Just as Michael Lewis dissected the statistics of baseball, painting a picture of a side of the game rarely seen, Flash Boys has brought high-frequency trading (HFT) into the pale even without the inclusion of Jonah Hill and Brad Pitt.
While his most recent book has raised a bit of a furor, at the end of the day it hardly affects the average investor who may hold a stock for years. Nonetheless, institutional investors of all shapes, sizes, and scruples have had their eyes opened a bit wider by Lewis’ investigations and writing.
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Who is Eric Noll?
ConvergEx Group LLC, which provides brokerage and trading-related services, did however take exception to the expose and recently conducted a survey of participants in the financial industry. ConvergEx’s study had 357 respondents, 233 of whom work at money managers such as mutual funds or hedge funds and 73 who worked as broker-dealers or bankers.
The survey was conducted from April 16-21, and has a margin of error of plus or minus 10 percentage points. The results were not unexpected.
Of those surveyed, over two thirds (70%) believe equity markets aren’t fair for all, while 51% went so far as to call HFT “harmful” or “very harmful.”
“Our customers, which are primarily large institutional investors who represent pension funds and mutual funds, view what they do as critical to the investor base,” Eric Noll, chief executive officer of ConvergEx, said by phone today when contacted by Bloomberg News.
Those that responded seem to believe that “the markets have been designed in a way that diminishes their role as a market participant and hurts their ability to represent their clients in favor of proprietary trading and, quite frankly, sometimes individual investors at the cost of large institutional investors,” he said.
Earlier this month, Lewis compared large investors to tourists participating in casino games that were fixed. A view that many small investors and Wall Street haters surely relished hearing when he spoke to Bloomberg Television.
Following the publication of Lewis’s book on March 31, the FBI and New York Attorney General Eric Schneiderman ramped up their investigations of the practice. While U.S. Securities and Exchange Commission Chairman Mary Jo White said on April 10 that her agency is scrutinizing high-frequency trading (HFT) and traders she still maintains that the markets aren’t fixed.
“There’s a very strong sense from the buy-side community that maker-taker in of itself is a flawed incentive system and that those flaws are at the root of everything else,” Noll said. The opinion is that it “causes people to behave in ways that are not conducive to good market structure.”
Nothing shocking there, I’ll save you the part where I waste words suggesting that brokerages put their interests ahead of their clients.