It was inevitable. No sooner had word gotten out that Knight Capital (KCG) had managed to find a way to survive, and the focus of debate has changed to something more sinister. As stupid or careless as Knight's admitted software glitch or mistake was, it would never have happened had it not been for the legion of computer-assisted, high-speed traders who prowl the markets in search of opportunities exactly like this - then pounce. Knight's blunder was their bounty.
Whether you call them high frequency traders, H-F-T's or algos (shorthand for algorithmic or computerized trading programs), by any name they are "parasites" says Kenny Polcari, Managing Director at ICAP.
"When you sit down and look at really what is the role that high frequency traders play, it's frustrating," Polcari says in the attached video. "What are they really here for? They're buying and selling 100 share lots, up and down for pennies all day long."
It's certainly not the first time a floor broker has complained about interference from HFT's, but in light of the recent drama - and losses - incurred by Knight Capital, the issue is resurfacing with a vengeance. As always, any argument to constrain technology, from within an industry dominated by - and reliant upon - technology, can be a little tricky. But for those who have lived and traded through this crisis, and the Facebook IPO, and the BATS flap and the Flash Crash and many, many more that never earned a catchy nickname, the problem is about technology and maintaining confidence in the markets.
"There is a a massive crisis of confidence in U.S. capital markets," @KennyPolcari writes in his Monday "Morning Thoughts" post on Twitter. "When you add up all those pennies, all day long, it's a big deal," he says, "clearly someone is taking money out of somebody's pocket and real investors are getting frustrated with that."
Another area of concern for Polcari and professional floor traders like him, is the fact that there are currently over 70 different venues to buy and sell listed stocks, including ten different exchanges. "It makes no sense at all," he argues, saying the price is the same but it has added "massive fragmentation and loss of confidence in the system."
Of course, once you start talking about ''the system,'' that's when the SEC comes into the discussion, and the need to address what Polcari and others refer to as ''the casino-type environment'' that high-frequency traders create and a growing number of investors reject. Until the number of trading venues are culled and consolidated, until reality is brought back to the marketplace, he says investors will continue to pull out of the capital markets and seek alternatives elsewhere.
"It's going to be a long road," he concedes, but like many Wall Street veterans, he's hoping that it just be be the silver lining within what otherwise has been seen as a "Knightmare."