Apr 2, 2014|
Garland talks about whether the stock market is rigged with David Lesmond of the A.B. Freeman School of Business and Mark Calabria of the Cato Institute.
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Automatically Generated Transcript (may not be 100% accurate)
-- wrote about who's seen it on television. -- and is fighting and tremendous. Problem would have air pollution water pollution they have to cut. Pollution problem puree. And they are looking for all ways all content where -- alternative energy will end India's. Ocean. More or or auctioned turbans. And some of our company is or helping them in that clutched. We'll talk to a couple of energy experts as C. Number one can that bill that the whole world number two. That candidate alleviate. The huge problem ever growing problem in China. And number theory is that a good ideas that we. -- worked this project with them when it comes to patents and that -- She won't talk about added 12 new 11 o'clock we'll go into our second stop and bring up and number of subjects to think about it and talk about. This hour. It was brought up. Truly was so Monday. I heard about it pulling its mind and also. Its citizens. Who grew up in New Orleans. By the name of Michael Lewis he's Britain a book called flash boards. -- when I first heard about it wasn't really sure what it was about how watched him. Via computer of course. His. Interviewed the day before on sixty minutes they do today. Report -- book. Get so a little complicated. But basically what Michael Leahy and words that your stock market is rigged. He was talking about something and they called -- frequency trading. Computerized stock trading. And everything you read says. These computers not not the trading floor we usually sees in an -- was thought of the opposite -- the stock market. These computers. Holds all of themselves now control more than the market. And thank goodness. In order to understand all this found a couple of experts warn of David let him and associate professor and it's been -- who businesses to. And he were searching the impact I've frequency trading in the stock market it but I appreciate at all. So what are you if they -- and in Irish born and lewis' book. He argues that the stock market is rooted to that that group of insiders. And those outsiders have made literally tens of billions dollars. Exploiting. These weaknesses. Of polish for a. -- as -- -- have been discussed many times that many people using the term rigged is this very controversial. However. High frequency traders. Are in the market and they do exploit minor. Price discrepancies but that's to their advantage into the market hole. But I think the question that -- pollute spring and couldn't -- that one and one that it perfectly legal. Is that high frequency traders do position to air -- And they pay for that -- From the exchange. They pay for the defense to be as close to the -- of the opening exchanges. And the UNC the order book. -- In the second time. And as a result they have these small. Advantage in terms of knowing what orders are being placed. Then Michael lewis' argument -- perfectly now they. They're paying for access and access to -- from -- where that would report. They have a split second then intentionally -- orders have been -- it. And they condemn rush to the marketplace. Shut them split second fracture in the order it now. Can gain an -- However it is something that all of these people are being came together and saying let's manipulate the market. What they're doing is real I think it damage that's perfectly legal underpinning for the attack that. And as a result the profiting from that question and little watched. And -- as the market. Loomed as a result. I'll give you an historical perspective and as you noted in your opening line for the protests. That. The central picture we have. How markets work it -- your stock exchange and we see the images but here we have -- for broker or specialist. And an order comes in and especially dutifully clear that order. What in the indeed in the days before computers. People would try to find information about what was happening even though they have any permission -- What they would do was they would look at people that can't edit desk and they try to identify they were represented from IBM or analyst -- JPMorgan or something like. And they would try to look for that maybe these people had better information that -- I should treat that. Because like these that these people that information. Well the people treated that became wind today game and they would and poultry. And different people -- random -- that. And do what you what happened to communicate this information. All we able fan you have it the more you can -- As a result. You have high frequency traders the concern now you mentioned 50% of the total volume. Realize that they are an information advantage it's split second in milk that competitive spot but the system they can profit. -- -- let me take a quick break because. I've got a million questions arrogant jerk on the right back where -- -- -- -- report on sixty minutes. Over one liberal Michael Lewis here and boy who's told to those selling off. The ball ball flight boards in the US and sixty minutes as the stock market is -- We're talking to an expert that I think -- Explained that it's it's a little complicated. For a bit and then when we come. Complicated but I think various precincts sixty minutes Sunday. Aboard a broad New Orleans is Michael Lewis best selling author has written a book called life wars and MC black and that is. It it's about some to go high frequency trading. And in the interview Michael started off by saying. When you understand this -- understand that the stock market is written. It's -- frequency very quick trading I have computers. And those dead that users have just a fraction -- a millisecond. More time than moles. To determine the best doctor -- I did -- of room with the professor of finance should it be -- school of business professor is is that. A good readers Dodgers. Condensation. But explained that the listeners exactly I -- fight for treating it. It is imagine in that market in in the year nineteen in. The average trade side. Namely how many here were transacted on average in the stock market. Was 1150. Here is portrayed. Two days. That number here average