Sooner or later it had to happen that the algorithm for super-fast stock trading – the HFT, Hight Frequency Trading – would also receive the honor of appearing in a thriller film set on Wall Street: Money Monster. Watching the film (pleasant enough, but of not exceptional quality) reminded me of an interesting debate that took place in the mid-nineties. A debate that then concerned the international Hight Mobility of capital and the tasks of the national authorities responsible for managing monetary policy, also in order to keep exchange rates stable in the context of an economy that was rapidly globalizing.
I mention it today because the debate at the time also concerned whether and how to "put sand" into international capital movements, which have become exceptionally rapid also due to technological innovations that favor the speed of transactions on the international capital markets. (See Barry Eichengreen, James Tobin and Charles Wyplosz, Two Cases for Sand in the Weels of International Finance, The Economic Journal, 1995, January, pp.162-172).
Back then the debate was about the opportunity to stabilize exchange rate volatility, today it might be appropriate to discuss whether it is appropriate to stabilize the volatility of share prices also caused by the now famous HTF algorithm. Algorithm that confines the figure of the market maker and its function of stabilizing prices to oblivion.
Consob merely observes prudently that "the persistent growth of algorithmic trading and high frequency trading (HFT) is of concern, due to the negative effects that they can produce on the price discovery process and on the volatility of daily equity returns (...) This could generate the risk of an increase in fluctuations in the prices of individual securities and in the overall volatility of the markets (2015 Report, pp. 9-10). So worried, Consob intends to monitor the share price formation processes.
The HFT phenomenon and the associated risks are now known to all thanks to Money Monster and monitoring can only confirm them. Perhaps it would be more appropriate to "put sand" in the gears of the computers that make HFT to reduce the trading speed, to have the trader evaluate the opportunity for trading and to give the market maker work again. Or, at least, do not allow HFT on thin stocks that have always been too exposed to stock market volatility and a hunting ground for speculators.
Ultimately, these are measures that would make it possible not to agree with Keynes of the General Theory of 1936: “It is generally agreed that casinos, in the name of the public interest, should be made inaccessible and very expensive. And this also applies to the Stock Exchanges”.
