The Wall Street Journal interviewed the brazen Mavericks owner Mark Cuban about his thoughts on high-frequency trading. His response is gritty:
WSJ: What do you say to the argument that high-speed traders provide liquidity to markets and narrow spreads? The argument is that those benefits outweigh the negative side effects that you’re talking about. If the HFTs are pushed out of the market, they say, regular investors will wind up paying more to buy and sell stocks.
Mark Cuban: That’s a bogus argument. By definition they can’t go into an equity unless there already is liquidity. To say they’re adding liquidity is like saying spitting in a thunderstorm is adding liquidity.
As far as narrowing spreads, that’s absolutely true, but in absolute terms what does it translate into? For the individual investor it might save them a quarter a month. So what? Relative to the risk that’s the worst tradeoff in the history of tradeoffs
And the argument is horrible for another reason. If you’re an investor you shouldn’t care if the spread widened by a penny, nickel dime or quarter. If you’re anything but a trader the change is of no impact to whether or not the company will be successful and create returns for investors. In fact, that anyone even considers this a valid argument is a red flag that the exchanges are more interested in traders than investors.
WSJ: What’s the solution? There have been some calls for a transaction tax recently for instance.
Mark Cuban: Public companies need to figure out what business the exchanges are in. Is the market supposed to be a platform for companies to raise money for growth and to create liquidity and opportunity for shareholders as it has been in the past? Or is the stock market a laissez-faire platform that evolves however it evolves? The missing link in all the discussions is: What is the purpose of the stock market?