HFT (High frequency trading) and the continuing SEC debate requiring a uniform fiduciary standard of care pose two potential strikes against trustees of family and charitable trusts, Pension (Corporate, Union and State, County and City Public Employees) and 401k plans, and directors and members of investment committees and boards of foundations, endowments and non-profit, tax exempt organizations.
HFT has been implicated in the famous May 2010 “Flash Crash“, Facebook’s IPO and the demise of Knight Capital. Yet do trustees even know the import or to ask about High Frequency Trading, especially proprietary HFT, effects on broker duty to provide best execution? Or do trustees know and appreciate the difference between the lesser suitability and fiduciary standard of care? When it comes to explaining account agreements, losses or sub par investment performance to trust, plan or non-profit beneficiaries – it may come as no surprise these are the first two strikes.
Philly.com has a video interview regarding high frequency trading and Michael Lewis, author of The Big Short, Moneyball and Liar’s Poker has a new book out claiming “The Stock Market is Rigged” entitled “Flash Boys.” No matter, whether or not the book has any policy or regulatory impact, for the time being the duty to provide (and document) best execution (for the customer, and public investors including millions of trust and ERISA pension account beneficiaries) stands.
The NYSE used to look like this (and many people still believe or are told that someone actually executes their trade) but really looks and processes trades like this.
In 2016 several updates describing the mammoth server farm (larger than 3 football fields, where now the servers all have the same length of cable) is INSIDE the NYSE, overwhelming volumes done by HFT aka Machine Trading are available at KPCC, Radiolab, CBS 60 Minutes, Motherboard at Vice and Motherjones.
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