numbers fears treated portrayed -- 152. So we've fallen by a magnitude. And from distress a decade and -- few years ago. And to read and it is because the -- for equity trading. These traders another facility in treating big blocks of -- Dolphins -- trade. There interest in treating water came here. Creating a million trade like. So what you the proliferation of trade. Though I frequently because of the trading but the tree view. Appear at a hundred -- at a so how do you make any money that's what you make money by making -- Trade just. Pennies worth of difference. When you're -- million here. Can. When you add a million instantly intentions. And that's -- high frequency trading -- portrait. Because the profit -- the year without pennies of difference between them and -- have to -- that this property is computed by. Frequency trading firms with fifty or so in the market. So haven't in years seven years ago intact. The profit per -- was may be and now what's been reduced to a company. So the competition. The converse among these -- frequency traders. So in that respect. Kind of frequency is just what it is I am attempting to trade a lot of players not many here portrayed but a lot of and they need something that'll do and that's computer. -- how did you become one of those traders. You have enough capital and expertise. Capital -- big bank of computers that can't take. You're -- terrific trade namely you for -- computer program. That -- your computer and what do we have some semblance of input that you want. Paper that you he would order coming from. More independent. And you're connected very close to the I exchange. -- first received that order you'd get. That information. And you entirely computer do you -- from that company you'll buy it and -- definitely. And then when the orders from the consummated a -- at the and exchange unit and make the difference. So you'd need a computer. And you need a lot of money and expertise. He needs somebody that there -- critical and all of these parameters that are necessary. For them machine and make that decision. And you have to remember computers -- stupid. But they do things were definitely. Very well and very. So they talk about milk with Americans and trade that's exactly what it is every trade consummated in -- could have thousands of them. Consummated the mobile printer to using computer. And do nothing. Is on the human direction anymore you have my computer talking to be your computer and they clear betrayed and -- And capital in Portland today. Ministers -- questions Salem. Low level workers at a big and as well. And and I stand -- C news -- and -- this. I mean this field. And I -- -- with apple in by itself. Take advantage. -- -- -- Is that -- Why why you did not when somebody's. -- lot more money than most people aren't. Or more expertise than most people. Sounds like there's sitting outside deceit use dual core. Listening for something in the very quickly responding to -- regardless of adults bull. The -- that is. Why is that means for. Well if -- -- in between the markets could be perfect. And -- recently efficiency we mean that prices reflect information. However if you get information. By sitting outside the yields tour injuries -- think -- Compensation meant for all legal here in new employee company. You have fiduciary duty not to trade. Because if you do it now you're trading information that could not be a riot that. By any other person. And as a result he limped into the information the let's take a look at high frequency trading. Hate me. The exchange. Took place their computer. Literate as close as the -- politically the. But why should somebody with a lot of money. Have an advantage. Over others in the market. Over options of what they -- by no where and when you say they use to look at porn trotted them applause -- they were guessing there. This sounds like they're looking -- it. -- -- Well and and enact any -- -- should the deal. Well I expect to regulatory concern that is the need to of a regulatory. System. That. While that might both be allowed by the sale -- it's perfectly legal to do. I'll I'll -- juxtapose it might comment. With another example. If private information that we at least -- some -- The federal government provided a number of years ago that they were you raise them more urgent in the current future treat. People. Being brokered. JPMorgan has decided he thinks that they were going to did it but they didn't -- the public. Implications and for protecting is that it's and they read the -- -- limited. Futures -- typical fault because it becomes more expensive. -- position that you bartering. -- Literally minutes before the people the rest of. In that -- Folded this let me ask you this course well lords and the people in the sixth minute piece of I'm the said from the beginning and this is legal. But is this something that should be looked at in saying it may be illegal but it -- -- -- and we're trained regularly. Right and I think that's very deport. What is legal and if they're property. So if you argue for fairness. That. -- right and you would like and to be able. Unfortunately. So -- -- -- what is legal. Though we fine you know it would be right from the eighty regulations. That -- oh. For equal access. All the information or simply as Lewis called the speed bump and there. And you'll you'll you'll note is that the speed -- that the firm RD exit for. Literally just -- fiber cable road in the big spool slowed down that high frequency traders. But the real. The real issue here is what is what is what information. Should be canceled. What information should be proprietary. My particular view on this is that if I have a trade and submitting it to an exchange. That information should be my private information connection not peaceful. Get by increased by 26. I think Britney could imagine -- a personal level -- -- a product from. Any company should be. Ma say bye to go to for -- purposes and we -- you know many of us don't go like that type of thing and feel of it. My information should be more information that should be private well many of these excellence and many of these mutual -- feel the same way. You will see Saddam. Hedge funds. But he -- phoned in particular. He's the order or CEO of oh I see your old company. He is a billionaire and he wants history -- namely he is open and