{"id":9694,"date":"2011-02-04T10:15:12","date_gmt":"2011-02-04T15:15:12","guid":{"rendered":"http:\/\/www.smbtraining.com\/blog\/?p=9694"},"modified":"2011-02-04T10:15:12","modified_gmt":"2011-02-04T15:15:12","slug":"the-wind-of-change-is-blowing","status":"publish","type":"post","link":"https:\/\/www.smbtraining.com\/blog\/the-wind-of-change-is-blowing","title":{"rendered":"The wind of change is blowing…"},"content":{"rendered":"

I don’t normally write posts like this, but this deserves our attention.<\/p>\n

I won’t completely recap the article in the WSJ this morning about the AXA fine, but here are the highlights and some points to consider.<\/p>\n

A unit of French insurer AXA SA, AXA Rosenberg Group LLC, runs one of the largest quant programs out there, with $60+ billion under management as of last year.\u00a0 After a coding problem disabled risk controls on some of their accounts (oops?) and those accounts suffered sizable losses, investors pulled about half of that, leaving the unit with “only” $30B under management.\u00a0 Obviously, still a very significant pool of money.\u00a0 After the event, senior management at AXA took steps to cover up the error.<\/p>\n

And here is the important part… the SEC charged AXA with a significant fine and<\/em> demanded they repay losses to the investors’ portfolios.\u00a0 This is the first judgment of its kind against a quant firm, and could be the beginning of something interesting.\u00a0 I don’t fall into the camp of people who think that all HFT and algo trading is evil.\u00a0 In reality, many of the HFT advances have resulted in a net positive to the individual investor who benefits from narrower spreads and better execution in orders done via algos.\u00a0 However, the field is full of abuses (for instance, much of the apparent liquidity in the book is not real liquidity, but what I think of as “predatory” liquidity.\u00a0 This is something that needs to be addressed.) and the arms race of faster execution with less human may have unintended consequences.<\/p>\n

In general, I tend to think less regulation and more free markets is better.\u00a0 “Let the market itself work it out” is usually my attitude, and, in terms of economics, I tend to fall squarely in the Austrian camp<\/a>.\u00a0 The issue in this case is not competition or normal evolution of markets and technology, it is potentially abusive and quasi-criminal practices\u00a0 that may well have an overall negative net impact on the market.\u00a0 At any rate,\u00a0 better regulatory oversight from regulators that have deep insight into market structure and quant trading is needed, and quant shops need to be held accountable for errors that hurt investors.\u00a0 It is possible that yesterday’s AXA settlement may represent a new direction and commitment from the SEC to deal with some of these abuses.<\/p>\n

http:\/\/online.wsj.com\/article\/SB10001424052748704376104576122642878858736.html<\/p>\n

(if you are unable to read the whole article, Google “wsj axa fine” and click on the article from that link.\u00a0 Online WSJ articles are available through Google links.)<\/p>\n

\"Follow<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Yesterday’s AXA settlement could represent a new direction in SEC regulation and oversight.<\/p>\n","protected":false},"author":388,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[943,1],"tags":[1558,1591,1592,1590,1589,1594,1593],"class_list":["post-9694","post","type-post","status-publish","format-standard","hentry","category-adam-grimess-blogs","category-general-comments-2","tag-algo","tag-axa","tag-fine","tag-mft","tag-quant","tag-regulation","tag-settlement","no-post-thumbnail"],"yoast_head":"\nThe wind of change is blowing... | SMB Training<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.smbtraining.com\/blog\/the-wind-of-change-is-blowing\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta 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