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Regulators Bring a Strange Spoofing Case

11 points by dsri 11y ago

chris_wot 11y ago
I realise the guy isn't a HFT, but that seems to be how he is being treated. What EXACTLY does high frequency trading contribute to society? Genuine question.
- pdeuchler 11y ago
  This has been discussed ad nauseum in other threads (search for other articles by Matt Levine that have been submitted here), but HFT has driven transaction costs down to mere pennies which has resulted in a net increase on the order of billions in national pension/retirement wealth funds.
- droffel 11y ago
  I've always thought of (some forms of) HFT as a way to let liquidity flow between exchanges, with a payoff equal to the degree to which the inter-exchange spread has been decreased. If the inter-exchange spread is wide, there is some value to be extracted from compressing that spread, and HFT provides the (in my opinion) valuable service of extracting that value, making the market more efficient as a whole. The more people that are competing in that market, the smaller the value the HFTs can extract, until the actual market participants on the exchanges are only paying fractions of a penny for the privilege of buying shares "originating" from another market that has higher liquidity. I can't really see how this could be a bad thing (given enough competition).
- bsder 11y ago
  > What EXACTLY does high frequency trading contribute to society? Genuine question. Liquidity. Buy and hold traders are wonderful--until you want to sell your stock. Too many buy and holders and the liquidity disappears. Several of the big companies found this out the hard way when opened special trading desks for their privileged clients to avoid those "dirty HFT traders". Everybody wanted to buy; nobody wanted to sell; there was no liquidity. They had to let some HFT folks in to make the markets. Now, we can argue that HFT below some threshold of delay (10 minutes? 1 minute? 1 second? 1 millisecond?) is useless and counterproductive. However, the people trading quickly make the liquidity that the buy and hold folks rely on.
princeb 11y ago
maybe the knee jerk reaction on HN is to think 'HFT' but this really isn't. although i have to say 400ms to place an order, cancel it, and place a new order in the opposite direction (or 2 actions using the cancel-if-cross - all manually as it appears - is pretty fast. high frequency finger clicking, maybe, but definitely not high frequency. the cftc is going after this guy for the behaviour that resulted from the avoid-orders-that-cross feature that was available on that guy's commercial trading platform (the application is TT and it's used everywhere), and in the sarao case they went after his cancel-if-close behaviour too (that too is sort-of available direct from some exchanges - pegged order). i hope they know that the industry has plenty of available tools to help the average joe do things like these because they have their own meaningful (but specific) purpose in day to day trading. in this particular case- cme and a lot of other exchanges really really don't like it if you cross your own orders. it reeks of wash trading. this is just a tool to make it really simple, because sometimes a firm has multiple traders that have different trades they want to put on and you can't always be sure they won't cross each other. sometimes i wonder if the tools proliferate these malicious behaviour or if the malicious behaviour proliferate these tools. i suspect a lot of market participants are engaging in very "aggressively defensive" behaviour to counter things like these. in any case the microstructure has changed quite a bit in as quickly as the last 10 months and it looks like that is going to be the new normal rate of change.

11 points by dsri 11y ago

I realise the guy isn't a HFT, but that seems to be how he is being treated. What EXACTLY does high frequency trading contribute to society? Genuine question.

pdeuchler 11y ago
This has been discussed ad nauseum in other threads (search for other articles by Matt Levine that have been submitted here), but HFT has driven transaction costs down to mere pennies which has resulted in a net increase on the order of billions in national pension/retirement wealth funds.
droffel 11y ago
I've always thought of (some forms of) HFT as a way to let liquidity flow between exchanges, with a payoff equal to the degree to which the inter-exchange spread has been decreased. If the inter-exchange spread is wide, there is some value to be extracted from compressing that spread, and HFT provides the (in my opinion) valuable service of extracting that value, making the market more efficient as a whole. The more people that are competing in that market, the smaller the value the HFTs can extract, until the actual market participants on the exchanges are only paying fractions of a penny for the privilege of buying shares "originating" from another market that has higher liquidity. I can't really see how this could be a bad thing (given enough competition).
bsder 11y ago
> What EXACTLY does high frequency trading contribute to society? Genuine question. Liquidity. Buy and hold traders are wonderful--until you want to sell your stock. Too many buy and holders and the liquidity disappears. Several of the big companies found this out the hard way when opened special trading desks for their privileged clients to avoid those "dirty HFT traders". Everybody wanted to buy; nobody wanted to sell; there was no liquidity. They had to let some HFT folks in to make the markets. Now, we can argue that HFT below some threshold of delay (10 minutes? 1 minute? 1 second? 1 millisecond?) is useless and counterproductive. However, the people trading quickly make the liquidity that the buy and hold folks rely on.

princeb 11y ago

maybe the knee jerk reaction on HN is to think 'HFT' but this really isn't. although i have to say 400ms to place an order, cancel it, and place a new order in the opposite direction (or 2 actions using the cancel-if-cross - all manually as it appears - is pretty fast. high frequency finger clicking, maybe, but definitely not high frequency. the cftc is going after this guy for the behaviour that resulted from the avoid-orders-that-cross feature that was available on that guy's commercial trading platform (the application is TT and it's used everywhere), and in the sarao case they went after his cancel-if-close behaviour too (that too is sort-of available direct from some exchanges - pegged order). i hope they know that the industry has plenty of available tools to help the average joe do things like these because they have their own meaningful (but specific) purpose in day to day trading. in this particular case- cme and a lot of other exchanges really really don't like it if you cross your own orders. it reeks of wash trading. this is just a tool to make it really simple, because sometimes a firm has multiple traders that have different trades they want to put on and you can't always be sure they won't cross each other. sometimes i wonder if the tools proliferate these malicious behaviour or if the malicious behaviour proliferate these tools. i suspect a lot of market participants are engaging in very "aggressively defensive" behaviour to counter things like these. in any case the microstructure has changed quite a bit in as quickly as the last 10 months and it looks like that is going to be the new normal rate of change.