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The markets have evolved at breakneck speed during the past decade, and change has accelerated dramatically since 2007's disastrous regulatory "reforms." An unrelenting focus on technology, hyper-short-term trading, speed, and volume has eclipsed sanity: markets have been hijacked by high-powered interests at the expense of investors and the entire capital-raising process. A small consortium of players is making billions by skimming and scalping unaware investors -- and, in so doing, they've transformed our markets from the world's envy into a barren wasteland of terror.
Since these events began, Themis Trading's Joe Saluzzi and Sal Arnuk have offered an unwavering voice of reasoned dissent. Their small brokerage has stood up against the hijackers in every venue: their daily writings are now followed by investors, regulators, the media, and "Main Street" investors worldwide. Saluzzi and Arnuk don't take prisoners! Now, in Broken Markets, they explain how all this happened, who did it, what it means, and what's coming next. You'll understand the true implications of events ranging from the crash of 1987 to the "Flash Crash" -- and discover what it all means to you and your future. Warning: you will get angry (if you aren't already). But you'll know exactly why you're angry, who you're angry at, and what needs to be done!
Foreword Former U.S. Senator Ted Kaufman x
Introduction 1
Chapter 1 Broken Markets 7
Why Has Our Stock Market Structure Changed So Drastically? 9
When Did HFT Start? 10
How Did HFT Become So Big? 13
Why Have We Allowed This to Happen? 14
Will There Be Another Market Crash? 16
Where's the SEC in All This? 18
Endnotes 21
Chapter 2 The Curtain Pulled Back on High Frequency Trading 23
What Is High Frequency Trading, and Who Is Doing It? 24
Market Making Rebate Arbitrage 26
Statistical Arbitrage 28
Market Structure and Latency Arbitrage 30
Momentum Ignition 32
How the World Began to Learn About HFT 34
The SEC's Round Table on Equity Market Structure-or Sal Goes to Washington 36
60 Minutes-or Joe Makes It to Primetime 40
Endnotes 42
Chapter 3 Web of Chaos 45
NYSE and the Regionals 48
NASDAQ 49
SOES 50
Instinet 52
Problems for NYSE and NASDAQ 54
Four For-Profit Exchanges 56
Conflicts of Interest 58
Fragmentation 60
The Tale of the Aggregator 62
Endnotes 65
Chapter 4 Regulatory Purgatory 67
Early 1990s Change in Regulations 68
Late 1990s Regulations-Decimalization, Reg NMS, and Demutualization 72
Early 2000s-Reg NMS 76
Endnotes 80
Chapter 5 Regulatory Hangover 83
The Flash Order Controversy 84
The Concept Release on Market Structure… Interrupted 87
The Band-Aid Fixes 90
Endnotes 94
Chapter 6 The Arms Merchants 97
Colocation 99
Private Data Feeds 101
Rebates for Order Flow (The Maker/Taker Model) 104
Not Your Father's Stock Exchange 107
Endnotes 108
Chapter 7 It's the Data, Stupid 111
Information for Sale on Hidden Customer Orders 113
Data Theft on Wall Street 115
The Heat Is On 117
Phantom Indexes 120
Machine-Readable News 121
Who Owns the Data? 123
Endnotes 124
Chapter 8 Heart of Darkness 125
The Birth of Dark Pools 127
Dark Pools Cross Over…to the Dark Side 130
How HFT Internalization in Dark Pools Hurts Investors 132
How Latency Arbitrage in Dark Pools Hurts Investors 133
What Else Is Being Done to Stop Dark Pool Abuse? 136
Endnotes 138
Chapter 9 Dude, Where's My Order? 141
How Algorithms Work: Making the Sausage 143
How a Smart Order Router (SOR) Works: Regrinding the Sausage 145
Complex by Design: What Would Major Do? 148
Endnotes 150
Chapter 10 The Flash Crash 151
Deregulation 154
Critics 159
This Is the New Marketplace 162
Endnotes 173
Chapter 11 The Aftermath 177
The Joint Committee Weighs In 182
The Abyss of Destruction 187
Endnotes 191
Chapter 12 Killing the Stock Market That Laid the Golden Eggs 195
Reversal of Fortune 200
The Window Is Open! Oops! The Window Is Shut! 203
Winds of Change? 204
A Blueprint for Effective Stock Markets 205
Alternative Views 208
The Case for Higher Cost Markets: The Stock Market Toll Paradox 211
Give Issuers Control over Their Tick Sizes 212
Call for a New Parallel Stock Market 213
Endnotes 214
Chapter 13 Call to Action 217
We Are Not Alone 219
There Is an Alternative 220
Fight for Your Rights 223
Raise Your Voice 226
Repair Our Broken Markets 229
Endnotes 230
Appendix Themis Trading Whitepapers 233
Index 289
Anonymous
Posted August 31, 2012
No text was provided for this review.
Anonymous
Posted April 14, 2013
No text was provided for this review.
Overview
The markets have evolved at breakneck speed during the past decade, and change has accelerated dramatically since 2007's disastrous regulatory "reforms." An unrelenting focus on technology, hyper-short-term trading, speed, and volume has eclipsed sanity: markets have been hijacked by high-powered interests at the expense of investors and the entire capital-raising process. A small consortium of players is making billions by skimming and scalping unaware investors -- and, in so doing, they've transformed our ...