Sauter on HFT, Santoli on investor "knowledge"

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VennData
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Sauter on HFT, Santoli on investor "knowledge"

Post by VennData »

Sauter, whose firm does not engage in high-frequency trading, said he does not begrudge these traders the profit. By making their money in small increments, high-frequency traders have helped narrow spreads — the difference between what traders spend to buy a stock and the price at which they sell it to investors.

The increased liquidity and and tighter spreads have contributed to a 50 percent decline in transaction costs during the past decade at Vanguard, saving the firm’s clients millions of dollars, Sauter said. High-frequency trading may not be the only reason for the drop, but it’s a significant factor, he said.
http://www.washingtonpost.com/business/ ... ory_1.html
In a fascinating pattern revealed in annual surveys by mutual-fund giant Franklin Templeton Investments, two-thirds of individual investors in 2010 answered that the stock market had fallen the prior year, when in fact it was up more than 25% in 2009. In both 2011 and 2012, half or more of respondents similarly claimed stocks were down the year before, when indeed the indexes had finished higher.
http://finance.yahoo.com/blogs/the-exch ... 00045.html

Gus Sauter points out the facts. Santoli cites surveys of "investors" beliefs. "Investors" ... let's call them "People with Extra Money who want to be Rich... but don't want to figure out how to invest, want someone to blame for their mistakes. "PwEMwwtbR-etc..." are lambs led to the slaughter. Wall Street is their abattoir.

Ignore the fear. Ignore the sales pitches. Let your index fund "worry" about HFT (who actually help you save money) and let someone else feed the publicly-traded Wall Street Firms in which you own a tiny slice and profit from each quarter as you slowly watch your wealth grow.
Last edited by VennData on Sun Oct 28, 2012 9:34 am, edited 1 time in total.
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Langkawi
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Re: Saunter on HFT, Santoli on investor "knowledge"

Post by Langkawi »

VennData wrote:Gus Sauter points out the facts.
Sorry but Andy Brooks of T. Rowe Price seemed more credible than Sauter. If the article is correct that HFT generates $1.25 billion in profits, that money isn't coming from thin air but rather from investor returns.
Sauter knows this but as with the other recent interviews he's given, it's clear he's campaigning for a lucrative Wall Street position.
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wshang
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Re: Saunter on HFT, Santoli on investor "knowledge"

Post by wshang »

HFT profits have more credible sources other than 'thin air'. While there are some specific aspects where they compete unfairly with market makers, cancel orders or front run orders, they do serve to functions akin to Walmart reducing overall prices in a neighborhood. IMHO, most of the criticism of HFT misses the mark entirely. Narrowing the bid/ask spread is one area where there's not too much controversy.

HFT's are running up against two major problems: The Prisoner's Dilemma (caused by other competing HFT's) and the high cost of doing business (high human and computing costs). The efficient frontier of HFT profitability has in all likelihood been reached. Those seeking to create a regulatory solution are likely to be as successful as Dodds-Frank. (Good grief!)
The cure shouldn't be worse than the disease.
Nathan Drake
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Re: Saunter on HFT, Santoli on investor "knowledge"

Post by Nathan Drake »

Langkawi wrote:
VennData wrote:Gus Sauter points out the facts.
Sorry but Andy Brooks of T. Rowe Price seemed more credible than Sauter. If the article is correct that HFT generates $1.25 billion in profits, that money isn't coming from thin air but rather from investor returns.
Sauter knows this but as with the other recent interviews he's given, it's clear he's campaigning for a lucrative Wall Street position.
How have you come to the conclusion that Gus wants a lucrative Wall Street position?
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
555
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Re: Saunter on HFT, Santoli on investor "knowledge"

Post by 555 »

saun·ter/ˈsôntər/
Verb: Walk in a slow, relaxed manner, without hurry or effort.
Noun: A leisurely stroll: "a quiet saunter down the road".
Topic Author
VennData
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Re: Saunter on HFT, Santoli on investor "knowledge"

Post by VennData »

Langkawi wrote:Sorry but Andy Brooks of T. Rowe Price seemed more credible than Sauter. If the article is correct that HFT generates $1.25 billion in profits, that money isn't coming from thin air but rather from investor returns. Sauter knows this but as with the other recent interviews he's given, it's clear he's campaigning for a lucrative Wall Street position.
But Brooks already has a high paying Wall Street job. In the other thread, Larry Swedroe agrees, HFT are good for the market, good for long term investors. And I agree with Larry and Gus.

HFT's computers don't watch CNBC. That is where you hear all the complaints.

'Retail leaving stocks' seems to me, day traders learning what floor traders learned a few years back, that the computers are better traders. Better traders make the market more efficitent. Goodbye day traders the HFT thank you for that $1.25B.

No one complained about floor traders 'taking money from investors' now they don't like it because they are computer driven? HFT make money by narrowing spreads. We don't know where that $1.25B came from, and Brooks thinks he does. How? These firms all made money trading, they can't anymore and complain. Don't listen to them, HFT is good for you, the long term investor.
BMannix
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Re: Sauter on HFT, Santoli on investor "knowledge"

Post by BMannix »

I think the discussion on HFT has been off the mark. I filed a comment this week with the SEC, arguing that (1) HFT really is inefficient, but (2) that doesn’t mean you need to regulate it, because (3) there is a technical fix that (4) should work even if it is voluntary. http://www.sec.gov/comments/4-652/4652-37.pdf
Easy Rhino
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Re: Sauter on HFT, Santoli on investor "knowledge"

Post by Easy Rhino »

I haven't even read your paper yet Brian, but thanks for registering and posting it!
edge
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Re: Sauter on HFT, Santoli on investor "knowledge"

Post by edge »

An interesting paper. I don't really care that much about the waste factor inherent in HFT. I am more concerned with computers turning into lemmings and all jumping off of the cliff together in the blink of an eye (or far less).

I am not sure this solves the lemming concern. To maintain liquidity you would have to make the randomized wait time be VERY short - far below human ability to game - which would make reacting/averting to the lemming problem a challenge.
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wshang
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Re: Sauter on HFT, Santoli on investor "knowledge"

Post by wshang »

Brian, nice commentary. Two comments, does your paper take into account the decreased commissions resulting from increased number of transactions? We (all investors) have benefited over the last couple of years from reduced commissions, presumably from competition from increased number of transactions. Also, decreased latency has pretty much reached physical and cost as well as limits imposed by physics- isn't this a moot point?
The cure shouldn't be worse than the disease.
Easy Rhino
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Re: Sauter on HFT, Santoli on investor "knowledge"

Post by Easy Rhino »

Brian, having now read your paper, I must say it's a good read.

However, it inspires the question, are you the person with the patent application pending for the poolq order buffering technology?
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