Joseph L. Shaefer

Program Trading, Dark Pools and Gold

Malkiel, thank you for your note. You've come to the crux of the issue. Every time reform is suggested for Dark Pools, the industry's lobbyists go into hyperdrive, claiming they would then be giving Col Sander's recipe to Popeye's, they wouldn't be able to fulfill their endowment charter, blah, blah, blah. Yours is the key point. If I may restate it as I’ve written elsewhere, while these elephants are concerned only about protecting themselves from the other elephants, the humans are being trampled underfoot.

To your question of how I would banish program trading, I wouldn't. I would control it. I would shut off the capability to accept a computer-to-computer order for greater than 9999 shares anytime the DJI goes greater than 250 points in either direction from the previous day's close. As long as we are in a reasonable market, the elephants can trample the edges of the crops. The second they might be allowed to destroy the entire field, they are automatically reined in. They could still send orders via computer of up to 9999 shares, but they would only be accepted by a human on the other end, meaning their order flow would be severely constrained. They would actually have to pick and choose what they wanted to sell or buy the most. Sort of like you and me. Sort of like “investing” -- rather than day-trading with your and my hard-earned pension money.
Best regards,
JS