Blunder Stock Exchange - Systems Upgrade

Thursday, December 8, 2011 7:00 PM

The Blunder Stock Exchange today announced a systems upgrade that establishes it as the fastest trading market in the world. With so-called order execution times now reduced to less than one trillionth of a second, BS Exchange members can now transact up to 1000 times faster than on any other market. Put another way, a single user can now buy and sell the same shares in a single stock nearly 500 billion times in a single second.

Expected to be a boon for ultra-high frequency trading firms, the BSE points out that the new performance thresholds will usher in a new era of market structure.

“We expect our new systems to kick off a whole new round of conferences,” said BSE’s Bline Myse, head of Equity Markets Innovation Technology, Global Asset Synergies. “This is a major advance for our client base, and especially for their market structure experts who crave the kind of liquidity replenishment points these events provide.”

Asked whether the new systems represented an opportunity to change the landscape in other asset classes, Myse was more circumspect. “We seek to create a self-supporting ecosystem that fosters organic growth of equity trade volumes while distracting regulatory and political scrutiny from the larger problems in financial markets.”

Credit markets continue to operate primarily off-exchange, even as the flaws of this structure continue to be highlighted in the ongoing credit crisis. “Our major clients are the global investment banks and they prefer that credit markets stay toxic and entirely self-serving,” Myse explained. “And as a service organization, satisfying our clients is always job one.”

Some market observers have theorized that by announcing their upgrade at this time, the BSE diverts regulatory resources to “order handling rules” and other minutiae of equity markets that arise from fragmentation and smart order routing.

One such critic is Claire Asday, head of trading at EvRe Investment Management. “None of this crap has helped real investors, and it never will. It’s shocking that anyone cares about this while credit market structure continues as always with zero intervention from authorities. It’ll never get fixed while bankers stuff cash into politicians’ pockets.”

Asked to elaborate, Ms. Asday declined, citing the need to urgently refuel the heater in the tent she operates from beside St. Paul’s Cathedral.

High frequency trading firms have become an important part of the business mix for operators of exchanges. Supporters of this development, who are primarily employees of these firms, point out that they provide much-needed liquidity to markets; detractors cite studies that show an increase in market volatility that deters many ordinary investors who are the lifeblood of healthy capital markets.

“Our research shows that 90% of BS Exchange volume is trading for trading’s sake. With the new systems we see this going up to 98% or more. That’s great for markets because the high frequency firms are insensitive to the economy,” Myse claimed. “Even if the underlying companies suffer and nobody wants to invest, we’ll still have trading volume.” Pressed to qualify this point, given declining trade sizes, Myse conceded that some consequences of what he called “progress” were difficult to predict.

“Order and execution sizes are getting smaller, but that may mean a new opportunity for investors who, even if they’re totally bust, can still afford to buy a share. Soon we’ll be releasing a thought leadership article on fractional share orders,” Myse revealed, “and we’re studying negative share quantities, too.”

With all the advances in equity markets, some observers wonder if the volatility has also impacted the IPO market. “Well, when you start to talk about IPOs you’re really getting to the heart of capital markets and what exchanges are supposed to be all about,” Myse demurred. “I’m afraid that’s someone else’s department.”