Tuesday, July 13, 2010

HFT: Beyond First Grade

clipped from www.zerohedge.com

In moving away from a traditional and simplistic Gaussian frame, Smith isolates the very nature of the problem, which like any other non-linear system, and thus prone to Black Swanness, has to be sought in the plane of fractal geometry. Luckily, the author provides the one elusive observation which many market participants (at least those whose livelihoods are not tied into the perpetuation of the destructive HFT processes) had long sensed was on the tips of their tongues, yet the only comprehensible elucidation was the trite and overworn "the market is broken." At least now we know that this is a fact.

Unfortunately, as the paper requires slightly more than first grade comprehension and math skills, it will never be read by anyone at the SEC, or those in Congress, who are pretending to be conducting Financial Regulation Reform, when the items described in this paper are precisely the things that any reform should be addressing.