The SEC's recently issued "Concept Release" paints a distorted picture of equity markets, where innocent long-term investors are pitted against technologically armed and dangerous high-frequency traders (HFTs). The Commission's regressive views on technology are troubling. HFTs are the liquidity backbone of the market, and use technology primarily to compete against each other, not against long-term investors. As it is the case in all industries where firms use technology to automate their services, this has resulted in margin compression for liquidity providers and lower costs for consumers.
In finance, as in every other industry, technology confers a competitive advantage, not an unfair one. Nowadays, buy-side investors themselves increasingly use sophisticated algorithms to execute their trades. These algorithms employ the same data, signals, and tools used by HFTs. Characterizing such investors as disadvantaged, or preferring their algo's over those of HFTs, is sheer nonsense.
In fact, if regulators are truly serious about uncovering unfair advantages, they need look no further than their own regulations. SEC's Reg NMS (Regulation National Market System), which is the cornerstone of our national market system, is a case study in how HFTs can exploit regulatory inefficiencies at the expense of long-term investors.....