Investors need to ask themselves; is there anything left in the world that is truly transparent?
Washington, DC -- (SBWIRE) -- 05/22/2014 -- We used to think about investing as a safe, smart way to steadily accumulate wealth, but this is not your father's stock market says Dawn Bennett, CEO and Founder of Bennett Group Financial Services. She says the holy grail of the trading world is high-frequency trading and dark pools. More from Ms. Bennett: Investors need to ask themselves; is there anything left in the world that is truly transparent?
Look no further than the U.S. stock market. It's blatantly happening right in front of our eyes, yet we can't see it, can't touch it, but every day it's stealing money from our pockets. The U.S. stock market is rigged beyond anyone’s wildest imagination.
High-frequency trading and dark pools are bilking the typical American investor, pension, and hedge funds out of their hard-earned cash. It's cheating. Just as in life, everyth ing has a dark side. This too, is a secret membership to a place where very few can go, and it's these few that are benefiting 100 percent from something the rest of us don't, and will never, have access to. Without public access, it puts the public at a financial disadvantage. High-frequency trading and dark pools are destroying the illusion that there are still fair and equal financial markets.
High-frequency trading is a computerized parasite, and like the parasites that exist in nature, they are models of efficiency. They adapt to survive, and are the most consistent sour ce of alpha in financial markets. High-frequency trading is a computerized infrastructure that hijacks financial markets from the common day-to-day investor. So, what does that mean to an investor’s portfolio?
An investor will never get a better price than their limit price. This has turned actively managed order execution and tactical portfolio decision making from a source of profit into a trade-after-trade skinning alive process. No matter how hard an investor tries to manage trades, regardless of how closely one watches stock selection, the average investor will never win. It's as if anyone on the other side of a trade has an electronic surveillance bug planted to overhear the trades and picks off the limit orders. The price the investor was secretly willing to pay for a share of ABC stock is stolen, meaning someone else is always going to be one step ahead of an investor. The investor will lose every time.
Dark pools are the other enemy of investor portfolios. Many believe they are actually more of a serious threat to investors due to the increasing amounts of trading that is now happening outside of the stock exch anges. Both academics and regulators alike, believe that so much trading is now happening away from stock exchanges that publicly quoted prices no longer correctly reflect their true value. This could cost investors far more dough than the front running tricks of high-frequency trading.
The darkest side of the stock market is where dark pools allow the biggest boys to trade high volumes of liquidity without the public actually knowing. These are anonymous, public-hidden trades by the biggest financial institutions agreeing between themselves directly on the price and the vol ume to be traded without making it known to the public. It is as if the U.S. stock market has been turned into a wild west of dueling algorithms and there are only a few gun slingers that have a special advantage. This puts the average investor portfolio at a disadvantage and is killing off the American Dream of being able to intelligently invest money into the stock market and be rewarded for finding an undervalued company that has a bright future. Today’s trading is hardly so straight forward.
The American Dream seems to be gone for 99 percent of all Amer ican investors, except for the happy 1 percent of the big boys that are enjoying the tailwind of the stock market through their exclusive use of high-frequency trading and dark pools. The questions you should be asking yourself are: Do we need a new stock market so we all have the chance to achieve the American Dream? Is the American Dream dead for everyone but a happy few?
One has to wonder why U.S. regulators are dodging the truth about high-frequency trading and dark pools. Obviously the stock market is rigged. This makes regul ators who stood by and watched this happen, complicit. Last week, Securities and Exchange Commission (SEC) Head Mary Jo White actually solemnly promised Congress under oath that the markets are not rigged, and then two days later, the SEC slaps the wrists of the New York Stock Exchange with a $4.5 million fine for allowing market rigging for a period of time from 2008 to 2012. It is like we as a nation keep insisting that the Emperor’s new clothes are splendid when in fact all this time he has been running around buck naked.
The SEC is saying that for five years the New York Stock Exchange was running a rigged market and then they swear rigging doesn't exist. Maybe it isn't just the stock market that is rigged. Maybe the entire status quo is rigged. If our entire system isn’t rigged then why are insolvent banks and bankers protected from self-created destruction of capitalism? If the risky bets that John Doe or Jane Doe made affected a nation in an adverse way, they would be in jail. It's like we have become a nation that has turned a blind eye to legalized looting that is high-frequency trading and dark pools.
Financial mar kets need a massive overhaul, but don't think it will be the SEC that does it because that would be too destabilizing. Perhaps institutions, the biggest mutual funds and pension and hedge funds need to exert some form of pressure on the exchanges to stop giving advantages to the dark pools and the high-frequency traders. Why is high-frequency trading legal? It's considered by some to be insider trading and front running, and those responsible aren't going to jail, but it's obviously criminal. This completely deteriorates any faith anyone would have in the fairness of the system, and it’s not American and it’s not even capitalism, it’s cheating.
Securities offered through Western International Securities, Inc. Member FINRA & SIPC. Bennett Group Financial and Western International Securities, Inc. are separate & unaffiliated companies.
About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program on http://www.WMAL.com called Financial Myth Busting http://www.financialmythbusting. com. She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett or email@example.com
Bennett Group Financial Services LLC, based in Washington, D.C., is a comprehensive financial services firm committed to providing opportunities to clients’ as they seek long-term financial success. Its customized programs are designed with the potential to help grow, lower overall risk and conserve client assets by delivering a high level of personalized service and skill.