Zouhare Al-Baroudi
“Fairness in Financial Markets” RefAnnBib
Angel, James J., and Douglas Mccabe. "Fairness in Financial Markets: The Case of High Frequency
Trading." Journal of Business Ethics 112.4 (2013): 585-95. Web.
James J. Angel
Associate professor at Georgetown University, specializes in thee structure and regulation of financial markets, has visited over 50 financial exchanges worldwide, testified before Congress about the design of the financial markets, hold a B.S. from CIT in Engineering and Applied Science and Economics, M.B.A from Harvard University, Ph.D from the University of California, Berkley in Finance
“Fairness in Financial Markets: The Case of High Frequency Trading” Journal of Business Ethics 112.4
(2013) 585-95
Academic, peer reviewed journal, discusses ethical issues related to business, avoids specialist jargon in favor of dialogue, involves all who are interested in business ethics, published by Springer- a global publishing company
Fairness
Justice
High frequency trading
Financial markets
Manipulation
In the paper, James J. Angel states the inherent issues of high frequency trading and the extent to which the practice is unfair. These traders rely on speed, this means that “there is an arms race for speed between the different competitors” (Angel 590). In order to achieve this speed, many have turned to colocation. This practice enables traders to “actually place their computers in stock exchange data centers so that they can trade faster” (Angel 590). The high frequency traders are able to execute their orders in merely five-millionths of a second, which is the speed of light. This raises the question of fairness. Angel states that “our brains appear to be hard wired to prefer fair outcomes” (Angel 591). To high frequency trader, the practice seems fair, because “anyone” can spend an astronomical amount of money to have their orders executed faster. In reality, this is not the case. The practice allows them to place their orders ahead of others, thus giving them an unfair advantage.
James J. Angel makes a very compelling argument in his paper. It is indeed true that speed in everything in this practice. The trader with the fastest computer and execution time wins. I found it very interesting that high frequency traders found the practice fair because anyone can pay to have their orders routed faster. They compared this to a large investment bank and hedge fund. Is it unfair that they are able to acquire top talent because they pay them well? There is a major difference between the two situations.
Yes, top tier banks and funds are able to hire the best of the best through very attractive compensation, but they are not placing their orders ahead of other banks, cheating them out of their execution.

“There are a number of manipulative trading strategies that attempt to move prices away from their real value to profit from the manufactured discrepancy.” (Angel 589)
“So-called ‘‘predatory’’ algorithms, or ‘‘algos,’’ figure out that a large order is in the process of execution and jump in front of it.” (Angel 589)
“A classic manipulation is a ‘‘bear raid’’ in which the raider enters a short sale order large enough to push the price down.” (Angel 589)
“One of the more controversial features of HFT is that some traders actually place their computers in stock exchange data centers so that they can trade faster.” (Angel 590)
“Another criticism of HFT is that the combination of many different high speed traders may impose additional risk on the market and cause excessive volatility.” (Angel 591)