The publication of Michael Lewis’ book Flash Boys early in 2014 brought high-frequency trading (HFT) to the attention of many investors for the first time.
Lewis was quoted on “60 Minutes” saying that HFT rigs the stock market against the small investor. Media made it known that the FBI – the folks who investigate drug dealers and organized crime – was investigating HFT.
Wenning Advice had posted frequently about the practice as early as 2011, warning about the distortion that high-frequency trading causes to market fundamentals, the predatory nature of high-frequency trading, the inequity of high-frequency trading, and the risk that high-frequency trading creates for all of us. We even pointed out that “Satan is a high-frequency trader.”
But what’s happened to HFT since 2014? And what happened to the FBI’s investigation of the practice?
HFT has not gone away. But it’s not what it used to be.
Rosenblatt Securities estimated that HFT trading volume fell from about 3.25 billion shares a day in 2009 to 1.6 billion shares in 2012. And TABB Group estimated that HFT revenues from U.S. equity trading declined from about $7.2 billion in 2009 to $1.3 billion in 2014.
So what happened? Was Lewis’ book outdated even before it was published? Did the FBI catch the bad guys? Are new regulations keeping traders honest?
First, it’s important to note that HFT is still alive and well. Even if it has a smaller share of the U.S. equities market, there are other countries and other securities to trade in. While HFT in U.S. equities may have dropped off, Read more