Investment Expert Larry Shover to Moneynews: 'We Don’t Need Liquidity at all Costs'

Thursday, 02 May 2013 02:02 PM

By Glenn J. Kalinoski and David Nelson

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Larry Shover, the chief investment officer, portfolio manager at Solutions Funds Group, said the trading conditions which allowed the false report of explosions at the White House that wiped out $136 billion from the Standard & Poor’s 500 Index in about two minutes could easily be prevented by regulators.

"I’ve been on the floor for 30 years and, again, regulators continue to say that they’re looking into this. And they continue to say this, but, really, it would be pretty easy to change this and to stop this," he told Newsmax TV in an exclusive interview.

"Everything is all about speed, all about providing liquidity. We don’t need to be in the 18th century when it comes to trading, but we can slow this down and it’s not going to hurt anybody. We have to recognize that we don’t need liquidity at all costs,” he said.

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The index had gained approximately 1 percent to about 1,578 at 1:07 p.m. when a posting on the Associated Press Twitter account said there had been explosions at the White House and President Barack Obama had been injured, according to Bloomberg News.

The gauge lost almost the entire gain, falling as low as 1,563.03 by 1:10 p.m. The S&P 500 recovered from the drop within three minutes as the news service said its Twitter account had been hacked and there were no explosions. The index ended the session up 1 percent at 1,578.78.

Editor’s Note: Put the World’s Top Financial Minds to Work for You


He was asked to comment on speculation that the drop may have been caused, or at least accentuated, by high frequency traders in algorithmic trading.

“A lot of these electronic trading outfits are really just mathematical algorithms that are looking at different asset classes and they think that they should be trading within different ranges,” he said.

“If oil trades at a price A, then the equity should be at price B. And if one of these gets out of line, these black boxes, these electronic algorithms, just go crazy without any human intervention whatsoever," he said.

"And then … when it resonated to everybody what happened, that it was a false report, then everything just returned back to normal. The trading programs that were selling turned around and started buying.”

Shover also discussed whether the human element has been eliminated from the market.

“We’re, unfortunately, getting used to this sort of thing,” Shover said.

“We definitely need a securities market, we need a commodities market, but we don’t need a casino,” he said.

“There’s so much going on in the environment that we can’t even see with this high-speed, high-frequency trading that I’m afraid that the next time it happens … it’s going to be much, much bigger than what we saw last week.”

Shover was asked about a comment made by Mark Cuban: “We’ve gone from a market designed to raise capital to support new businesses to a platform designed for algorithmic traders and hackers.”

“I can’t agree more with him,” Shover said.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

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