The US Justice Dept announced on Friday that it’s probing high frequency trade. Earlier in the week, the FBI said the same.
It’s great that the criminal justice system is looking into market fairness but it’s embarrassing that it comes after Michael Lewis wrote a book and said “the market is rigged” on 60 Minutes. The justice system should lead, not follow after it’s whipped up by some self-publicising author who knows perfectly well that there are upside and downsides to high-frequency trading for retail investors.
Ultimately, trading at high speeds with computers can’t be stopped in most markets. I don’t even think it’s front running — someone is always going to be fastest.
If anything, change should take place at the exchanges. Offering rebates for providing liquidity is the seed of many of the problems. Still, I haven’t heard of a solution that maintains enough liquidity.
Expect some show trails and more mock outrage but I don’t see how it will change anything for retail traders. In the short-term, you could see some jerky moves in markets as a few high-frequency firms shut down.