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JP Morgan Blames HFT For Lack Of Market Liquidity

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In a late afternoon note Thursday JP Morgan cited the lack of liquidity being provided for the jarring S&P 500 e-minis volatility on August 24 2015. JP Morgan analyst Marko Kolanovic says "HFT strategies may create an asymmetric liquidity profile with superior liquidity provided in a low or medium volatility regime..." Essentially this means HFT does provide some measure of liquidity in low to medium volatility environments but when things get real bad those so-called "liquidity providers" get out of dodge and hide. Kolanovic goes on to note that although HFT can execute millions of trades in nano-seconds the automated traders lack the ability to "use judgement to understand and interpret large and novel dislocations in the [sic] real time."

Kolanovic says regardless of the motive for August 24 2015 selling the crash would not have happened if sufficient liquidity has been in the marketplace to absorb the flows.

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