Who Benefits From Market Speed Bumps? The Exchanges

<p class="story-body-text story-content" data-para-count="159" data-total-count="159">Since the election, stock prices have risen sharply on hopes that a wave of pro-growth policies under Donald J. Trump will drive up equity prices even further.</p> <p class="story-body-text story-content" data-para-count="166" data-total-count="325">But Mr. Trump’s administration will soon face a trend that threatens to move the long-term benefits found in stock markets away from investors and toward exchanges.</p> <p class="story-body-text story-content" data-para-count="166" data-total-count="325">Continue reading in The <a href="http://www.nytimes.com/2016/12/23/business/dealbook/who-benefits-from-market-speed-bumps-the-exchanges.html?_r=0">New York Times</a></p> <p class="story-body-text story-content" data-para-count="166" data-total-count="325"><em>Holly A. Bell is an associate professor at the University of Alaska in Anchorage and a consulting scholar on financial market structure and regulation. She is also the author of the thriller <a href="https://www.amazon.com/Trading-Salvos-Kate-Adams-Novel-ebook/dp/B01H0OOUE0">“Trading Salvos.”</a></em></p>

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Fiscal Policy

Why a Financial Transaction Tax Is a Bad Idea

<em>This article was originally posted on TabbForum <a href="http://tabbforum.com/opinions/associate-professor-university-of-alaska-anchorage">here</a></em> By Holly A. Bell Former Secretary of Labor Robert Reich claims financial transaction taxes are simply sales taxes on Wall Street traders and won’t harm markets or cause capital to flee. Yet studies of FTTs in other countries show they harm Main Street and distort markets. Former Secretary of Labor Robert Reich recently produced a snappy video about why financial transactions taxes (FTTs) as proposed by Bernie Sander’s on the campaign trail should be retained and turned into law. Unfortunately, his pithy presentation is wrought with inaccuracies. He begins by modifying the language of FTTs by shruggingly telling us it’s just a sales tax. We pay sales taxes on many things and it’s only “fair,” he claims, that anyone who sells a stock should pay a tax too. Yet it’s not exactly like a sales tax. For one thing, it’s not transparent. When you go

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Stock Market

My latest on CNBC: Why the SEC should just say ‘no’ to IEX

<section class="cols2"> <div class="unit col1"><article> <div class="story"> <div id="article_body" class="content"> <div class="group-container "> <div class="group"> <div class="story-top"> <div class="story-header-left twoCol"> <div class="source">By UCLA Professor Avanidhar Subrahmanyam and University of Alaska Professor Holly Bell</div> </div> </div>   Since IEX submitted an application last year to the <a href="http://www.cnbc.com/sec/" target="_blank">SEC</a> to become a public stock exchange, a big debate has erupted about a seemingly small time frame — 350 microseconds. IEX's proposed exchange would implement an intentional delay of 350 microseconds to incoming and outgoing information, except for a few select order types. </div> </div> <div class="group-container "> <div class="group"> The debate has led the SEC to issue an interpretive release, which in short asks: Do delays under 1,000 microseconds pose a problem for equity market structure? In the short term, the answer will affect IEX's application to become a recognized national exchange. Long term, the answer could redefine the foundation of equity market structure. Here's our answer: Deliberately adding any amount of latency to the current market system would be

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The Potential Effects of Reg AT: Unintended Risks and Diminished Cooperation with Market Participants

Ill-considered regulation regarding algorithmic trading will adversely affect the ability of legitimate market participants to contribute to liquidity, price discovery, narrow spreads, and low trading costs. The CFTC shares with market participants a growing interest in algorithmic trading and its potential effects on the markets. Rather than working with market participants cooperatively, the Commission proposes a prescriptive regime applicable to virtually any firm that trades in the futures (and swaps) markets. If finalized, this proposal will establish an approach dominated by enforcement that will chill firms’ willingness to work with the Commission to address emerging problems in the area. In addition, by opening firms’ source code to unlimited inspection by the Commission and others, the proposal creates dangerous vulnerabilities for an asset of utmost importance to trading firms. <strong>To see full article click <a href="http://mercatus.org/publication/potential-effects-reg-unintended-risks-and-diminished-cooperation-market-participants">here</a></strong>

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…and then one morning you wake up and you’re a reference on Wikipedia

Life is weird sometimes. I had a pretty great week last week. I got to go to Chicago early in the week to speak at a conference on high-frequency and algorithmic trading and meet a lot of interesting--and frighteningly smart--people. I always enjoy getting my nerd on with other academics and policy wonks especially when combined with industry experts and a guy who started university at 14 and now builds neural networks to create artificial intelligence-type systems to trade stocks. For about 2 1/2 minutes I was even able to hold my own in a conversation with him about how his systems handle outliers in their outputs. Being in Chicago also allowed me to enjoy their freakishly warm 70-degree temperatures while Alaska was experiencing slick roads due to freezing rain and snow. Upon returning home I received another speaking invitation and an offer to be a guest on Reuters Global Markets Forum.

