HFT, inept regulators & Fed distortion = more flash crashes
This podcast was recorded ten days ago. It’s publication was delayed a week due to last weekend’s annual Peak Prosperity seminar.
As luck would have it, we had Joe Saluzzi lined up to record a podcast the day the news broke recently that the suspected culprit for the 2010 flash crash, Navinder Singh Sarao, had been arrested. Saluzzi is co-founder of Themis Trading LLC, long-time cautionary on the dangers of high-frequency algorithmic trading, and co-author of Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street Are Destroying Investor Confidence and Your Portfolio.
In this discussion, Joe shares his suspicions about Sarao (a contributor to the crash, but highly unlikely to be the actual cause) and then provides his expert assessment of what has been done in the intervening years since the flash crash to safeguard the market against a similar failure (precious little). In his opinion, a winner-take-all high-tech arms race, clueless and toothless regulators, and central bank price distortion are conspiring to make us more vulnerable — not less — to another systemic breakdown:
What’s happened is the markets have evolved and they’ve obviously embraced computerization and technology. Some things have been very good for the markets and brought down cost. But regulators don’t seem to have evolved. They don’t seem to have caught up with times and they don’t necessarily have the eyes and ears out there to monitor things on a micro-second or nano-second level.
This post was published at PeakProsperity on Sunday, May 3, 2015,.