Amid the debate on U.S. market structure, the Chicago Tribune editorial board is urging regulators, lawmakers and industry leaders to recognize the many benefits technology and high frequency trading have brought to the marketplace:
Chicago was once famous for the open-outcry trading floors in which people stood shoulder-to-shoulder, buying and selling by scribbling down trades on paper cards. Computerized trading has pretty much stamped out that form of business….
Computers eliminated the floor trader’s insider advantage. That opened the markets to a wider world. Trading volume soared, much of it from the high-frequency traders.
Not only is high frequency trading making the markets more efficient and transparent than ever before, the editorial rightfully explains the competitive advantage automation technology provides to U.S. businesses and traders:
Approving rules that would drive the high-speed traders out of business, or slapping on a transaction tax that would strip the profit from their high-volume, low-margin trading, as some critics of high-speed trading have proposed, could stifle innovation, push a U.S.-dominated business offshore and, perversely, boost the cost of trading for everyday Americans.
The U.S. financial markets need the freedom to innovate. If they lose that freedom, competitors will supersede them in London, Tokyo, Hong Kong or who-knows-where. Competition has already made high-speed trading less profitable today than it was just a few years ago, as rival market participants invested in new technology and systems to counter the flash boys. Finance is not returning to the days of spit-drenched, open-outcry trading pits. Nor should it.
To improve the markets for end investors, they argue, a more holistic review of market structure is needed:
…No one in the securities industry seriously believes the flash boys should get a special advantage over other traders and investors. The question always has been how to encourage the high-speed traders’ contribution to efficient markets while ensuring fair prices and orderly trading for all.
That requires a balancing of interests and, given the pace of technological change, a continuous review. The exchanges and their regulators have shown a willingness to change the structure and rules of their markets. It is to their credit that they take a holistic, measured approach, rather than trying to tweak a rule here and there every time a big bank complains about the prices it receives on its orders.
Read the entire editorial on the Chicago Tribune’s website here.