcing them to pay more or sell for less than they otherwise would have. At the 67th CFA Institute Annual Conference, investment correspondent John Authers “sampled the mood” of several leading investment figures on this controversial topic.
Simon Lack, CFA, author of The Hedge Fund Mirage, believes that there are elements of high-frequency trading (HFT) that “are sort of high-tech front-running” and believes “there should be one big singular pool of liquidity that is run as a utility.”
Former Federal Deposit Insurance Chairman Sheila Bair, who now chairs the Systemic Risk Council at CFA Institute and serves as senior adviser to the Pew Charitable Trusts, also counts herself among the concerned. Her solution: ban payment for order flow and impose assessments on cancellation orders to reduce HFT “clutter.”
Cliff Asness, co-founder, managing principal, and chief investment officer of AQR Capital Management, offers a more sanguine view: He believes that “most of HFT is market-making done in a modern way” and asserts that HFT has contributed to bringing trading costs down.
On this perhaps all can agree: “We need to make sure that proper incentives are in place for institutions to provide a fair, transparent, even playing field for investors to trade,” says Stephen Horan, CFA, CIPM, managing director of CFA Institute.
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