Jeff  Carter

Knight Trading just got a massive bill. Zerohedge has the article here.

We all know something went horribly wrong in various NYSE-traded stocks today between 9:30 am and 10:15 am. So wrong in fact that the NYSE had to step in and cancel numerous trades in 6 symbols. However it did not DK millions of other trades in 134 other symbols, the vast majority of which we assume traded errantly due to the market making of Knight Capital (as admitted by the company), which today saw its biggest drop ever since going public on volume about 60 times greater than its average.

HFT the way it is presently structured is wreaking havoc on our marketplaces.

Electronic trading is not a bad thing. In fact, done correctly it’s great. It allows more people to have cheaper access to the marketplace. But days like yesterday, days like the Flash Crash illuminate the fractured marketplace we have today.

The power brokers today don’t have an economic incentive to change anything. For the average investor, does it matter if a flash crash happens? Depends. If they don’t trade individual stocks, and just don’t trade period, it doesn’t. The daily stock market gyrations are nothing but a sideshow to their lives. They are busy doing other things. They are worried about the macro. The average investor knows if the broad economy grows, the stock market will be higher when they want to sell it.

But, for the people that manage the money of the average investor, the way the market works today is hellish. Imagine how the union pension fund manager feels when they try to unload a position and some HFT algo clips them. Not only does the HFT algo clip them, but their investment bank clips them too! “Hey, but you get to trade commission free.”!!

When big investors begin to lose confidence in the marketplace, an insidious spiral begins to take effect. That has begun to happen over the past number of years.

America was founded on free market ideals. Transparent free markets lead not only to economic freedom, but the core American values of liberty and justice for all. The free market doesn’t discriminate. Everyone has the same chance. Everyone can get ahead.

Jeff Carter

Jeffrey Carter is an independent speculator. He has been trading since 1988. His blog site, Points and Figures was named by Minyanville as one of The 20 Most Influential Blogs in Financial Media.