Regulators struggle to control speculative capital

Vanguard May 2012 p. 4
Nick G.

Australia’s financial markets are relatively small-scale compared to those in the City of London, in New York and other centres of imperialist finance capital.

However, they are subject to the same pressures as all financial markets – instability and chaos driven by the forces of speculative capital.

Marx was well aware of the phenomenon of speculation – the purchase of an asset at a cheap price in the hope of being able to sell it as quickly as possible for a gain.

The highest form of speculation is pure arbitrage: simultaneously buying and selling a financial asset without that asset being put to any productive use.

The electronic age has enabled arbitrage to occur in nanoseconds as computerised programs use intricate algorithms to search the markets for “buy-low sell-high” opportunities.

It has been the task of neo-liberalism to deregulate financial markets and the barriers to the free flow of speculative capital around and through national boundaries.

To increase opportunities for speculative profit ever-larger amounts of capital are deployed to utilise ever-smaller margins between purchase and sale prices.

Two years ago, high frequency trading (HFT) accounted for a mere 4% of the turnover on the Australian Stock Exchange.  Today the figure fluctuates between 15 and 25%, according to a report in the Australian Financial Review  (30/3/12). 

The rapid growth of HFT has sections of the finance capitalists worried. 

What is of particular concern are the “dark pools” where shares are traded between investors away from the scrutiny of other players on the stock exchange.

Here, prices can be artificially pumped up or deflated at the whim of HFT investors with potentially ruinous consequences -  so-called “flash crashes” – for mainstream investors.

The Australian Securities and Investment Commission regulates financial markets in this country, but is at a loss as to how to deal with the expansion of HFT and the existence of “dark pools”.

While you and I put in the hard yards at work to try and make ends meet, and suffer the many regulations preventing us from exercising the right to strike, it is heartening to know that somewhere out in the ether another killing has been made in the deregulated world of imperialist finance capital.