Archive for » April, 2012 «

16
Apr
HiFrequency Trading Creates a Mirage of Liquidity – Andy Haldane

At the conference Paradigm Lost : Rethinking Economics & Politics organised by Institute for New Economics Thinking, Andrew G. Haldane, (Executive Director, Financial Stability, Bank of England) presented about Financial Arms Races

He talks about 3 Financial Arms Races

  • Return Races
  • Speed Races
  • Safety Races

Discussing on Speed Race, he talks about Race to Zero (Trade Execution times from about 10 minutes in 1970s to about 2 mins in 1990s to about microseconds today and possibly nano or even picoseconds in the future). He points out that for every trade executed about 60 trades are cancelled. Thus, he argues, High Frequency Trading (HFT) creates a mirage of Liquidity.

He says Speed adds to uncertainty in the market dynamics. And points out Flash Crash is not one off and several others have happened which we may not be well publicized. We may note here the recent incident in India last weeks where HFT was attributed for bringing down the market in few minutes

His public policy recommendations to address these are

  • Order Cancellation Restrictions
  • Market Maker Commitments
  • Market-wide Circuit Breakers
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14
Apr
Fed Chairman reflects on the Crisis & the Policy Response

Federal Reserve Chairman Ben S. Bernanke offered his thoughts on lessons learned from the financial crisis in a lunchtime keynote speech during the conference Rethinking Finance: New Perspectives on the Crisis, an event hosted by The Century Foundation and Russell Sage Foundation on Fri 13-APR-2012

In his keynote speech, Some Reflections on the Crisis and the Policy Response, Ben Bernanke says –

Subprime mortgages & housing bubble were the trigger while high leverage, unstable funding, deficient risk management & supervision were the vulnerabilities that led to the financial crisis

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