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Archive for June, 2014

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Posted On 29  Jun  2014  

Dark pools are much murkier than we think

One after the other the banking scandals seem to be unending. Technology is increasingly being used in sinister ways in financial transactions. We have argued for sometime that dark pools are a blight in the proper functioning of financial markets. Dark pools are a way to hide activity in public markets in ways that can only damage the interest of the other participants. Arguments are frequently made that off the exchange settlement of large sell or buy orders adds stability (reduce volatility) – which benefits other participants. These arguments are increasingly hollow. The allegations against Barclays show other more sinister side of dark pools. Like the Goldman’s research scandals Barclays appears to give preference to some of their ‘dark pool’ participants. One is tempted to say, ‘serves them right’, for dark pool participants are as unclean as the venues when it comes to serving the public interest. High frequency trading

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Posted On 02  Jun  2014  

The risks of a low volatility environment

We are of the firm belief that a low risk (low volatility) environment is good for economic systems as it permits long term planning and capital formation. But, what about the segment of the economy that is dependent on trading volumes? When Banks provide liquidity to the market they take their pound of flesh. In a low vol environment that pound of flesh hurts the most because the opportunity to make money from trading activity is reduced substantially. Volatility across many asset classes is at historic lows. It is a dangerous market to be trading. One might imagine that it is a good market to be invested in. It isn’t. From such low levels of volatility, risks can only rise. Equities as an asset class are not meant to exhibit very low volatility for long periods. There are risks on several fronts. Risks from very low rates. If the developed