Jon Stewart Interviews Michael Lewis On High Frequency Trading

Buy Michael Lewis’ book Flash Boys on Amazon.

Although I agree that HFT is basically nothing more than ticket scalping, the solution of creating a new exchange that does not allow for HFT trading isn’t going to solve the problem.  This is because the HFT firms will simply rent space as close to the exchange’s server center as possible and still beat everyone else.

The upside of allowing HFT is that all of the players who can afford space on the exchange server itself get exactly the same speed.  When the exchange owner refuses to rent space to HFT operators, the guy with the nearest connection to the exchange server wins every time.

I think the only way this can be solved is by creating an exchange based on some kind of distributed computing network, like bitcoin.  The exchange servers themselves have to be decentralized in order to prevent a person with a fast nearby connection from front-running the market.

It’s also worth noting that there is nothing inherently ‘anti-market’ about ticket scalping. It may be unethical, but it doesn’t violate the non-aggression principle or property rights.

What really needs to be looked at is what happens to a firm whose trading algorithm causes their buying and selling of stocks to go haywire.  If that algo causes the firm to go bankrupt because it made outrageous trades, that firm should be held liable for every trade.  It should not be bailed out.