Securities and Exchange Commission Chairman Mary Schapiro said Wednesday she is worried about the role of high-frequency traders in the stock market and hinted at new policies aimed at curbing frenetic market activity.
A large portion of trading in the equities market has little to do with “the fundamentals of the company that’s being traded” and more to do with “the minuscule aberrational price move” that computer-assisted traders with direct connections to the exchange can “jump on” in fractions of a second, Ms. Schapiro said.
Such activity “worries me,” she said in a wide-ranging breakfast meeting with reporters. One solution would be forcing high-frequency traders to pay for the canceled trades that make up more than nine-tenths of their orders, she said. Another possible remedy: requiring such traders to maintain competitive buy and sell orders in the market throughout most of the trading day.
via Schapiro Questions Role of High-Frequency Traders – WSJ.com.
There’s a simple solution. Tax all speculative profits, i.e., those made from transactions where the asset is held for less than a year, at 50% (with no deductible expenses allowed), and make all investment profits, i.e., those made from transactions where the asset is held for more than a year, at zero %.
Don’t tamper with the free market. You might end up with bigger problems that nobody could have anticipated.
The goal is an efficient market. Free markets are seldom efficient. Take the early days of the stock exchange. Regulation had to be introduced because there were so many scams.