HFT Exposed: Market Is Not Fair; Little Guy Loses

Of all the questions on all the topics across all the market segments, the one that keeps being repeated by most investors — both institutional and retail alike — is the question regarding the fairness of the game.

That question and others were posed yesterday to James McCaughan who, as President of Principal Global Investors, just so happens to oversee the management of $300 billion and was interviewed by Tom Keene and Michael McKee on Bloomberg Surveillance.

Regarding market fairness in the midst of current high frequency trading practices, McCaughan does not equivocate in stating, “the market is not fair.”

In regard to our favorite punching bag, that being Wall Street’s self-regulatory organization FINRA, Keene inquires, “Will the industry take care of itself and police itself?” McCaughan eviscerates this premise in stating, “The industry won’t police itself because there are industry participants who make money from the imperfections and lack of regulation in the market.”

That statement directly echoes my own. On page 193 of my book, In Bed with Wall Street, I write: “FINRA and the other financial self-regulatory organizations should cease to exist. To think that Goldman Sachs, J.P. Morgan . . . and every other bank can fund a regulator that will, in turn, aggressively oversee their activities is simply ridiculous.”

Shortly after the 2-minute mark in the interview, McCaughan is asked whether the little guys lose as a result of the manner in which high frequency trading operates.

He responds, “I think they do lose.”

McCaughan pulls no punches in this Bloomberg Surveillance interview. The first 5-minutes are an ABSOLUTE MUST LISTEN.

The ruse is laid bare.

What do we learn?  The market is not fair. The little guy loses. Self-regulation is a farce.

Navigate accordingly.

Larry Doyle