LIZ: THAT'S MY BRILLIANT
EXECUTIVE PRODUCER, BRAD HURST,
SAYING THE LOW OF THE SESSION IS
A LOSS OF 398.
THE HIGH OF THE SESSION IS 86.
WE ARE LOOKING, CONTINUING A
MOVE TO THE DOWNSIDE.
WE ARE DOWN 129 AND FALLING AT
THE MOMENT FOR THE DOW JONES
INDUSTRIALS.
BUT LET'S FLIP THIS AROUND.
GREAT TRADE.
IF YOU WERE LONG THE VIX OR THE
VOLATILITY INDEX IN 2018, YOU
WERE IN THE MONEY.
WALL STREET'S FEAR GAUGE SHOT UP
160% OVER THE PAST 52 WEEKS.
BY DECEMBER 31st, THE VIX
CLOCKED ITS HIGHEST ANNUAL CLOSE
SINCE 2008.
WHILE THE MAJOR AVERAGES, THEY
ALL WENT SOUTH FOR THE YEAR.
BUT THE DARK SIDE OF VOLATILITY
IS SOMETHING INVESTORS MUST NOT
IGNORE.
THE ROBOTIC HERD IS ON A RAMPAGE
AND YOU COULD GET STAMPEDED.
SETH MERRIN IS THE CEO OF LIQUID
NET, AN ELECTRONIC NETWORK
OPERATING IN 46 MARKETS AROUND
THE WORLD.
YOUR MEMBERS COLLECTIVELY
MANAGE, WHAT, $33 TRILLION IN
EQUITY AND FIXED INCOME.
THAT'S A LOT OF ASSETS.
OKAY.
SO LET ME GO BACK A COUPLE OF
WEEKS, WHERE EVEN TREASURY
SECRETARY STEVE MNUCHIN TURNED
AND SAID ALL THIS VOLATILITY
THAT WE SAW IN DECEMBER, THAT
WAS HIGH FREQUENCY TRADING.
HE THREW IN, YOU KNOW, A FEW
OTHER THINGS, TOO, BUT I MEAN,
THAT WAS SORT OF THE NUT OF IT.
>> HIGH FREQUENCY TRADING IS THE
GAS, IT'S NOT THE FIRE.
SOMETHING HAS TO KICK THE FIRE
OFF AND HIGH FREQUENCY IS LIKE
PUTTING GAS ON IT, IT MAKES IT
WORSE, EXACERBATES THE PROBLEM.
IT'S NOT THE CAUSE OF THE
PROBLEM.
WE HAD A FREE PASS THE FIRST
YEAR OF TRUMP'S PRESIDENCY,
WHERE WE HAD HISTORICALLY LOW
VOLATILITY.
WE COULDN'T UNDERSTAND IT
BECAUSE HE STILL TWEETED EVERY
DAY AND SHOULD HAVE CREATED
CONVULSIONS IN THE MARKET.
THIS YEAR, IT'S THE COMPLETE
OPPOSITE.
NOW EVERY TIME HE TWEETS SOME
KIND OF A NEW POLICY CHANGE, NOW
THAT STARTS VOLATILITY AND HIGH
FREQUENCY TRADERS EXACERBATE IT.
LIZ: LET'S TALK ABOUT
SPECIFICALLY WHAT HIGH FREQUENCY
TRADING IS.
THIS IS SUPER-FAST PROGRAM
TRADING THAT COSTS A LOT OF
MONEY, THERE ARE ORGANIZATIONS
AND THINGS LIKE QUANTITATIVE
FUNDS OR QUANT FUNDS THAT SIMPLY
INPUT, SELL AT THIS, BUY AT
THIS, BUT THEY ALSO HAVE A.I. AS
WELL SO THEY CAN READ HEADLINES,
RIGHT?
>> IT'S VERY DIFFICULT TO
CLASSIFY IT IN ONE BROAD STROKE.
