Tags: Kashkari | high-frequency | trading | Cuban

Cuban, Kashkari Blast High-Frequency Trading

By    |   Monday, 31 March 2014 03:39 PM

Two prominent financial figures bashed high-frequency trading in interviews on CNBC Monday—billionaire investor Mark Cuban and Republican California gubernatorial candidate Neel Kashkari, a former Pimco executive.

High-speed trading brings major risk into the market, Cuban argued.

"The risk isn't so much about the small investor," he told CNBC. "The risk is all these different high-frequency traders playing a game with their algorithms, trying to trick each other, to get in front of each other to make that trade."

Editor's Note:
38 Trades That Could Turn $1,000 Into $49,000


A lot of uncertainty enters the equation, Cuban noted.

"We don't know all the algorithms, we don't know the end factorial, all of the different ways they may interact and the negative consequences that occur as a result. That introduces a market risk. That market risk has an unquantifiable cost."

Cuban said he doesn't know the answer to the problem.

"But what I do know is that high-frequency trading does nothing to stimulate or support capital formation in markets," he asserted. "I do know that the idea of owning a share of stock in the company is supposed to be about ownership in that company.

Maybe companies should require shareholders to keep their stock for a certain period of time, Cuban said.

Meanwhile, Kashkari told CNBC that high-frequency trading needs to be regulated to avoid another "flash crash."

The flash crash occurred in May 2010, when the Dow Jones Industrial Average plunged 1,000 points and then rebounded within a period of about 20 minutes. High-frequency trading was blamed for the move.

"Of course I think it should be regulated," Kashkari said. "The idea that trading on nanoseconds or microseconds is benefiting the American consumer, the American economy? I don't buy it."

Kashkari headed the global equities division at Pimco from 2009 to 2013. He rose to fame when Treasury Secretary Henry Paulson named him to administer the bank bailout in 2008. The California gubernatorial primary election is scheduled for June 3.

The candidate said high-speed trading doesn't offer any value to the financial system.

"I'm worried," Kashkari noted. "The complexity of all of these high-frequency traders, it's very hard to understand how all these things are going to interact. I can't imagine that's our last flash crash."

Financial author Michael Lewis ripped high-frequency trading in an interview on CBS' "60 Minutes" program.

"The United States stock market, the most iconic market in global capitalism, is rigged," he said. "The insiders are able to move faster than you. They're able to see your order and play it against other orders in ways that you don't understand. They're able to front-run your order."

Editor's Note: 38 Trades That Could Turn $1,000 Into $49,000

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Two prominent financial figures bashed high-frequency trading in interviews on CNBC Monday—billionaire investor Mark Cuban and Republican California gubernatorial candidate Neel Kashkari, a former Pimco executive.
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2014-39-31
Monday, 31 March 2014 03:39 PM
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