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I am deeply confused by IEX. It seems like anyone who knows anything about HFT thinks the narrative proposed in Flash Boys is completely ridiculous and mostly

by wdewind 11y ago

I am deeply confused by IEX. It seems like anyone who knows anything about HFT thinks the narrative proposed in Flash Boys is completely ridiculous and mostly incorrect, including what Brad Katsuyama says. Is there something else interesting about IEX that people outside the industry don't really understand, or is it an entire company of people who have deeply flawed ideas about HFT and how it works?

kasey_junk 11y ago
Just because Flash Boys presents modern electronic exchanges incorrectly, does not mean that some people aren't worse off in the modern HFT world. In particular, large block buyers, who previously got to take advantage of inefficient price discovery to get better prices have been negatively impacted. It is in their best interests to make it possible to buy a very large amount of traded products without the price changing. IEX is built from the ground up for those market participants and none of them have any misunderstanding about how the market works. They just don't like it.
- vasilipupkin 11y ago
  "IEX is built from the ground up for those participants". This is not really correct. Why? because a huge percentage of IEX volume is HFT, just like on any other exchange or dark pool . Their whole solution is nothing but a marketing gimmick. All the major HFT firms trade on IEX just fine
  - wdewind 11y ago
    Can you expand on how IEX's delay isn't preventing HFT from succeeding? I don't really understand enough about the financial markets to know what you mean.
    - vasilipupkin 11y ago
      every exchange takes some amount of time to match orders. IEX is no different. Let me ask you this way. Why would you expect IEX delay to prevent HFT from succeeding ?
      - wdewind 11y ago
        Most exchanges take considerably less time and there are a lot of HFT strategies that require low latencies in order to cancel certain trades before they happen.
        vasilipupkin 11y ago
        without getting into the nitty gritty of how HFT works, suffice it to say that anywhere between 20 and 40% of IEX volume comes from HFT firms.
        wdewind 11y ago
        Can you please get into the nitty gritty? Why is anyone using IEX if there is so much HFT on it? Edit: http://blogs.wsj.com/moneybeat/2014/08/11/debate-over-high-frequency-trading-on-iex-muddied-by-trade-counting/ http://blogs.wsj.com/moneybeat/2014/08/11/debate-over-high-f... Seems like there is some debate. IEX claims 17.7% which is still higher than I expected.
        vasilipupkin 11y ago
        why not use it? if it has liquidity and an attractive fee structure, why wouldn't any trader trade on it, HFT or not ?
        deleted 11y ago
        [deleted]
        gd1 11y ago
        I believe the discrepancy comes down to whether you count opposing counterparties indivdually or not. i.e. If 6 trades involve 6 non-HFT/non electronic market-maker (referred to as 'naturals') trading against 6 other naturals, and the other 4 involve naturals trading against resting HFT liquidity, you could either count that by counterparty that is HFT - (4 out of 20 counterparties) = 20%, or the number of trades that involve someone taking HFT liquidty - (4 out of 10 trades) = 40%. So the 17.7% of HFT counterparties squares roughly with 30%+ HFT trades.
- wdewind 11y ago
  Right, that makes sense, but Katsuyama and Lewis both present IEX as a morally superior, cleaner stock market. It makes sense that large block traders would want a different way to do large block trades, but why not just see it as an alternative financial product that has some demand just like the regular stock market, instead of making it a moral issue? I guess my question is, do the people who work at IEX drink the Kool Aid?
  - harmegido 11y ago
    I don't know enough about IEX to know whether the below is true. If IEX has this 'magic shoebox' mechanism in place, it might follow that they care about establishing a fair exchange in other ways too. There are hundreds of ways in which HFT firms profit from understanding the architecture of various exchanges. In some (many?) cases, HFT firms know more about the exchange architecture than the exchange does. The 'shoebox' addresses just one (mostly outdated) source of HFT competitive advantage. Perhaps employees of IEX drink the koolaid because the exchange actively seeks to eliminate architectural areas of unfairness. The only thing publicized is the 'magic shoebox', but perhaps there are many more such features. Again, this is just conjecture.
  - harryh 11y ago
    The large block traders need someone to trade with. By making it a moral issue, IEX can attempt to trick suckers into joining the market so that the large block traders can take advantage of them. Watch this video (put out by IEX) and think about how it's trying to manipulate people: https://www.youtube.com/watch?v=v2OZkTesSx0 https://www.youtube.com/watch?v=v2OZkTesSx0
    - zhte415 11y ago
      From some content presented in Flash Boys, a question: Why would large block traders like to trade with someone pinging the market for 100 buy/sell orders, waiting for discovery, and then changing the price on other markets from information gained from these pings? If the market were rid of these pings, as the 350ms delay is intended to do? Or to put the same question another way, why would a large block trader not like all trades being done at the same price or at a better or equal price on other exchanges (discovered by IEX) rather than some of the block done at the original price and the rest done at a higher price because 'liquidity' was provided by HFTs driving up/down prices on other markets and then selling/buying from the large block trader this 'liquidity'.
jonny_eh 11y ago
How is the book wrong?
- harryh 11y ago
  Here is a detailed rebuttal: http://www.amazon.com/Flash-Boys-Insiders-Perspective-High-Frequency-ebook/dp/B00P0QI2M2 http://www.amazon.com/Flash-Boys-Insiders-Perspective-High-F...
minimax 11y ago
Some people (of which I'm one) don't have anything good to say about Flash Boys. On the other hand I don't think there are many people who have bad things to say about IEX or Brad Katsuyama. They are doing their thing and they'll succeed or fail based on their ability to compete with the other exchanges. It's hard to complain about that.

