To a day trader, yes reg-nms and no uptick rule have added to increased intraday volatility. But to suggest these things (along with the ubiquitous evil short seller) have contributed to trillions of dollars of evaporated market value is idiotic. "The SEC took a giant leap backward on July 6, 2007, when it eliminated the uptick rule. See how the VIX jumped out of a three-year base just two weeks later and has never looked back." Funny how that time frame also correlated with financial institutions suddenly springing multi-billion dollar write downs on the market. The vix reflects the risk premium people are paying to insure against future market losses. Using Farley's logic, if we were still trading in 1/8ths through specialists, the dow would be a lot higher.
Thanks for posting this article. I don't read thestreet.com any longer, so otherwise I would have missed it. Farley makes some good points, but his Luddite point of view has some holes in it. Without the changes he describes, the bots and black boxes would not be so prominent. Obviously, the market volume has increased exponentially, far, far above what one would expect otherwise. But are these changes necessarily bad? Don't black boxes--er, the humans that created them and run them--have the right to trade? Why penalize the creative, the opportunistic? I remember the 25 cent spread on MSFT, and now they split pennies. I traded back then, and I still do. Those of us who trade don't make the rules. Stocks now trade like commodities. They don't trade like stocks used to. So what should one do? Astute traders adapt. Indeed, long-term value managers and investors should welcome the changes that Farley describes, since they help create "bargains". Momentum tends to do that. My countertrend swing trading ETF system, which holds for 2-5 days, has never made so much money. Clearly, it's not that the system is any better. It is the volatility which is higher, and some of that increase is likely due to the black boxes, but in this, the worst, most uncertain economy sicnce the 1930's, I'd be surprised if the VIX weren't much higher than it was in 2001. The real test for Farley's thesis will be what happens during a raging bull market. If he is right, then the next bull should be a giant. I don't see any public outcry over that!
It's easy to say that Farley's thesis is sour grapes, but I doubt it. Extreme volatility does in fact lead to lower prices. More risk requires more reward, thus, a lower price to take on the trade. If the boxes are aggravating an already dire situation, then some of the blame is justified. Nothing is 100% to blame here.
A fair amount of new regulation is coming.....most likely driven by pension funds, college endowments etc etc....they are getting killed with the volitility..... No need to bring back uptick rule as .01 spread makes it difficult... Fed just doesn't allow margin on shorts....enforce locate rules.. I assume Fed could just not allow margin at all....long or short ALL financial entities are going to be under a new regulator...control leverage.... Feds have influence over pensions as we guaratee them....set strict rules on where, and who, they can invest with Instituions don't loan stock out for shorting..... My guess is that Feds are working on a criminal case against a couple of hedge funds for collusion on BSC, most likely.... Nothing like a good old 10 year Fed prision sentence to get everybodies attention..... It happens everytime there are abuses with the system.....somebody went over the line and will serve time... IMHO SteveD What if SEC just had eveybody, pro and non-pro, at 50% margin...or worst yet, transaction had to clear (T+3) before you could use that money...
After they reversed the uptick rule, volatility seemed to spike up....Program trading, and ECNs with no human middlemen... But those are all US specific regulations. It doesn't explain the volatility in the other exchanges across the world that do not have US specific regulations, like China, Russia, etc.
that was spot on-collusion by the big traders-its not called investing-its straight up robbery for the little guys-the bots are created to steal (real investors)money-by way of shock and awe with their trading bots-we all need R2D2's to compete!you know they are spending millions if not billions on these fancy trading programs-but when you are a big institution you pay very little if any money because of how much volume they create in the (not free) marketplace-that is why i am cash-costa rica properties lookin good lewis
todays action a perfect example of the horseshit that passes for a market these days. even though theres a perverse logic to it, its unpleasant as hell to trade. just my take
Farley doesnt have a clue. The entire global banking system is collapsing. Look at the vol in the thirties the last time it happend. No black boxes then.
what a crybaby, volatility will come down more than anyone of you is asking for after this fundamentally induced mess is over.