the public in his final. But he has to by regulations. -- -- public every court. Month after apologized for them to look at the clock run out of time to get back to a later date it is -- and his fans and they didn't so big we've barely touches -- LB I I look forward to that the kind of police. We can -- -- So troops and -- thank you so much. -- -- -- vacuum will -- talked to director of an actual regulations. Company. -- body also I've found six immunities under its unity and it had won -- world or leave him Michael Lewis who's become -- from the wide those selling author. Britain's new book called -- wars. Harding's lane and in a couple of minutes on review but it deals with -- high frequency trading. One old we use law that we shall on the trading -- stock market for. And what's the business. -- real leader of the guts of this market. So rooms of computers in different locations. And they move an extremely. Rates. And the best to understand a select number of people. -- have the money. And the expertise. And league members award numbers. By the rise. To see. Via -- rhythms and these super fast computers. What buys will be mutual. And pension -- and big companies. Are making on the stock market. And making a profit that may -- its members and happened. Area made trades in hundred years huge amount that they make them. Very and then make millions. And they -- apparently. Nancy at least. Tens of millions hundreds of millions in some instances -- billions of dollars. And Michael Lewis was on six minutes is written book that evening news. And -- asked him basically what you're saying and said the stock market is Rick. Now we just have one professor that I that I think didn't come back and say that's not true. But he gave no reason for boards -- portraits -- polls in and wrote other blowback from Michael interview. And talked of another expert to mark Calabria. A director and neutral regularly. He's cute institute mark welcomed the show appreciated. Culturally pleasure to be here what should. Earnings that some thought I think. It's a bit of exaggeration but that's far -- -- -- -- will count the you know I read to. Loses early yearbook sponsor lever which Jordan even when their parts that I disagreed with that the people talk -- -- its -- -- Say that it's actually Morton -- wants it and that the media appearances. And so I suspect that the case it certainly was the case with his with his previous work. So you know W where did such a -- subjective word. -- and so do one thing that certain players in the markets an advantage over other sure. You know -- is that within the rules. You know it's no more -- in saying that -- basketball people taller people will do better and ask all people shorter people. You could say that's rigged so I think it's a loaded term that doesn't actually also a lot about what's going on. I think there are lots of imperfections and lots of problems here in our equity markets -- capital markets in general that need to be addressed and some others have been released. Some others have been exaggerated. But I do worry that if we send this message that. The markets are read in some out should that your body there. I think that that's gonna -- -- potential abuse of our walk on now I worried that you'd think that the current equity markets or be it. Oh repeated partly because they distinguishable credit exposure has pushed in the parent when that those we do have the possibility of the market turns around. So certainly. People shall we -- part to be diversified. You know certainly be skeptical -- investment. What that notion that you're gonna need more -- putting your money in the equity market that if you butchered body into a lot of the municipal debt market. For I'd be worried about happy advice -- in the data Chicago futures the year California that would about -- -- -- the equity market. But again you know -- just think it's an exaggeration to say it's -- Again there are parties who have invested. And moving quicker in Utah -- that number this year sort tickets in port to pull some of those out. Right up and take a quick break here and let's come back pull -- out ruins them. Governor right back we're called -- -- and rob you know with the good about it I've wrinkles and see trading were taken about Michael Lewis -- -- union. Written. Very popular book for many reasons call flash wars. And it's about the flash for leading music call it on wall -- And I content to give bureau cab through explanation. Of this book we've got an expert tulips. Let him endured in the move one of the questions mark Calabria director Bernard regulations studies if -- institute. Or keyboard gives. Readers dodges -- of exactly what this means available. Let's start with you know it was a broader category of treaty and -- just done by computers and you mentioned this earlier that we move away from the old days swear it was a bunch of guys that -- yelling each other they -- hand -- and that treats were exchanged worried. And so we've releasing that they move into world war more -- just what the vast majority treaty. Happens via computers talking to each other of course people -- So a subset of the computer -- With the high frequency treated and of course there's a lot of older will frequency computers treating you might sort of a program. That it actually huge trees and various different rules and so. Assumption that our frequency trading where much of it is based on the speed in Iraq needed trying to essentially. Get a sense of where the market is it'll be economist at -- possibly -- that's what you're really just trying to figure with the demand apply for a particular stock use and so there's a lot of treatment is back enforcement does that and so there are a number of issues in the marketplace. Possible which big disadvantage investors some of which are fortunately some of which. I certainly unfair some of these cut across traditional traders and course I think this is one of the things we need to keep that -- -- A much of the criticism of -- and currency trading you know to -- -- well you know the psychological world that didn't exist. He's we do know you know those kids that the old days weren't exactly always. Honest about the forty yourself. It would have to think about it is you know don't look essentially the party media enemy of the good. We have certainly