HIGH FREQUENCY TRADERS, THE BAD
HIGH FREQUENCY TRADERS I
CLASSIFY AS TRADERS VERSUS
INVESTORS.
THERE IS A CORRELATION BETWEEN
THE PRICE OF THE STOCK AND THE
FUNDAMENTALS OF A STOCK, RIGHT?
IF IT GOES WAY BEYOND WHAT THAT
CORRELATION SHOULD BE, THEN YOU
EITHER BUY OR SELL.
THAT KEEPS PRICES WITHIN LIMITS.
HIGH FREQUENCY TRADERS ARE
INVESTORS.
THERE IS NO CORRELATION BETWEEN
THOSE TWO REALLY FOUNDATIONAL
ELEMENTS SO THAT'S WHY YOU CAN
SEE STOCK PRICES MOVING, YOU
KNOW, HUNDREDS OF PERCENT IN ANY
GIVEN DAY BECAUSE THEY ARE JUST
MOVING ON MOMENTUM.
THEY ARE BUYING AND SELLING A
PENNY LATER.
LIZ: I CALL IT THE ROBOTIC HERD
AND THE INVESTOR OUT THERE,
MEANING MANY OF OUR VIEWERS, CAN
GET STAMPEDED.
QUANT FUNDS USED TO BE A MUCH
SMALLER PIECE OF THE TRADING
PIE.
YOU COULD GO BACK A COUPLE OF
YEARS AND SEE THAT BACK IN,
WHAT, 2010 OR SOMETHING, IT WAS
ABOUT 13% AND NOW THAT'S MORE
THAN DOUBLED.
I'M WONDERING IF AT SOME POINT
THERE IS GOING TO BE A MOVE BY
THE SECURITIES AND EXCHANGE
COMMISSION, I DON'T KNOW HOW
THEY WOULD DO IT, BUT SPLIT OFF
THE MARKETS, DO ONE FOR QUANTS
AND HIGH FREQUENCY AND LET YOU
GUYS BATTLE IT OUT AND DEAL WITH
IT, AND ANOTHER FOR INVESTORS
WHO LOOK AT A COMPANY, THEY LIKE
WHAT THE COMPANY'S MAKING, THEY
LIKE THE CEO AND THE MANAGEMENT
AND THEY GET THEIR RESEARCH
DONE.
>> FIRST OF ALL, LET'S BE CLEAR.
LIQUID NET IS THE ANTIDOTE FOR
HIGH FREQUENCY TRADING.
WE ARE A COLLECTIVE OF ALL THE
LARGE INVESTORS IN THE WORLD AND
WE DAMPEN VOLATILITY.
BUT THE HIGH FREQUENCY TRADERS,
YOU CAN SEE IT AS A BEAUTIFUL
STATEMENT AROUND CHRISTMAS, WHEN
THE MARKETS WERE SO VOLATILE,
ALL THE HUMAN BEINGS WENT HOME.
THE ONLY THINGS THAT WERE LEFT
TRADING WERE THE ROBOTS, THE
COMPUTERS, AND THERE YOU COULD
SEE THE MASSIVE VOLATILITY GOING
UP AND DOWN JUST BEFORE AND
RIGHT AFTER CHRISTMAS.
LIZ: THEY DO IT AT THE SPEED OF
LIGHT AND IT'S FRIGHTENING.
YOU SAID THIS YEAR, YOU ARE
GOING TO SEE MORE OF THAT, SO
DECEMBER WAS THE PRECURSOR TO
WHAT WE SEE IN 2019, YOUR
PREDICTION, WITH VOLATILITY?
>> HIGH FREQUENCY TRADING IS NOW
OVER 50% OF THE MARKET.
SO I BELIEVE THAT EACH NEW TWEET
THAT COMES OUT OF PRESIDENT
TRUMP OR WE HAVE BREXIT COMING,
WE HAVE GOT THE DEMOCRATS
COMING, GOT MUELLER COMING,
THERE'S A LOT OF REASON FOR
VOLATILITY.
LIZ: THAT'S THE SPARK AND THE