While some critics of high-frequency trading seek a solution that would slow trading down, Arthur Levitt, former chairman of the Securities and Exchange Commission, disagrees.
"We reject any attempts to slow down trading," he and Burton Malkiel, chief investment officer of Wealthfront, write in
The Wall Street Journal. Some opponents of high-speed trading have proposed a trading tax to slow things down.
"In Europe, when trading taxes were implemented, trading volume and liquidity fell, and bid-asked spreads increased," the duo writes.
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"The answer is not to set a speed limit to slow down to the pace set by those unwilling or unable to compete. Instead, solutions should be directed toward fixing problems inherent in the system such as front-running."
More focus is needed on market fragmentation, which causes inefficiency and unfairness, Levitt and Malkiel say. "Each additional market that is set up to somehow combat high-frequency trading thereby contributes to market friction and costs — precisely the opposite effect promised."
The aim should be to promote price transparency, fairness, liquidity and stability, they maintain.
Executives of BlackRock seem to have a similar view, saying that exchanges and regulators need to crack down on abuses of high-frequency trading without restricting practices that help investors, such as electronic market-making,
Bloomberg reports.
"High-frequency trading encompasses a wide variety of trading strategies and care must be taken to differentiate predatory practices from practices that benefit end-investors," the executives write in a commentary.
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