seen as we moved away from it based world. A person based interactive world tree cost it would -- we keep liquidity to -- In so I think one of the issues we have to keep in mind is. So -- things -- frequency traders have been accused of there hours subset of them that are doing there's such -- bought out equity traders. That heard baldness issues as well. The one of the things that these people all that concerned. Is that some of these traders have access to would be its information. You know the Michigan beckoned to the cop but it certainly is one example where they were selling off. Information. You'll -- it's not so sometimes sentenced fortunately the broader economy there are other information service providers in the done the same time it's worth emphasizing that. That's an issue regardless of whether additional information. Up to Hartford Detroit or not -- equity trader because again even I think it's a crater what happened up on between all the information at a time. Residents of Newbury. Of of of working. In the investment arm and I'm just kind of work would be. But I -- way to lose and receive you'll every time he talks about buying cell. Barbara and back to -- computer made that bio meg so it's that insider trade -- -- -- -- -- Right now. These these traders. And didn't tell me apart along the drug it's implicitly and Tuesday and did. The agency of government. And they go blah blah blah blah blah -- backed us. At a higher price if if that basically for a one is -- insider dealing. Odors of distinguishing difference between I think there's some who want to separate out. So the basis of -- records that the results are. Entered trading Utica we would. To receive information that you saw mr. -- that your partner from spreading prospectuses. Be -- whether you're working inside the worm. And so you're essentially have a duty to keep information secret that you have gotten in the course of your job or otherwise your. -- -- -- majority of insider trading cases frequently don't -- that there's -- fiduciary duty to additional fiduciary. -- know the -- illegal for me to do in the office it's not -- -- for them doing it well and has. Because it's there there is difference between you work for year where you for your country against it. That's very different YouTube employers hired you he -- the expectation all of he's gonna trust and share information with you and your bigotry against that of course is the same thing with. You know company -- -- you expect to see you retreat against mr. first. And so there's a legal framework for about. It's not the same thing in terms of what the heart frequency traders are largely due to pick in the market to try to figure out where prices. I think to save the economy and the only -- when you'd. And so of course what happens is you have these limit order -- capture you have investors that. You go -- the marketplace news you know I -- body -- you have eagle on drew cheers and expiration -- that. That's note in the marketplace so hard for gadgetry and shall go out there and try to figure out you know who once -- You know they can buy it somewhere else delivered we do a lot of fragmentation there marketplace. On whether that particular that think that it is open to Washington debate. Much of what the high frequency traders started to do. It's essentially take over the rule the world market leadership to do double we've worked in the old days in the course distribute Hussein and whether that market or computer market. But if you want the body X number -- -- again in New York Stock Exchange. They're the ones specialist on the Europe's stock exchange -- would sell the GM shares and essentially they keep it -- the -- it. And they would they would view is that it would make money -- been asked Brad what that is essentially is that why lending itself on in that make money off the difference. Insult to some extent that's what -- Frequency treated you don't think it's kind of interesting that a lot of criticism of our frequency traders it actually comes from the old Wall Street establishment problems. Because with our frequency traders on the steps taken mark picture that's mark. I've got two million more questions and only one man that leapt let me you couldn't show will be even stranger questions. -- businesses on about six moved to gross written book called upon waking up in time. And here's the areas that you very much believes and in this of one of the guys that was a cooperative co-founder of string there. Said that excluding to a Perry Moore's law is good move computers by the year 21 report when he pointed -- Where one computer will make another computer that is fractionally better than the prototype. And then X -- eventually two and foreign aid and sixteen and eventually we get to a point not work computers they cobra ball we don't understand what they're doing now the reason I have that. Flashback to may 2010. Life correct 600 porch drop in five minutes of the market. Duke will do all we do we trust these computer systems that were. Setting up to move at speeds that human -- So I certainly think we need to be skeptical. That any cheaper tomorrow and also as an aside you know of course mores laws not really a law -- and it's an empirical regularity which seems to guarantee that that will perform in the future. I do think we need to be skeptical of computer -- -- climate modeling was -- interest bodily that they consistent certainly most at risk models stretches in the banks said that they were flawed that they were all well capitalized 2008 we saw that that wasn't actually the case. So I do think we need to be worried about the models are always -- program means that surely is garbage in garbage out. There's but again the models the biggest problem today and yes we -- you know world someday where you know the computers are creating computers that we don't know what's going on. The biggest problem today is the actual human component of the essential -- so the -- is only so go to the rules of the total puts general so good. You're gonna have errors there. It's important to keep the ball and. Markota apologized to us why -- I have watched the clock to run out of time look. The show today would be easier road to I'm -- couldn't talk to experts -- thank you so much appreciated the call -- what you have and it. All right bagged -- the.