4 ms·
HFT requires low latency on their reactions, not the entire transaction. In IEX's situation, there are two major cases -- (1) A person decides to cross the spr
by consz 11y ago
HFT requires low latency on their reactions, not the entire transaction. In IEX's situation, there are two major cases --
(1) A person decides to cross the spread on IEX first -- in this case, their order will be delayed by 350us (or whatever the shoebox delays), and no one in the world sees the result of their trade until the public data feed updates, in which case all participants are reacting off the same feed, same as any other US equity exchange.
(2) A person hits another exchange first, in which case HFT races to cancel their orders on IEX or cross the spread against another firm's orders on IEX -- yes, their action is delayed by 350us, but so is every other person, so you're otherwise racing to get into the message queue at IEX, and the artificial shoebox delay is irrelevant, since all market participants are equally delayed by it.
So while IEX's shoebox delays the latency on the result of an action, it doesn't make an appreciable difference in the typical HFT strategy. The primary difference is in (1), there is a higher chance that an unsophisticated large block trader (because a sophisticated one will have already set up the necessary delays to hit all exchanges simultaneously) will be able to hit market makers on both IEX and other exchanges before anyone has the time to react, thus being able to take large advantage of their own proprietary knowledge (their own order) some percentage of times more often. The only thing this results in a decrease in liquidity on IEX, but seeing as they're a dark pool/minor player anyways, the difference is negligible.
- wdewind 11y agoYes, that makes sense, but the trade that is done on IEX is still not affected by HFT. So I understand how HFTs can still use IEX to make money, but I don't think that means the 350us delay is a marketing gimmick as vasilipupkin said.
- vasilipupkin 11y agoIt's a marketing gimmick insofar as it claims to somehow protect investors from HFT. As I said elsewhere, every exchange has latency of processing, theirs is 305micros higher. That doesn't appreciably change anything for anyone.
- wdewind 11y agoIEX claims that their delay means that large orders are able to be carried out without the price changing. If this is true, it would seem that IEX is not just a marketing gimmick and is in fact doing what they say they do. If this is not true, I don't see why anyone would care about IEX at all, and why they would trade on it.
- vasilipupkin 11y agoYes, this claim is untrue. Large orders will move the market the way they always move the market and 350 micro delay won't change it one bit. they offer lower fees than other exchanges - standard practice to steal away business from competitors. Traders will trade anywhere where there is liquidity.
- wdewind 11y agoI'm willing to believe you but do you have any source at all? Are you saying big block traders are staying on IEX because the fees are lower? That just doesn't make sense to me, the fee overhead is almost insignificant with big block trades. It's not a question of do the trades move the market, it's a question of can the trades fully execute before the market has moved. Obviously they move the market.
- vasilipupkin 11y agoLook up their fees vs their competitor fees and their volume share of the equity market, and you'll have your answer.
- wdewind 11y agoI just want to make sure I'm understanding you properly: you are saying that big block traders are using IEX because it has low fees, not because the IEX system is preventing the pricing from shifting during the order, correct?