Does Bill HR3555 Present a Potential Conflict?

A new bill was just introduced by Representative Loudermilk (R-GA), which would amend the Securities and Exchange Act of 1934 to reduce or eliminate regulation overreach into business models of exchanges that do not involve either reporting or effecting a transaction on the exchange.  This may have been prompted by the flurry of lawsuits following the publication of Michael Lewis’ Flash Boys.  One such lawsuit was thrown out when the judge claimed the exchanges had immunity under quasi-government powers.  

Since the filing of the combined lawsuits, the Securities and Exchange Committee (SEC) commented by saying that they had no authority to adjudicate the lawsuit, and that “immunity only applied when stock exchanges acted as a regulator, and not as an operator of a market”.  This means that the SEC is stating that exchanges are NOT entitled to absolute immunity arising from commercial activities such as enriched data feeds or selling collocation.

This could be weighing on the minds of the executives of the exchanges, prompting the proposal of HR3555.   The bill must pass the House and Senate before becoming law and will most likely be reviewed by committee before it’s sent to the House.  

If passed, Loudermilk’s bill appears to give protection from investor lawsuits stemming from unfair advantages granted to HFT firms.  The implied intent is to skirt the SEC’s role of protecting investors by finding a way around them in Congress.  Just by adding one paragraph to the original Securities Exchange Act of 1934, the SEC could be prevented from acting as a regulator of stock exchanges for any issue surrounding the selling of speed.  

Potential Conflict?

If HR3555 removes the non-execution portions of their business from regulation, wouldn’t that also remove those from their immunity? That would take it out from under SEC regulation, but it seems that it would also take it out from under the immunity umbrella afforded to “quasi-government” stock exchange activities.

If they carve out those activities from those regulated under the SEC Act of 1934, how could they then claim immunity for the removed activities? They would have it both ways – not included under the Exchange umbrella for regulatory purposes, but included when courts look at immunity granted to Exchanges.

We will be watching the progress on HR3555 as it moves through the legislative process.

Great Point Capital has been serving the trading community since 2001, with 100+ prop traders actively trading the firm’s capital.  Headquartered in Chicago with offices in Austin, TX, we specialize in equities and equity options.  Contact us today to learn how we can successfully trade together with high performance results.  We are one of the few firms able to offer access to Takion Software Platform, enhancing your online equity trading experience.

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Why Propose HR3555 The Exchange Regulatory Improvement Act?

A new bill was just introduced by Representative Loudermilk (R-GA), that appears to amend the Securities and Exchange Act of 1934 to basically reduce or eliminate regulation overreach into business models of exchanges that do not involve either reporting or effecting a transaction on the exchange.  As Representative Loudermilk stated when introducing the bill, “Regulatory agencies have a tendency to expand their reach into areas they should not be regulating and engage in mission creep, which can stifle innovation”.

What Could Drive the Proposal of HR3555?

Since the publication of Flash Boys in 2014, there has been a flurry of lawsuits against dark pools and exchanges, amid accusations of market rigging with aiding HFT activity, in essence aiding and enabling unfair trading.  One particular lawsuit alleged that dark pool Barclays, in addition to 7 US stock exchanges, including The NYSE and Nasdaq, manipulated pools to give HFTs market advantages.  Day Traders everywhere were watching the outcome as this has been a frustrating development in the market for quite a long time.  

This groundbreaking lawsuit brought under U.S. District Judge Jesse Furman was a consolidation of one suit from the State of California with four suits from the District of New York, and was eventually thrown out in August of 2015.  Counsel for the defendants claimed that the Plaintiffs rushed into a lawsuit without taking the time to properly plead their case, partially brought on by the allegations in the book Flash Boys.  

The Judge threw out the lawsuit stating that stock exchanges had immunity because their actions fell within “quasi government” powers.

While the exchanges and dark pools may have won the battle, the war is far from over.  

