High-frequency traders influence studies
Will this year be a big one for market structure?
The reality is that no one knows if the SEC will push the issue anytime soon, despite a lot of tantalizing speculation. It certainly behooves all players to be prepared. Toward that end, you need academic support, and securing that support is no easy task. We're accustomed to the idea of paying for order flow, but the high-frequency trading industry has become adept also at paying for favorable studies, according to the Wall Street Journal.
"As the firms work to convince policy makers their practices are benign or even beneficial, one of their primary tools has been research seeded by the industry itself, promoted by lobbying that has increased in recent years."
In on example, a researcher "didn't disclose in his paper that he had worked as a consultant for a firm that sells advice on computer-driven trading strategies, or that he was trying to start a firm that would sell software to computer-driven fund managers. He says no disclosure was necessary: His consulting work ended in 2009, the software company wasn't an active business but just a 'small side project.' "
This sort of payment for studies is hardly uncommon in the business world. Some say the pharmaceutical industry has raised it to an art form. We'll see if opponents of high-frequency trading hit back in similar fashion.
Big market surprise coming in 2013