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Friday, June 6, 2014

High-frequency news

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Yesterday, Securities and Exchange Commission chair Mary Jo White gave a speech about the current structure of US markets. Her comments directly addressed the controversy over high-frequency trading (HFT) and dark pools (trading outside of exchanges) brought up by Michael Lewis's book "Flash Boys" and New York Attorney General Eric Schneiderman's recent series of moves to try to ban HFT. Lewis's one-sentence summary of his book on a post-release interview: "The US stock market… is rigged".

White, however, disagrees. The structure "is not fundamentally broken, let alone rigged", she said. However, she did announce a plan to reform market structure. The two most concrete new rules require high-frequency traders to register with the SEC and operators of dark pools to let the SEC know how they match buyers and sellers. Sam Mamudi and Nick Baker at Bloomberg Businessweek note that "praise for White and the SEC was almost effusive yesterday from exchanges and high-frequency firms".

Yves Smith is unimpressed, suggesting White is dragging her feet. What regulators have done all too often lately, Smith says, is "make sufficient noise about a problem so as to appear to be doing something, but take a generally Panglossian view of the current system and focus only on a few undeniable warts to as to appease critics".

Of course that's what she's doing, says Matt Levine. This is just a reflection of the SEC's worldview, which is essentially that HFT makes markets more efficient at the end of the day:

If you think that the current HFT business model is basically good for the world, then you will be hesitant to make fundamental changes to it. And if you're the SEC, and you're under a lot of Michael-Lewis-driven pressure to make fundamental changes to market structure, what do you do? Disclosure. You do disclosure. To be fair, disclosure is the SEC's answer to most questions, but it's especially the answer to questions that the SEC doesn't especially want to talk about.

Whether or not you think this was the right move by the SEC, there is some question as to whether it even has the ability pull off enforcement of big changes in market structure. Georgetown finance professor James Angel told Bloomberg, "The SEC has so many irons in the fire and they are so under-resourced. The real question is can they actually do it?" — Shane Ferro

On to today's links:

Jobs
After six years, the US economy got its jobs back! (Sort of.) - Shane Ferro

Primary Sources
The economy added 217,000 jobs in May. Unemployment unchanged at 6.3%. - BLS

Tech
Some people think Uber is worth $17 billion, and maybe that's not so crazy - Emily Badger

Charts
The week in charts - Matt Phillips

Crisis Retro
Larry Summers responds to Atif Mian and Amir Sufi - FT

Millennials
If you are in your 20s and not rich it's best to just assume you will never get to retire - Danny Vinik

Possibly Useless Data
The opportunity cost of Gangnam Style - The Economist

General Whimsy
"The gratifying moral is that getting rich in business qualifies you as a judge of literature" - Matt Levine

Big Questions
Why does a pack of peanut butter M&Ms weigh more than a regular pack? - NPR

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Business Today: Jobs report takes Dow, S&P to fresh record highs

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06/6/2014
Reuters Election 2012 Daily round-up of the day's top news from the campaign trail, the White House and all the politics in between
Jobs report takes Dow, S&P to fresh record highs
NEW YORK (Reuters) - U.S. stocks rose on Friday, with the Dow and the S&P 500 closing at records, after the May payrolls report provided the latest confirmation of improving economic conditions.
GM sets four more recalls, covering over 105,000 vehicles
DETROIT (Reuters) - General Motors Co on Friday announced four more recalls covering 105,688 cars and trucks globally, raising the number of recalls to 34 including the high-profile for defective ignition switches linked to at least 13 deaths.
U.S. recoups jobs lost in recession as economy picks up
WASHINGTON (Reuters) - U.S. employment returned to its pre-recession peak in May with a solid pace of hiring that offered confirmation the economy has snapped back from a winter slump.
Exclusive: As bank fines soar, U.S. threatened $16 billion BNP penalty
WASHINGTON/NEW YORK (Reuters) - U.S. authorities negotiating with BNP Paribas over alleged sanctions violations at one point suggested that France's biggest bank pay a penalty as high as $16 billion, according to people familiar with the matter.
U.S. consumer credit surges on increased credit card use
WASHINGTON (Reuters) - U.S. consumer credit surged in April as Americans ramped up their use of credit cards, a potentially positive sign for consumer spending.
Economy needs to tighten up before rates can rise: Fed's Powell
LONDON (Reuters) - Federal Reserve Governor Jerome Powell said on Friday that he wanted to see signs that the U.S. economy was tightening up before before interest rates could be raised.
Wal-Mart appoints Walton family member as vice chairman
(Reuters) - Wal-Mart Stores Inc appointed Gregory Penner as vice chairman, showing again that the world's largest retailer is looking at younger executives to revive its fortunes.
Big risks seen in Putin's idea to beef up Gazprom
MOSCOW (Reuters) - President Vladimir Putin's idea of a massive boost to Gazprom's share capital has taken bankers and the energy industry by surprise, with some fearing it could further strain Russia's sanctions-hit economy and undermine the rouble.
Bank of America could pay at least $12 billion to settle probes: report
(Reuters) - Bank of America Corp could pay more than $12 billion to settle probes by the U.S. Justice Department and a number of states into the bank's alleged handling of shoddy mortgages, the Wall Street Journal said on Thursday, citing people familiar with the negotiations.
SEC charges Liquidnet, Wedbush with regulatory violations
WASHINGTON (Reuters) - U.S. securities regulators filed civil lawsuits on Friday against a "dark pool" trading venue and a major brokerage firm as part of a crackdown on market structure rule violations.
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