Highest Rated Comments

davidmanheim28 karma

"The SEC needs to hire more quants and fewer lawyers."

Only if they want to manage what may be an unmanageable problem. The truth will always be that if a regulator understand the market, they could easily multiply their salary by a factor of at least 2, and typically more like 10, by going to industry. The tide won't go back, shout as Canute may. (I worked at an I-Bank for a while, and the CFO, when asked about the auditors understanding of our complex transactions, was quoted as saying something along the lines of "I wish our auditors understood our business well enough to audit it - because then I could hire them for 10 times what they are being paid. We desperately need those people.")

Regulatory capture and the inability to regulate to to political pressure is the biggest issue facing any such body - and not to change subjects, but this is a campaign finance and income inequality issue.

davidmanheim17 karma

I'm not fully up to date on modern economic mechanism design, but I'm aware of the issues. Continuous markets are not, as far as I am aware, cannot be even theoretically incentive compatible or strategy proof - something that even having an auction every second would create.

Continuity of market prices is an illusion, based on economic assumptions that are demonstrably false. The increased liquidity has helped exactly one set of participants in the market - large firms that collect the fees, and do the automated trading. Economic policies that enrich these firms at the expense of retails investors and the physical economy seems like a strange thing to favor.

And if a firm needs sub-second liquidity in an asset in order to hedge thir exposure, it's because they are taking large risks that cannot be hedged in the market directly with derivatives. A firm with $1b in equity that has offsetting +/- $1 trillion in liabilities and assets is probably dynamically hedging themselves - liquidity masks this instability until a crash happens. Aren't these firms bad for economic stability? Wouldn't the economy be better off without them?

davidmanheim15 karma

"The stock market has proven an extremely resilient investment over the long term again and again."

This is a specious argument, with a bad data set to support it. It takes a time frame that is about 20% of the historical existence of anything called the US stock market, and says that this is a rule, instead of a coincidence.

The assertion isn't even true! It relies on using data that is not adjusted for inflation over the 1980s, and does not hold up to even basic analysis.

Even ignoring inflation, you are assuming that the situation won't change drastically. Look at global markets over any long time frame and you will see this is untrue - unless you believe in a strange version of American exceptionalism that not only are we the best, but we cannot ever decline.

davidmanheim14 karma

The clear implication is that the distance being discussed here is a percentage from the expected number, not the absolute number of differences from the expected value. I would think that is obvious, but I acknowledge that it is possible that there are people who would misunderstand it.

You clearly understand the subject, why can't you be charitable about how you read the passage? (If you're intentionally misunderstanding this passage, good job, I guess.)

davidmanheim11 karma

I would think that simply changing the execution of trades to occur at the end of every minute would eliminate the false price problem. This would destroy HFT completely, but would also create new transparency in the markets.