Lord Myners : Algorithmic Trading

[Dave Spart]

Lord Myners, City Minister, was just interviewed on the BBC and mentioned his concen over algorithmic trading. So I wrote to him via TheyWorkForYou.com

Dear Lord Myners,

I refer to your recent interview with the BBC's Robert Peston regarding reform of the banking sector.

http://news.bbc.co.uk/1/hi/business/8179415.stm

In the interview you mention your concern over algorithmic trading where an institution may hold shares for a matter of mere seconds. There is a very simple technique that can be used to deter this practice which, let's face it, is gambling not investing.

The technique is to charge capital gains tax inversely proportional to the length of time the investment was held. The table of tax rates below was achieved by using the very simple mathematical function:

Rate = 1/Duration

You can drop this into Excel to see the effect. Essentially this technique discourages investing on increasingly shorter terms. Anyone holding shares in mere seconds would pay practically 100% on their gains.

Duration Tax Rate

1 100%

2 50%

3 33%

4 25%

5 20%

6 17%

7 14%

8 13%

9 11%

10 10%

11 9%

12 8%

13 8%

14 7%

15 7%

16 6%

17 6%

18 6%

19 5%

20 5%

Obviously the above function is a simple one and others can easily be designed to suit policy, but provided there is a element to discourage short term holding it's a simple concept to implement. All the necessary data for these purposes is already held electronically.

It cannot be healthy for the real economy for financial institutions to trade assets so quickly. Banks have already decoupled from reality enough. Here's a simple way to prevent it happening even further.

Yours sincerely,

See what happens.

Edited August 1, 2009 by Dave Spart

[porca misèria]

Lord Myners, City Minister, was just interviewed on the BBC and mentioned his concen over algorithmic trading. So I wrote to him via TheyWorkForYou.com

See what happens.

I don't think capital gains tax is the right answer: after all, someone trading like this is incurring losses too, and is well-placed to complicate the matter beyond anyone's ability to assess them - including the Serious Fraud Office if applicable!

Better a stamp duty on a sliding scale, ranging from nil for long-term investments through to a double-digit percentage for stocks held less than a day.

[Dave Spart]

I don't think capital gains tax is the right answer: after all, someone trading like this is incurring losses too, and is well-placed to complicate the matter beyond anyone's ability to assess them - including the Serious Fraud Office if applicable!

Better a stamp duty on a sliding scale, ranging from nil for long-term investments through to a double-digit percentage for stocks held less than a day.

Yep, I'll go with that.

Any reasonable measure to deter ultra short term holding in favour of long term investment is good.

[Guest_chris c-t_*]

All due respect, but it's got NOTHING to do with the speed of these trades; a liquid market needs this. What is the problem is that the big boys are seeing the bids and offers before anyone else and are able to use the time delay to make risk-free profits. I think this best sums it up:

http://www.greenenergyinvestors.com/index....st&p=119962

what this amounts to is that THE BIG BOYS ARE OPERATING IN YOUR "FUTURE"; they can see price movements before you and hit bids or offers on BATS to make a risk-free profit using the delay.

The 'highfrequency' stuff is all a sham - of course the trades to make a risk free profit are high frequency, and probalby take out the bid/offer side in increments to make sure they don't get left hanging, resulting in large numbers of trades very quickly.

I recall a chinese couple were murdered last year because they were involved in a betting scam which operated on the same principle - a delay to the Peoples Republic of China used the same concept; they were able to make bets before the delayed feed got to a bookmaker.. Same thing as a delay to BATS trading platform.

found a link...

http://www.telegraph.co.uk/news/uknews/256...tes-murder.html

Police are examining theories which have appeared on the internet suggesting Mr Yang was involved in betting scams...

The recruits would watch games before feeding goals and results through to operatives in China where the live action is broadcast one minute behind real time.

Edited August 1, 2009 by chris c-t