We’ll be watching the outcome of Bill HR3555, and what the Committee has to say.

Great Point Capital has been serving the trading community since 2001, with 100+ prop traders actively trading the firm’s capital.  Headquartered in Chicago with offices in Austin, TX, we specialize in equities and equity options.  Contact us today to learn how we can successfully trade together with high performance results.  We are one of the few firms able to offer access to Takion Software Platform, enhancing your online equity trading experience.  

Exchanges Seeking Immunity with Bill HR3555

Representative Loudermilk (R-GA) just introduced a new bill which would amend the Securities and Exchange Act of 1934 to eliminate or reduce regulation overreach into business practices of exchanges that do not involve either effecting or reporting a transaction on the exchange.  As Representative Loudermilk put it in the following statement when introducing the bill, “Regulatory agencies have a tendency to expand their reach into areas they should not be regulating and engage in mission creep, which can stifle innovation”.

If the innovation referred to is the exchanges seizing the opportunity to create new revenue flows by selling speed, rather than effecting and recording transactions, then perhaps we need regulation overreach.

The current unprecedented structure of exchanges and dark pools is drastically different than a decade ago.  It seems that HR3555 would put safeguards in place to prevent agency over-regulation, or in other words would allow regulators to turn a blind eye to the new market structure by not addressing these issues.  This is an issue that Day Traders everywhere have been dealing with for at least the last decade.

HR3555, titled The Exchange Regulatory Improvement Act, aims to further define the term “facility” regarding regulatory purposes of an exchange, adding that the term does not refer to business activities with a purpose that is not intended to either report or effect a transaction on the exchange.   

What this means in simple terms is that this bill attempts to provide an exempt status, or altogether immunity, for an exchange’s business activities outside the core functions of effecting and reporting trades.  

Exchange Activities Receiving Immunity

We need to understand the activities in question To understand the effect that passing HR3555 would have.  Exchanges today make money in ways other than facilitating trades. The most recognized activities include colocation of servers, enhanced proprietary data feeds, and complex order types all designed to give an unfair advantage to high frequency traders (HFT).  HFT firms currently make up at least 50% of all trading activity in US Markets.   For more information on how stock exchanges earn revenue with business activities other than recording or effecting trades, check out this post on How Rising Costs of Stock Exchange Data Fees Affect Online Equity Trading.

Great Point Capital has been serving the trading community since 2001, with 100+ prop traders actively trading the firm’s capital.  Headquartered in Chicago with offices in Austin, TX, we specialize in equities and equity options.  Contact us today to learn how we can successfully trade together with high performance results.  We are one of the few firms able to offer access to Takion Software Platform, enhancing your online equity trading experience.  

How Long Will the Calmness on Wall Street Last?

 

shutterstock_371007224With the level of uncertainty in the air it is a wonder we are experiencing such near record low volatility on Wall Street.  Is complacency to blame for the calmness on Wall Street?  Have we become so used to unsettling news and political turmoil that it’s now the new normal?  How do we explain the high performance we’re seeing with the unprecedented news we see regularly?  We can’t turn on the news without hearing about Russia, North Korea, Climate Control, Healthcare and many other globally important issues.  

This type of news typically affects the market in some way, although investors reactions to current events are also unprecedented.   Have we become so desensitized to political turmoil that we are complacently enjoying the high returns we’re seeing today?  If that is the case, there are some concerns that investors will be ill-prepared for an inevitable shock to the market.  

 

Historically, low volatility is good for markets, but sooner or later something’s got to give.  Usually, when the VIX is high, the S&P 500 is low, which could be a good time to buy.  When the VIX increases, the S&P 500 typically decreases.  If the VIX increases too quickly, however, investors show concern that the market will continue to decline and people begin to react irrationally.  This fear factor makes it difficult to trade during market volatility.  