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HFT Regulation Requires Attention to Motives and Consequences

<h3 class="dek">What motivates countries to discourage HFT?<a href="http://www.professorhollybell.com/wp-content/uploads/2014/05/ID-100173239.jpg"><img class="alignright size-medium wp-image-2696" src="http://www.professorhollybell.com/wp-content/uploads/2014/05/ID-100173239-300x211.jpg" alt="HFT" width="300" height="211" /></a></h3> <p class="dek">"While there are several empirically demonstrated benefits of high-frequency trading, including improved liquidity and reduced transaction costs, the current arguments against HFT are largely qualitative in nature. With that in mind, what are the drivers behind global HFT regulation, and do they suggest a market failure attributable to HFT?"</p> <p class="dek">My article, previewed above, is available at <a href="http://tabbforum.com/opinions/hft-regulation-requires-attention-to-motives-and-consequences" target="_blank">Tabb Forum</a></p> <h3 class="dek"><a href="http://www.professorhollybell.com">Return to homepage</a></h3>

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HFT Regulation

An Analysis of Global HFT Regulation

<h2 class="p1"><a href="http://www.professorhollybell.com/wp-content/uploads/2014/05/ID-10068053.jpg"><img class="alignleft size-medium wp-image-2692" src="http://www.professorhollybell.com/wp-content/uploads/2014/05/ID-10068053-300x199.jpg" alt="HFT Regulation" width="300" height="199" /></a>Motivations, Market Failures, and Alternative Outcomes</h2> <p class="p1">"Recent market events like the “flash crash” of 2010, algorithmic failures at Knight Capital, and the <span style="font-size: 11.818181991577148px;">release of Michael Lewis’s book Flash Boys (2014)—with his claims that markets are “rigged”—have </span><span style="font-size: 11.818181991577148px;">heightened scrutiny of high-frequency trading (HFT) and increased demands for more aggressive </span><span style="font-size: 11.818181991577148px;">regulation. However, HFT has several empirically demonstrated benefits, and the current, largely </span><span style="font-size: 11.818181991577148px;">qualitative arguments against it call for careful scrutiny of proposed regulations.</span></p> <p class="p2"><span style="font-size: 11.818181991577148px;">In a new study for the Mercatus Center at George Mason University, Holly A. Bell and Harrison </span><span style="font-size: 11.818181991577148px;">Searles analyze the potential economic benefits of HFT and assess several proposed or adopted </span><span style="font-size: 11.818181991577148px;">regulatory schemes from around the world."</span></p> <p class="p2">The full study is available from the Mercatus Center by clicking <a title="An Analysis of Global HFT Regulation" href="http://mercatus.org/sites/default/files/Bell_GlobalHFTRegulation_v2.pdf" target="_blank">here</a></p> <p class="p2"><em>Holly A. Bell

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Why The Fed’s Monetary Policy is Failing

<h2><a href="http://www.professorhollybell.com/wp-content/uploads/2013/11/ID-100165710.jpg"><img class="alignleft size-medium wp-image-2622" alt="Debt" src="http://www.professorhollybell.com/wp-content/uploads/2013/11/ID-100165710-300x199.jpg" width="300" height="199" /></a>"There are studies that indicate that economic growth slows when public and private debt exceeds 260% to 275% of GDP. The U.S. hit the 260% level in 2000."</h2> <p>A recent paper by Hoisington Investment Management Company (<a href="http://www.hoisingtonmgt.com/pdf/HIM2013Q3NP.pdf" target="_blank">available here</a>) does an excellent job describing why the Federal Reserve is, and will continue to be, unsuccessful in its efforts to engineer economic growth by devaluing the U.S currency and attempting to increase inflation through persistent “Quantitative Easing”. They cite four factors:</p> <p>1)    <b>The Fed’s Forecast</b>: If the Fed’s forecasts were consistently right, we could have confidence that their actions might positively impact the economy. However, their forecasts for GDP and inflation have been “consistently above the actual outcomes”. They assume higher stock prices will lead to more spending because people feel wealthier if their portfolio is rising. This “wealth effect” has not occurred,

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