Dear shareholder…it’s high-frequency trading

August 12, 2009

A few months ago, not many outside of the quant world were talking about high-frequency trading. But these days every one is talking about all the profits a select group of Wall Street firms and hedge funds area making from super-fast, entirely automated algorithmic trading.

So may be it’s not too surprising that some money managers are beginning to attribute some of the post-March surge in the stock market to the impact of HFT. Or that’s how money managers Steve Scruggs and Benton Bragg, see it in this recent letter to shareholders of several funds they manage:

But beginning on March 9th stocks have staged an impressive rally, led by what we believe are the lowest quality companies. Recent market correlations are reminiscent of the 2005 & 2006 markets when momentum dominated fundamentals. There are many hypotheses about this situtation, including the new dominance of High Frequency Trading quant strategies and wholesale short squeezes due to de-leveraging. There is factual evidence to support these theories and others.

Mary Schapiro and the SEC are you listening?

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… and has Melissa Hathaway got around to sending Mary an updated resumé? This has got to get down and dirty into the information technology weeds.

slightly OT: Have you seen this one? It’s hard to believe from what it’s boiled down to that this affair ever deserved to be an earth-rippling criminal, as opposed to straight civil, case, IMO.

“Settlement Likely in Goldman Sachs Code Theft Case”, http://www.securitiesindustry.com/news/- 23817-1.html , by Maria Korolov, Securities Industry News, August 12, 2009.