Have The Geeks Killed The Golden Goose?

Citadel Investments on Tuesday acquired a majority stake in Equiduct, the European multi-lateral trading facility operated by Borse Berlin. The US hedge fund, which specialises in high-frequency black box trading, says it is looking to turn its new acquisition into a pan-European trading platform aimed at retail investors (my emphasis). Now, how many potential conflicts of interest can you count?

I did notice that gamblers finding out that the game was rigged in favour of the house didn't make casino's any less popular.

Now there's a business - everyone is a loser, it's the only business which can kick you out of the casino purely because you are a winner. What a fantastic investment - you can't lose. Isn't that what Bernie said?

I seem to recall having learned somewhere, eons ago, but then I am a tad older, that financial markets are supposed to provide those seeking funding with efficiently priced capital, as well as those seeking to invest surplus funds with an equitable return. Mediation, hallelujah! But when the mediation (mediator?) starts becoming more important (the ultimate goal?) than those being mediated, something is somewhat awry?

Nice to hear from you Lex.

I can't help but think that once the public catch on, its the end of the stock markets...or perhaps the beginning of completely new ones.

Are you describing a super-low level form of 'front-running' where the buy/sell is detected just slightly in advance and then gazumped and cashed straight after - making buy-sell cycles in seconds not minutes.

Surely the place to be doing this is on the 'inside' and at the expense of all thsoe traders and funds you are supposedly supporting. 

The whole system stinks, but there's simply no way to just stop the world and get off - and putting the genie back in the bottle won't work either - we just have to compete and evolve, until driven to extinction.

Hi John,

I believe they measure the time-frame in milliseconds like you order, they see the order before it is executed and have time to front run it and step out leaving you to pay a little more.

There are some structural flaws with our system when companies no longer operate with investor's capital and are generally geared to the maximum. Combine that with markets which rather than being a place for raising capital, become a forum for some very sophisticated gambling and even more sophisticated 'sure things'. Add gamblers who have no interest in corporate earnings other than to drive share prices with analysts at the point they want daily financial reporting to maximise the possibility of creating price movement and throw in some top end only front running and we are in unfamiliar territory. It certainly isn't sustainable. There has been a loss of confidence in the markets by individual investors and this has yet to play out.

The danger is that we end up with only a few big kids in the game, which has become some sort of cyber war between behemoths connected by optic fibre leashes to the exchange.

That isn't, as Lex pointed out, what the object of the exercise was when the exchanges were formed.