Online brokers tumble; Schwab decries HFT


"High-frequency trading is a growing cancer that needs to be addressed," writes Schwab (SCHW -0.5%) CEO Walt Bettinger. HFT "has run amok and is corrupting our capital market system by creating an unleveled playing field for individual investors and driving the wrong incentives for our commodity and equities exchanges. ... Trade orders from individual investors are now pawns in a bigger chess game."

It's hard to make the connection between HFT and the online brokers, but they're tumbling in wake of Bettinger's essay. E-Trade (ETFC -6.3%), TD Ameritrade (AMTD -3.6%)

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Comments (11)
  • phoneranger
    , contributor
    Comments (348) | Send Message
     
    We used to trade baskets on a prop trading desk in the early '90s and often got 'raped' by specialists and esp Nasdaq brokers. Now we do the same thing online with Motif. Painless. Anyone bitching about HFT has another agenda. And their interests do not likely correspond to yours.
    3 Apr 2014, 01:41 PM Reply Like
  • Charles A. Smith
    , contributor
    Comments (1276) | Send Message
     
    "Anyone bitching about HFT has another agenda."

     

    Not at all. No one is denying that the system as it exists today is WAY better than 20 years ago. But its as if the changes since have gotten us 95% of the way to a transparent and fair system. The HFT types are standing in the way of getting the final 4% or 5% improvement. Or, as Santelli put it yesterday on CNBC: the HFTs are getting "crumbs in a box with a bow" and those crumbs add up.
    3 Apr 2014, 01:50 PM Reply Like
  • phoneranger
    , contributor
    Comments (348) | Send Message
     
    Memories. SCH's old Nasdaq market maker Mayer and Schweitzer (sic?) was the one that dinged us the most.
    3 Apr 2014, 03:10 PM Reply Like
  • Charles A. Smith
    , contributor
    Comments (1276) | Send Message
     
    "It's hard to make the connection between HFT and the online brokers"

     

    What? Not hard at all. All the online brokers get paid huge money to sell their order flow to the HFTs. Let's hope this statement by SCHW presages the end of such payments. Also, IBKR just announced they're going to offer access to IEX. The HFT tower of babel is beginning to crumble.
    3 Apr 2014, 01:44 PM Reply Like
  • Iqbal_
    , contributor
    Comments (36) | Send Message
     
    Good to hear some one else validate my assumptions. I can't recall any time Schwab has filled my order at bid or ask. I see level II quotes from a non-Schwab source. It appears every time I put in an order at ask to buy or sell at bid, my order does not get filled. When I do market orders, I always get higher price for buying and lower price for selling.
    3 Apr 2014, 07:06 PM Reply Like
  • phildevoyd
    , contributor
    Comments (204) | Send Message
     
    I am not afraid of HFT, but I can see how many small traders would be. In any case, investors should not worry about HFT, because the objectives are so different. Remember, Knight? HFT's can and will go bust from time to time. I just hope they don't all do a swan dive at the same time.
    3 Apr 2014, 01:47 PM Reply Like
  • scottbird27
    , contributor
    Comments (12) | Send Message
     
    Walt Bettinger is a crook. 17% ($924m) of Schwab's 2013 revenue came from a category labelled Commission and Principal transactions.... Principal transactions = Schwab trading against their "clients."
    See for yourself:
    http://1.usa.gov/1fBj7ZO

     

    The media is diverting the public's attention of the real crime....brokers scalping their "clients" orders. HFT competes in the public markets, the vast majority of these orders and dollars never even make it to the public market. Do some research on this topic before you form an opinion. My research suggests the total revenue from large banks from the equivalent of principle transaction is close to $10B in 2013.
    3 Apr 2014, 02:35 PM Reply Like
  • daniel_key
    , contributor
    Comment (1) | Send Message
     
    The two items (Commission & Principal Transactions) are listed separately where Principal Transactions is ony 1% of the Total Net Revenue.

     

    Commission has nothing to do with HFT.
    3 Apr 2014, 07:21 PM Reply Like
  • aretailguy
    , contributor
    Comments (1991) | Send Message
     
    Anyone trading using "market" orders is a sitting duck for HFT. Use limit orders and HFT is irrelevant.
    3 Apr 2014, 09:23 PM Reply Like
  • Charles A. Smith
    , contributor
    Comments (1276) | Send Message
     
    "Use limit orders and HFT is irrelevant."

     

    Not true. I've traded hundreds of millions of $ over the last 7 years (since reg NMS was implemented), ALWAYS use limits, and many, many times I've missed getting filled because the algos have sniped around my orders. Particularly on smaller cap names, I'll miss a fill by $0.001 or see the stock trade in tiny fractions just far enough away from my limit so I don't get filled. So yes, IF the trade is executed, it happens at my price, but I have no idea how many times I've been shut out of trades by this sort of action.
    3 Apr 2014, 09:47 PM Reply Like
  • aretailguy
    , contributor
    Comments (1991) | Send Message
     
    Well, you are correct. I probably only get 60% of my buy & sell orders filled at my price. With my buy orders I will resist the temptation to increase my price. With my sell orders, it depends on how motivated I am to sell.....
    3 Apr 2014, 09:52 PM Reply Like
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