EU Referendum


Eurocrash: market intelligence


04/09/2012



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Taking a brief detour from the mainstream euro news, I note that Schäuble is planning to submit a bill this September to curb automatic high-frequency trading.

This, unless you know different, is one of the first attempts to do this - even though the EU is moving in - and reflects how serious a problem it has become. This analysis published by the School of Accountancy in Singapore, sets out some of the problems, under the title "The Dark Side of Trading". A more straightforward piece is here from Time Magazine earlier last month.

There is very little being written out this in the British press, and you have to go back to April 2010 to find the Failygraph reporting that the practice was to be scrutinised by the Committee of European Securities Regulators (CESR).

However, with as much as 70 percent of trading on some markets carried out automatically by computer, this has a huge distorting effect on the way markets operate and the signals being sent.

Despite this, when it comes to market analysis, one still sees various indices reported daily with much reverence, together with commentators intoning on the significance of their movements.

But one gets no sense that the average hack is aware that, in the main, they are charting the activity of computer algorithms, which have no other purpose than to make money - and in a very different way from traditional market operation.

To then attribute any "intelligence" to this process, much less draw political conclusions from market "sentiment" seems to me more than a little unsound. Whatever messages the markets once were sending us are now heavily distorted as machines take over more and more of the process, leaving human beings on the margins.

Thatcher, amongst others, might have said that you can't buck the markets, but the markets of today are very different. The trading patterns of today have their dangers and the use of data as economic – and especially political – tools is not to be relied upon.

I'll pick up the threads of the mainstream eurocrash in the morning.