by wdewind 11y ago

kasey_junk 11y ago

Just because Flash Boys presents modern electronic exchanges incorrectly, does not mean that some people aren't worse off in the modern HFT world. In particular, large block buyers, who previously got to take advantage of inefficient price discovery to get better prices have been negatively impacted. It is in their best interests to make it possible to buy a very large amount of traded products without the price changing. IEX is built from the ground up for those market participants and none of them have any misunderstanding about how the market works. They just don't like it.

vasilipupkin 11y ago
"IEX is built from the ground up for those participants". This is not really correct. Why? because a huge percentage of IEX volume is HFT, just like on any other exchange or dark pool . Their whole solution is nothing but a marketing gimmick. All the major HFT firms trade on IEX just fine
- wdewind 11y ago
  Can you expand on how IEX's delay isn't preventing HFT from succeeding? I don't really understand enough about the financial markets to know what you mean.
  - vasilipupkin 11y ago
    every exchange takes some amount of time to match orders. IEX is no different. Let me ask you this way. Why would you expect IEX delay to prevent HFT from succeeding ?
    - wdewind 11y ago
      Most exchanges take considerably less time and there are a lot of HFT strategies that require low latencies in order to cancel certain trades before they happen.
      - vasilipupkin 11y ago
        without getting into the nitty gritty of how HFT works, suffice it to say that anywhere between 20 and 40% of IEX volume comes from HFT firms.
        wdewind 11y ago
        Can you please get into the nitty gritty? Why is anyone using IEX if there is so much HFT on it? Edit: http://blogs.wsj.com/moneybeat/2014/08/11/debate-over-high-frequency-trading-on-iex-muddied-by-trade-counting/ http://blogs.wsj.com/moneybeat/2014/08/11/debate-over-high-f... Seems like there is some debate. IEX claims 17.7% which is still higher than I expected.
        vasilipupkin 11y ago
        why not use it? if it has liquidity and an attractive fee structure, why wouldn't any trader trade on it, HFT or not ?
        deleted 11y ago
        [deleted]
        gd1 11y ago
        I believe the discrepancy comes down to whether you count opposing counterparties indivdually or not. i.e. If 6 trades involve 6 non-HFT/non electronic market-maker (referred to as 'naturals') trading against 6 other naturals, and the other 4 involve naturals trading against resting HFT liquidity, you could either count that by counterparty that is HFT - (4 out of 20 counterparties) = 20%, or the number of trades that involve someone taking HFT liquidty - (4 out of 10 trades) = 40%. So the 17.7% of HFT counterparties squares roughly with 30%+ HFT trades.
wdewind 11y ago
Right, that makes sense, but Katsuyama and Lewis both present IEX as a morally superior, cleaner stock market. It makes sense that large block traders would want a different way to do large block trades, but why not just see it as an alternative financial product that has some demand just like the regular stock market, instead of making it a moral issue? I guess my question is, do the people who work at IEX drink the Kool Aid?
- harmegido 11y ago
  I don't know enough about IEX to know whether the below is true. If IEX has this 'magic shoebox' mechanism in place, it might follow that they care about establishing a fair exchange in other ways too. There are hundreds of ways in which HFT firms profit from understanding the architecture of various exchanges. In some (many?) cases, HFT firms know more about the exchange architecture than the exchange does. The 'shoebox' addresses just one (mostly outdated) source of HFT competitive advantage. Perhaps employees of IEX drink the koolaid because the exchange actively seeks to eliminate architectural areas of unfairness. The only thing publicized is the 'magic shoebox', but perhaps there are many more such features. Again, this is just conjecture.
- harryh 11y ago
  The large block traders need someone to trade with. By making it a moral issue, IEX can attempt to trick suckers into joining the market so that the large block traders can take advantage of them. Watch this video (put out by IEX) and think about how it's trying to manipulate people: https://www.youtube.com/watch?v=v2OZkTesSx0 https://www.youtube.com/watch?v=v2OZkTesSx0
  - zhte415 11y ago
    From some content presented in Flash Boys, a question: Why would large block traders like to trade with someone pinging the market for 100 buy/sell orders, waiting for discovery, and then changing the price on other markets from information gained from these pings? If the market were rid of these pings, as the 350ms delay is intended to do? Or to put the same question another way, why would a large block trader not like all trades being done at the same price or at a better or equal price on other exchanges (discovered by IEX) rather than some of the block done at the original price and the rest done at a higher price because 'liquidity' was provided by HFTs driving up/down prices on other markets and then selling/buying from the large block trader this 'liquidity'.

jonny_eh 11y ago

How is the book wrong?

harryh 11y ago
Here is a detailed rebuttal: http://www.amazon.com/Flash-Boys-Insiders-Perspective-High-Frequency-ebook/dp/B00P0QI2M2 http://www.amazon.com/Flash-Boys-Insiders-Perspective-High-F...

minimax 11y ago

Some people (of which I'm one) don't have anything good to say about Flash Boys. On the other hand I don't think there are many people who have bad things to say about IEX or Brad Katsuyama. They are doing their thing and they'll succeed or fail based on their ability to compete with the other exchanges. It's hard to complain about that.