When the exchange blows itself up
The Trader has covered the HFT subject rather extensively over the past year. The market structure is broken, that shouldn’t be a surprise to investors. But, the latest development, where the exchange blows itself up is not the right forward in order to get the “normal” market back into play. On the latest embarrassing Bats story. From Bloomberg.
The decision by Bats Global Markets Inc (BATS)., the third-largest U.S. equity exchange operator, to cancel its initial public offering emboldened brokerage and fund executives who say the way stocks trade in America doesn’t work.
Bats, founded by a high-frequency trader in 2005 and nurtured by the world’s top securities firms, withdrew the IPO yesterday after errors on its own computers kept the stock from trading and forced a halt in Apple Inc. (AAPL) Pulling the IPO capped a day of embarrassments for the Lenexa, Kansas-based company, which rose to prominence with the electronic trading industry.
“This tells you the system we’ve created over the last 15 years has holes in it, and this is one example of a failure,” Joseph Saluzzi, partner and co-head of equity trading at Themis Trading LLC in Chatham, New Jersey, said in a phone interview. “When the exchange blows itself up, that’s not a good thing.”
The malfunctions will refocus scrutiny on market structure in the U.S., where two decades of government regulation have broken the grip of the biggest exchanges and left trading fragmented over as many as 50 venues. Bats, whose name stands for Better Alternative Trading System, expanded in tandem with the automated firms that now dominate the buying and selling of American equities.
The withdrawal also raises questions about the reliability of venues formed as competitors to the New York Stock Exchange and Nasdaq Stock Market since the 1990s. Bats’s mission is “making markets better,” according to its website. “Unlike traditional market operators, we are a technology company at our core,” the prospectus said. (full article here).
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