Where We’re Going, We Don’t Need Roads

So much has been written about high-frequency trading (HFT) this week that I'm not sure what another column could add, particularly in light of the excellent op-eds by my colleagues Max Bowie, of Inside Market Data fame, and Anthony Malakian, our US editor. Outside of the three-or-four-monthly reports about how robots are taking over the markets in national newspapers, however, HFT has never been under this kind of scrutiny.

Perhaps crucially, the FBI's announcement that it has been investigating it this past year adds a new spin to an issue that's over a decade old, in that this isn't just a review of liquidity and volatility effects by regulators or think tanks, but an active criminal investigation into what appears to be the practice as a whole. Added to that are the much-publicized efforts by Preet Bharara, district attorney for the Southern District of New York, and Eric Schneiderman, the New York attorney general, not to mention the Damascene conversion of Goldman Sachs a few weeks ago in the Wall Street Journal. The US attorney general, Eric Holder, announced on Friday that the Justice Department is also investigating the insider trading allegations, along with the US Commodity Futures Trading Commission.

While it seems trite to pin this all on Michael Lewis's book, Flash Boys (I was questioned on my use of the phrase "novel" earlier this week by a colleague on another fi-tech magazine, which is fair), there's been one hell of a debate generated by it, probably amped up by the remarkable slagging match between Bats Global Markets' Michael O'Brien, and IEX chief Brad Katsuyama on the television last week, an event that actually caused traders to stop what they were doing on the NYSE floor to listen in.

Where does it go from here? I'd be surprised if a few heads didn't roll as a result of the FBI investigation, but I wouldn't say this will dramatically change HFT in any particular way. This isn't about carrying water for sources either, just a basic observation of the ways these things tend to unfold. HFT is already undergoing reform through the natural regulatory process anyway, but you do have to wonder if others will do a Goldman in the near future, just to escape the spotlight.

Fatca Fun
The other highlight in this week's coverage, for me, has been Anthony's report on the OpRisk conference panel that discussed the Foreign Account Tax Compliance Act (Fatca). The issues around it are well known, not least of all remediation between databases and identifiers, but there was one quote that really struck me at the end.

"In a time when people are cost-conscious and cutting, we've seen a lot of people eager to jump on the Fatca project," said Kevin Sullivan, head of North American tax operations at BNP Paribas. "IT folks that can jump onto the Fatca project are more than willing to lend a hand. They know it's a big issue at the bank, it's been budgeted for, and it's something that's not going to go away."

It's easy to forget that, as the financial crisis begins to ebb into memory, and certain governments are quite happy to let newspaper headlines fill up with dubiously skewed statistics about recovery, there are still huge cost pressures. And as the era of managed services and cloud begins to take root, perhaps spare a thought for those who are nervously eyeing the sales reps for technologies that can potentially put them out of work.