Matt Levine, Bloomberg, High-Frequency Trading May Be Too Efficient, here.
If by some ghastly mistake I were put in charge of regulating the world’s financial markets, my first order of business would be to find an organizing principle or slogan or whatever to direct my regulating. “Fairness” and “transparency” and “looking out for the little guy” seem to be popular slogans for the world’s actually existing market regulators, but I think my slogan might be “the Grossman-Stiglitz paradox.” This is the idea that if markets are efficient — if market prices accurately reflect all the information in the world — then there’s no incentive for anyone to invest any time or money or effort into finding more information. And if no one goes looking for information, then there’s no way for market prices to be accurate.
Cliff Asness, WSJ, High-Frequency Hyperbole, here.
A few nights ago, CBS’s “60 Minutes” provided a forum for author Michael Lewis to announce that Wall Street is “rigged” and for the sponsors of a new trading venue called IEX to promise to unrig it. The focus of the TV segment was high-frequency trading, or HFT, an innovation now over 20 years old.
The stock market isn’t rigged and IEX hasn’t yet generated a lot of interest. In our profession, what we saw on “60 Minutes” is called “talking your book”—in Mr. Lewis’s case, literally.