Microsecond Trades = Insanity Indicator

There is extreme competition to execute stock trades in less and less time. The small changes in value that can occur while an order is pending can add up to serious money. This has become an arms race because as the ability to cram more trades into less time increases, the amount of fluctuation that can occur over brief periods becomes greater. Execution times on the order of microseconds are now possible, with no sign that further decreases aren't on the way. Ignoring for the moment the unfair competitive edge such systems give the large institutions that can afford them, I see the entire drive as proof positive that our speculation markets are insane. There is no way to interpret buying and selling that holds times that tiny as being anything in the slightest bit constructive, caring at all about the development of companies, products, or technology. It is gambling (at best, insider trading at worst) in its most naked form and should be eliminated. Not only should quick turnaround on stock be discouraged, but the trades themselves should be randomized and delayed in order to make extremely time sensitive trading impossible. I would like to see minimum delays of a least a day or two, with a random component of the same order. Another possibility is that orders are sold off across an interval so that the sale price is effectively time averaged. Many will complain that limiting transaction speed will reduce liquidity, but how is that beneficial in this instance? Because it allows more people to make extremely speculative and fundamentally unproductive exchanges faster?

Speculation Proponents

I came across this very interesting article about how former IBM CEO Louis Gerstner suggests that short-term investment gains should be taxed at 80%. I have long opposed short term speculation so his comments just about had me jumping up and down. He admits that there would be a great deal of opposition to such a proposal since profits for many are tied to the volume of transactions. That got me thinking about all the groups that have a direct vested interest in maintaining the status quo:

1) The gamblers. People actively involved in speculation who feel they can strike it rich. It has been well established that playing the lottery in a serious manner is ridiculous, but lots of people still do so. Speculation is a lot less obviously a bad idea.

2) The upper end of the bell curve. People who managed to make a bundle playing the markets. Of course they admire the system that made them wealthy, and they have the political contributions to make their voices heard. Overexposure of their successes fuels the hopes of group #1.

3) Inside traders. Speculation serves as a fantastic cover for the use of illegal information.

4) The infrastructure. All the businesses who support the speculative markets, from the trading companies, to the rating agencies, to the financial news services. The house always wins.