New Topic: High Frequency Trading – Splitting The Market?

Last topic started with the question: “Sovereign Debt – Just Take The Punch?” Point being will the best thing for countries in economic distress be to just default, restructure, go bankrupt like any other insolvent company and get over it? Over the summer its pretty clear that the answer is “yes.”

“Case closed.”


Not being an expert in anything, just trying to apply some common scene to things, I really can’t see any other way around the problem of rising national debt than to let some of it go. It ought to be possible for a country like Greece to file for chapter 11, or 13, or something, to make a fresh start. If today’s policy is not changed, the EU will have a sovereign debt/GDP ratio of more than 400% by 2050.

440%, to be precis, according to the latest analysis by The International Monetary Fund.

And the IMF adds: “The surge in debt in this scenario, however, does not even take into account the possible negative feedback effects that higher debt could have on interest rates and economic growth.”

Brace yourselves, this is not a pretty picture:

(Download the report here.)

“Decisive action is needed to turn deteriorating public finances around without hampering near-term growth prospects. Markets have recently shown increased concern for fiscal vulnerabilities in advanced countries. Such concerns undermine confidence and threaten the economic recovery,” IMF says.

However, if eventually such “decisive action” will be taken, is still an open end deal.

“It is overly optimistic to assume that this can continue forever. The conflict that opposes bond holders to other government stakeholders is more intense than ever, and their interests are no longer sufficiently well aligned with those of influential political constituencies,” Morgan Stanley analyst Arnaud Marès writes.

And points out: “There exists an alternative to outright default. ‘Financial oppression’ (imposing on creditors real rates of return that are either negative or artificially low) has been used repeatedly in history in similar circumstances.”

Morgan Stanley seem to to have arrived at the same conclusion as myself and many others.

“Ask Not Whether Governments Will Default, but How,” analyst Arnaud Marès states.

So, as far as the MoonTalk is concerned; case closed.

Will the HFT Split The Financial Markets?

Our nest topic is just getting hotter and hotter.

The so-called high frequency trading is starting to dominate the markets to a degree where the super fast computers at Goldman Sachs, Morgan Stanley, Deutsche Bank, and a handful of other supreme actors, are making it impossible for others to participate in the day-to-day trading.

However, it don’t seem right to put the breaks on the technological innovation, does it?

But neither is it fair that some traders get faster access to the markets, and to market sensitive information,  than other investors do.

This financial speed dating is ripping the market apart, many market participants warns.

Well, let’s rip it then…..

Divided Anyway

Why not split the markets in two – one limited part of the tradeable assets made available to for the mega-machines to play with, the other made exclusively  available to traditional investors through the traditional channels?

Some definitions of who belongs where have to be made, and there would have to be a limited room for judgment.

But, when the EU implemented the MIFID-directives a couple of years back, after the first round of financial turmoil, they divided a clear distinction between “professional” and non-professional investors.

You now have to certified as a “professional” investor, with a certain amount of knowledge, in order to trade more sophisticated instruments.

There is already a divided market in terms of intellectual capacity.

The development of trading systems are getting close to the speed of light.

Perhaps there should be a classification in terms of technical capacity, too?

Feel free to post comments and guest posts.


Filed under Laws and Regulations

6 responses to “New Topic: High Frequency Trading – Splitting The Market?

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