It’s taken a while but our second podcast, a discussion with Sal Arnuk about high frequency trading, is now live.
(You can find our first podcast with Michael Pettis, on the Chinese economic model, here.)
For those of you not familiar with Arnuk, he’s the co-head of Themis Trading and has been raising concerns about High Frequency Trading (HFT) for a few years now.
We decided to have him as a guest after seeing his excellent presentation on the topic at The Big Picture Conference (tip of the top hat to Josh Brown and Barry Ritholz for inviting us). We’ve posted the slides from that presentation in the usual place.
The conversation was fun but ran a bit long. So in addition to giving you the link and asking that you subscribe to the podcast, we’ve also embedded shorter excerpts below.
Here’s the main file (we’ve had trouble getting this to show up in RSS, so you might have to click through to the post, sorry)…
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And a smattering of excerpts from the interview is below in case our readers want to head straight to a particular subject.
We started by listing Arnuk’s worries as we understood them so that listeners would have a sense of where we were going.
Among them are that high frequency trading firms contribute to liquidity problems in times of stress; contribute to higher volatility and correlations; increase the chances of another flash crash or of exacerbating a crash caused for other reasons; and transparency and fairness issues.
Then the Q&A started. Here are audio clips of some of the exchanges….
1) Arnuk on the various trading strategies used by high-frequency trading firms:
2) A list of ways in which the trading infrastructure has changed in the last decade or so, taken from this paper by Andy Haldane:
3) Arnuk on what caused the fragmentation of trading markets in the last decade…
… and more on Reg NMS and other regulations that led to the current trading environment:
4) Two clips on how exchanges use investor information. Arnuk refers to this Themis white paper in his comments:
5) Arnuk on the role of HFT in the Flash Crash, and the potential for another:
6) On the merits of a Financial Transactions Tax:
7) On how HFT firms are starting to consolidate and “eating their own lunch”:
Arnuk’s response to criticisms of his point of view, including from academic studies that defend high frequency trading. He refers to this bibliography of HFT studies in his comments:
Related link:
Introducing Alphachat, the FT Alphaville podcast – FT Alphaville