Trade with Confidence During Low or High Volatility

 

Great Point Capital is a selected team of professional, experienced traders. An experienced trader will know how to react, or not react at all to events that could rattle a new up and coming trader.  Hone your strategies and work with an experienced team on our unique intra communication software platform.  Experience the sophistication of Takion  trading platform for superior performance catered to your trading style.  .  

 

Having a stable trading platform is always important, but having the right software to handle increasing quote traffic when volatility returns will determine whether you can take advantage of the trading environment or get swallowed by it.  Experience the sophisticated trading platform of Takion for superior performance based on your unique trading style.  Great Point Capital is a member of FINRA.  

 

Great Point Capital has been serving the trading community since 2001.  Our 100+ prop traders actively trade the firm’s capital, specializing in equities and equity options.  We are one of the very few firms able to offer access to Takion Software Platform, enhancing your trading performance.  To earn to your maximum potential in times of low or high volatility, contact us today to speak with one of our knowledgeable staff.  

 

Wall Street Fear Gauge Near Record Lows

21054556 - stock trader looking at monitors
21054556 – stock trader looking at monitors

Historically, when the market is in a positive upswing, volatility will decrease, and conversely when volatility increases market performance usually decreases as investors experience greater risk.  The volatility, or fear gauge, has a direct impact on wall street returns and performance.

With the current fear gauge near record lows, we continue to wonder how long the market will remain this calm.

 

HFT on the Rise

 

High Frequency Trading (HFT) has increased to the volume of approximately half of all wall street trades.  With this rise in HFT and fewer market participants, when the market swings the other way we could see the impact with a large correction.  

 

With the level of HFT at record high levels it seems that HFT activity along with fewer participants will contribute to future wall street performance, and possibly direct rather than react to the volatility.  

 

Passive Investing

Passive Investing occurs when investors place their money in ETFs or index mutual funds instead of actively managed funds, and has been increasing over the last decade.  A recent report from Moody’s Investors Service states that over 28% of assets under management are in passive investments at the current time, and expects that by 2024 that number will increase to over 50%.

 

Passive Investing can soften volatility as new funds are continuously deployed into the same stocks, rather than moved between sectors, or out of stocks entirely into bonds or cash or commodities.

 

The new Fiduciary rules, in place since June 9, will make passive investments even more attractive, given the risk of higher fees and underperformance by actively managed funds.

 

More Frequent Option Expiration

 

Options on U.S. Stocks used to expire once a month or once per quarter, but now SPX, the index that tracks the S&P 500 stocks, has options that expire three times per week with some days having morning and afternoon expirations on the same day.  These all give investors new methods to offload risk in any time frame, lessening the need to buy and sell in the open market to adjust their positions.  Moreover, investors fine-tune their bets to the point that they don’t need to overreact to market moves, which can create volatility.

 

Great Point Capital has been serving the trading community since 2001.  Our 100+ prop traders actively trade the firm’s capital, specializing in equities and equity options.  We are one of the very few firms able to offer access to Takion Software Platform, enhancing your trading performance.  To earn to your maximum potential in times of low or high volatility, contact us today to speak with one of our experienced traders.   

How Long Will the Market Maintain This Low Volatility?

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The volatility of the stock market directly impacts stock returns and overall performance.  History shows us that when the market experiences positive performance, volatility will decrease.  Conversely, with an increase in volatility, the market sees a decrease in returns and investors experience increased risk.  With the current state of low volatility, we have to wonder how long the market will remain calm, and when we should be concerned.  

 

The VIX is the ticker symbol on the Chicago Board Options Exchange (CBOE) that is used to measure the level of volatility in the market.  The VIX is supposed to represent the expectations for the next thirty days, and is commonly referred to as the “fear gauge”.  The VIX uses volatility of various S&P 500 index options, which is derived from the capitalization of 500 of the largest companies listed on the Nasdaq and New York Stock Exchange (NYSE).  

 

The VIX is one of the most followed equity indices, and is thought to be an indicator of the US economy.

