Charles Schwab Calls High Frequency Trading A Growing Cancer | Exploring Markets

Charles Schwab Calls High Frequency Trading A Growing Cancer

Charles Schwab has an opinion about high frequency trading (HFT) and it's really ugly.

Charles Schwab is one of the largest brokerages in the world and that is why it's vastly important to see what they have to say about the trading scheme that impacts them daily.

In a press release, they called high frequency trading a "growing cancer." These are the 9 bullet points you have to see:
  1. "High-frequency trading has run amok and is corrupting our capital market system by creating an unleveled playing field for individual investors and driving the wrong incentives for our commodity and equities exchanges. The primary principle behind our markets has always been that no one should carry an unfair advantage. That simple but fundamental principle is being broken." 
  2. "High-frequency traders are gaming the system, reaping billions in the process and undermining investor confidence in the fairness of the markets. It’s a growing cancer and needs to be addressed. If confidence erodes further, the fuel of our free-enterprise system, capital formation, is at risk. We can't allow that to happen."
  3. "As Michael Lewis shows in his new book Flash Boys, the high-frequency trading cancer is deep. It has become systematic and institutionalized, with the exchanges supporting it through practices such as preferential data feeds and developing multiple order types designed to benefit high-frequency traders. These traders have become the exchanges favored clients; today they generate the majority of transactions, which create market data revenue and other fees."
  4. "High-frequency trading pumped out over 300,000 trade inquiries each second last year, up from just 50,000 only seven years early. Yet actual trade volume on the exchanges has remained relatively flat over that period."
  5. "High-frequency trading isn’t providing more efficient, liquid markets; it is a technological arms race designed to pick the pockets of legitimate market participants. That flies in the face of our markets’ founding principles."
  6. "Last year, more than 95 percent of high-frequency trader orders were cancelled, suggesting something else besides trading is at the heart of the strategy. Some high-frequency traders have claimed to be profitable on over 99 percent of their trading days."
  7. "HFT Professionals are mining the detailed data feeds made available to them by the exchanges to sniff out and front-run large institutions (mutual funds and pension funds), which more often than not are investing and trading on behalf of individual investors."
  8. "Make the fees high enough and they will eliminate high-frequency trading entirely. But if the practice is simply a scam, as we believe it is, an even better solution is to simply make it illegal."
  9. "Exchanges should be neutral in the market. They should stop the practice of selling preferential access or data feeds and eliminate order types that allow high-frequency traders to jump ahead of legitimate order flow."

    - Read the full press release from Charles Schwab about HFT right here