Something like a minimum holding time is a more reasonable approach. However, there's not a clear cut answer in any case.
It's becoming truly kafkaesque how often this claim comes up on Hacker News.
However the term has expanded a lot over the years to mean a lot of different things to a lot of different people. So what does it mean to you?
Anyway, I agree with you. I don’t see a significant downside to using a small transaction tax or one of the other suggestions. The real hard question is about the benefit or harm of HFT itself.
I haven’t heard a decisive argument yet, but I would say that the “liquidity defence” of HFT is in unconvincing to me. I don’t see how liquidity can add value past a certain point.
As I said though, I agree with you that there's an onus on those proposing a HFT tax to convict it convincingly. I don't think this has happened yet. The argument can't be "weird and scary." I don't see the liquidity defense. How can liquidity beyond a certain point be meaningfully more useful, but that's not a conviction. In my mind, it rests on how HFT impacts economic fragility, and increases the likelihood or impact of busts.
We're talking about something like a 0.02% of equity tax on HFT specifically or lower if it's going to be everyone. That does not impede the ability to price in real information.
An artificial restriction on trading is not unlike natural ones. Did we have liquidity issues when trading in and out multiple times within tenths of seconds was impossible? I don't think the cost is high. The risk is ..unproven.
Yes. Spreads were a dime (or more). Now they're a penny.
Said proposed tax is nothing more than people who can't compete trying to punish those who can because they don't understand why they're losing.
HFT has improved the market for everyone involved, spreads are lower, liquidity is higher, everyone pays far less for trades than ever before. There's no reason at all to regulate it that isn't simply fear based.
Proposing a tax on trades is punishing those presumed guilty without a lick of actual evidence they are. HFT don't need to prove they're good, they're just traders making trades in the market like anyone else, that they do it faster than a manual trader doesn't make them bad. To try and regulate them should require an actual case be made against them and all such cases I've seen so far are completely irrational emotional arguments by people who just want to point a finger at someone to explain why they're no longer able to compete.
This seems pretty convincing to me. The argument is that, based on the amount that firms are willing to spend on fiberoptic cables to perform hft, they put an extremely high value on hft. On the other hand, reasonable back-of-the-envelope calculations show that the social benefit of making the trade slightly faster are much less than the private cost. This indicates that almost all of the private benefit from hft comes from value accruing to the hft firm at the expense of other hft firms. We therefore expect to see overinvestment in hft.
What about this do you find objectionable?
Here is Vanguard's CEO on the topic:
http://www.cnbc.com/2014/04/25/vanguard-chief-defends-high-f...
That blog post also makes a mistake of claiming that the advantage of these sorts of fiber optic cables is to let people complete their trades faster. That is not the case. They enable people to execute their trades at better prices. The way he is looking at this issue is almost silly.
Do we really measure the social good of Google by how much capital they put into their fancy server clock syncing (the exact name of the project escapes me)?
How did we get to a point where "reasonable back of the envelope calculations" are what people seriously consider when trying to develop economic policy for the biggest economy in the world?
Why do you want to reduce high frequency trading?
This article has a lot of the reasons. I think loss of confidence in Market Integrity is the most important one.
I'll contest the "confidence in the market" hypothesis, however. As more investors move to index funds, I don't believe "confidence" as defined would have any significant impact by increasing or decreasing, because fewer participants overall will be actively engaged.
I do think if confidence in the market gets low enough it is possible that people will stop investing all together or invest less than they would have. But that is me sidestepping the issue a bit.