Hfts increase stability in the market decrease price

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HFTs increase stability in the market, decrease price fluctuations, and narrow the bid-asked spread, so increase the quality of the market. It has integrated markets
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by engaging in arbitrage when prices differ. Overall, it has made the markets efficient to the point where they are no longer making money off the inefficiencies. They narrow bid-asked spreads by protecting market-makers from “bad news” while they hold their positions, and protect small traders by smoothing out the bumps in a trend line of a stock’s price caused by institutional investors trading. However, HFTs may scare investors away from markets as the technology can sometimes act in unpredictable and glitchy ways, causing prices to change wildly. Further, the speed of HFTs means they can have a much larger effect on prices than would be expected for their proportion of the market, so could be considered manipulators. D. Read “A suspect emerges in stock-trade hiccups” (17.5), “Don’t panic! Market fragmentation will save you” (17.6), “Dark pools” (17.4), and “NYSE on Track to Lose More ETF Listings” (17.7) and answer the following: 1. Why was the NYSE initially a monopoly? What were the consequences for the organization of the exchange (ownership)? For the public that used it to buy and sell stocks? Markets are natural monopolies: centralization enhances price discovery, improves liquidity, and lowers trading costs. Centralization creates market power, so the exchange was owned by the traders to prevent monopoly pricing. Market power means little incentive to lower costs with new technology. 2. The market is now highly fragmented. Why did this happen? Regulations require (1) trading platforms to provide immediate information on completed trades (2) brokers to send orders to the platform with the best price. How have these regulations accelerated fragmentation? Fragmentation occurred because competition eroded the market power of centralized firms. Regulation has become pro-competitive, eliminating fixed commissions for brokers, forcing markets to disclose information, and eliminating the regulation function of markets making it possible to trade outside markets without fear of being taken advantage of. Liquidity and trading costs have replaced regulation as the main functions of organized markets, which alternative trading forums can compete it. Technology has lowered the cost of setting up a forum, making entry much easier, and has reduced the cost of small trades. It also allows remote access, which means many more people can trade on a market, allowing investors with good enough credit to trade themselves. Information requirements have reduced the importance of listing requirements from the exchanges and removed the reputational advantage of large exchanges. Requiring brokers to send orders to the platform with the best price
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means they can no longer adjust their own prices before fulfilling the order then fulfill the order themselves. This sped up the stock-market, which was important in the electronic world.
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