If I locked a three year old in a frigid damp room to the point of hypothermia, or took a 3m old baby into a blast freezer, most people would suggest that at least I needed counselling in parenting, if not active intervention by child services and police. Saying “its for the glory of god” would really not cut it. So why would we give a pass in another circumstance?
Category Archives: Blogpost
Generally, if something seems too good to be true then it probably is- Hence my concern with the new online honours digital degree thing offered by the Digital Skills Academy. Continue reading
A couple of weeks ago the NYSE, the largest and perhaps the most influential stock exchange in the world, was closed for a few hours. And nothing happened. The global economy went chugging along without a problem. Perhaps the time has come to consider whether we need to have trades taking place in time intervals measurable only by CERN and comprehendible only by Dr Who.
A further , related issue is that when we think of the stock exchange we are not thinking of the whole market by any means. Just as in other areas stock traders are increasingly resorting to trade in what are called ‘dark pools’, trading centers outside stock exchange rules and regulations. Some studies put the volume of stock traded on these in excess of 40%. The ultra high frequency trading game, characterised by some as an arms race, may exceed 30% of all trades made on exchanges.
While the consensus of research is that there are undoubtedly private, individual gains to be made from shaving a nanosecond here and a millisecond there in executing share trading, the consensus is also that the social benefit is very hard to find if it exists at all. To some extent high frequency trading does increase liquidity of stock transactions, and increases pricing efficiency measures. However, a question that can be legitimately asked is whether or not this matters. Economically, if we are spending hundreds of millions on something that doesn’t yield an overall economic or social benefit then it is wasted expenditure.
Some research suggests that this high speed game is exactly that- wasted. There is some evidence that high frequency trading is associated with increased quote stuffing (submission of lots of offsetting orders to increase congestion and thus advantage the first mover) and increased volatility. There are, in economic terms, externalities with respect to high frequency trading.
Given all this, it may be time to consider slowing down the pace of financial trading? If there is little social benefit, and if the economic benefits are unclear, and I have we got ourselves into this “arms race”. A number of proposals, and analysis, have emerged over the last couple of months which address the extent of which financial trading could be slowed down without any loss of liquidity, and a proposed new methodologies and approaches to ensure that financial training can continue. In essence the proposals are that instead of trade is being processed as they arrive, but on the problems noted above, that they be processed perhaps once per second. Trades would still be executed in the order in which they arrived, so there will still be a significant incentive for companies to invest in high speed trade positioning. But the actual trades themselves would only be executed once per second. That’s still nearly 25,000 opportunities to trade per day.
It is unclear as to whether or not this is possible; it would require coordinated regulatory change on a global basis. Just as a financial transactions tax, a great idea in principle, founders on the rock that so long as one major player opts out then a world where there is a financial transactions tax will see trade is moving towards the area where there is no, so too in an environment where ultra high-speed trading is slow down it requires all major players to agree. Now the Greeks are down a game theoretic finance Minister perhaps he might be available to design the regulatory coordination mechanism…
This is an extended version of an Irish Examiner column
The proposal by the German finance minister, and agreed to by others, that Greece take a five year break from the Eurozone is astounding. Its not so astounding that a man who has been musing on this for years has now tabled it. Schauble has as far back as 2012 been wanting this. What is astounding is that he had the gall to table it at the Eurogroup. Given that the Eurogroup is self admittedly a body with no legal basis or structures, I suppose they can do whatever they want. But when it’s a group of finance ministers musing on something ultra vires we should be concerned. And what they are doing, or proposing to do, is exactly that. Continue reading
Greek myth, which is in case you missed it full of tragedies, is the cultural mine that keeps on yielding for the present crisis.
The last week has seen a boom in one area of human endeavour, the utilisation of metaphors drawn from Greek myth to describe the present state of play in the Hellenic Republic. That Greece has been undergoing a slow motion tragedy, now accelerating, is undoubted by (almost) all commentators. A modern, developed, European, democratic country is devolving before our eyes into one where malaria and tuberculosis are making an unwelcome return, a laboratory for failed economic experimentation in which the hapless citizens are the denizens of the monetary petri dish.