 

VIX Hits Record Lows in 23 Years

 

On December 22, 1993, the VIX hit record lows when it reached 9.48.  The historical average of the VIX is typically close to 20, although it has recently been averaging under 10, and on May 9, 2017, the VIX closed at 9.77, the lowest in over 23 years.    

 

We typically see the market perform well during low volatile times, and that is surely the current situation, although we might wonder if the fear index is truly in line with investor confidence?  The political turmoil we see regularly these days usually brings about uncertainty, although it appears Investors are not yet concerned or waning in confidence.  

 

What Contributes to the Volatility of the Stock Market?

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News of mergers and acquisitions usually cause market activity, although nothing has been big enough to wake the current sleepy market.   One factor may be that there are simply less players in the market than ever before.  

 

Less Market Participants

 

The merger and acquisition business has been booming in spite of Antitrust laws that are designed to prevent monopolies that would hinder competition.  This increase in M&A has contributed to fewer market participants than just a decade ago.  

As stated in a July 2015 article from CNN Money, the number of US stocks publicly listed hit a peak record of 7,562 in 1998.  According to the Wilshire 5000 Total Market Index from 2015, there were only 3,812 publicly listed US stocks.  

 

Whether volatility is high or low, you can trade with confidence with an experienced team like Great Point Capital.  

 

Great Point Capital has been serving the trading community since 2001.  Our 100+ prop traders actively trade the firm’s capital, specializing in equities and equity options.  We are one of the very few firms able to offer access to Takion Software Platform, enhancing your trading performance.  To earn to your maximum potential in times of low or high volatility, contact us today to speak with one of our knowledgeable staff.  

Replace Your Online Broker with a Professional Broker

There are many differences between online brokers and professional trading firms, and you may not realize that you can have professional trader experience and dump your online broker!

 

Online brokers such as E-Trade, ScotTrade, Ameritrade and many others are the only way that most people find the market to make trades.  For savvy investors with an active trading style or larger balances, however, there are better options that you may not be aware of.  

 

A professional trading firm, one that specializes with even the most sophisticated of investors, can offer the same level of professional service to non-professional investors, in much the same way the online broker can, but with a much greater level of sophistication and technology.

 

A professional trading firm like Great Point Capital can give you the same retail account management, with the latest in technology, sophistication and experience for maximum trading results.  

 

Costs of Trading with an Online Broker vs Pro Trading Firm

 

Commissions

 

Online brokers usually charge a flat fee of anywhere from $4.95-$9.95 per trade, while this may look enticing, professional trading firms offer per-share commissions that can be much less!  

 

Commission fees from most professional trading firms start around $.0035/share, which equates to a 100-share order with a commission of only $0.35!

 

Working with a pro trading firm allows you to break your orders into smaller pieces, giving you more control with less market impact.  Rather than sending 1000 shares all at once, you can price average your entry points and work smaller orders more efficiently, resulting in much lower costs to you.  

 

Exchange Fees

 

Exchange fees are the other costs of trading at pro firms, and can vary from as much as $0.003/share to take liquidity, to being paid $0.002/share to add liquidity.

 

That’s exactly right – the online brokers don’t want you to know that they get paid to put your order on the market!  

 

Placing 1000 shares on the bid, and getting filled, means you pay only $3.50 in commissions, but also get $2.00 back from the venue, for a net commission of only $1.50!

 

It is very important to know and understand what all your trading fees are to buy and sell, and to be aware of any miscellaneous fees that surface.   Great Point Capital can help you in evaluating your current fee structure with an online broker, and compare to fees from a professional trading firm.  

 

Great Point Capital has been serving the trading community since 2001.  We are one of the very few firms utilizing the Takion Software Platform, enhancing the quality of trades with fast and high-quality order execution.  We offer professional and experienced account and wealth management, including management of retail accounts. To earn maximum earnings on your trades, contact us today to speak with one of our knowledgeable trading experts.