7 ms·

I think this is well known. The real problem is that the traders are much smarter than the regulators, and their ability to obscure far exceeds the regulators'

by osrec 9y ago

I think this is well known. The real problem is that the traders are much smarter than the regulators, and their ability to obscure far exceeds the regulators' ability to untangle. Incentivise your regulators better and you might end up attracting some real talent who can unearth the tricks the crafty traders pull every day (I am an ex trader, from a bulge bracket IB, and trust me, what some of these guys do is not at all kosher).

osrec 9y ago
Also, there is an argument for more time controlled auctions rather than giving everyone a continuous look at the order book. Much like the start of day auction, you could have something similar every minute, where traders submit prices but matching only occurs at the end of each minute. This would certainly put an end to the annoying high/low ticking that happens all too often.
- harryh 9y ago
  There is no good argument for this. The problems you think it might solve...it doesn't solve. Hint: if the minute long auction closes at precisely the minute boundary at what time do you want to put your orders in?
  - osrec 9y ago
    Hint: If you can't see the orders during that minute, it doesn't matter when you submit...
    - harryh 9y ago
      Might other things be happening in the world besides orders on a single exchange?
      - orclev 9y ago
        It seems like that would only matter if you assume that a bid can't be canceled or changed. Assuming you're free to cancel or modify a bid right up until the close, whether you put the bid in at the start of the window or the close of the window wouldn't matter as you could always modify or cancel the bid as new information comes in.
        harryh 9y ago
        If you can always modify or cancel a bid then people will compete to see who can ingest information the fastest and update all of their bids as close to the auction time as possible.
        princeb 9y ago
        even if you can't modify or cancel a bid people will still compete on speed and submit their one (and only) order as close to the auction time as possible. i have no idea what he's trying to come up with. there's no need to belabour the point plenty here have tried to show that the power of information (of all kinds: central bank actions, Donald Trump's tweets, corporate filing, obituaries, declaration of war, natural disasters, etc) and the ability to push order submission to the last moment is going to be king. the only way i can imagine one would nullify the value of information is to assign every participant of the market a random price on their trade that has no correlation to the value of the asset that they are trying to buy or sell.
    - sseveran 9y ago
      Of course it does. A trader (not an investor) is incentivized to wait to the last possible moment when he can still expect a fill. This is why exchanges disseminate auction imbalance information, to attract people to the auction prior to its completion.
      - orclev 9y ago
        In what way is he incentivized? What advantage does he get from waiting till the last possible moment? He has no clue what the current bids are, so whether he bids at the start or the end he still has exactly as much information. He'll have more information after the bidding closes and the winner is announced of course, but by then it's too late, only thing he can do then is participate in the next round of bidding, but that puts him right back in the situation he was in before where until the close the only thing he knows is what the previous winning bid was.
        harryh 9y ago
        There are lots of other forms of information in the world other than the orders in a closed auction. Serious question: Why do people always forget this? This comes up ALL THE TIME when people talk about quantized auction times.
        osrec 9y ago
        Your definition of a quantised auction is a bit different to mine. In my definition, you submit at the start and get an outcome at the end. You have no ability to modify the contents of the auction during the auction itself. I feel what you're describing is still a continuous auction... I mean if you can continually modify your order, or indeed submit at different times, at which point in time do you do your matching?
        harryh 9y ago
        TBH I don't really understand what you are trying to say, but if you submit at "the start" and that is a single moment in time then participants have every incentive to wait until the last possible microsecond before that moment to determine their bids/asks.
  - joosters 9y ago
    As well as making the current bids invisible, you can reduce the auction times considerably - once per second, for instance.
    - osrec 9y ago
      Yes absolutely. The SETS order book (London SE) now runs an intra day auction at 12pm where it limits the amount of info available during the auction. It is a price forming auction - it aims to decide a fair price for the stock while limiting information to participants. See: http://www.lseg.com/markets-products-and-services/our-markets/london-stock-exchange/equities-markets/trading-services/domestic-and-european-trading-services/sets/sets-intra-day-auction http://www.lseg.com/markets-products-and-services/our-market...
    - gnaritas 9y ago
      > once per second, for instance. That won't change anything, he who trades first still wins, HFT will still exist.
  - pishpash 9y ago
    Sure there is. The idea isn't to quantize to arbitrarily long times, but to make it long enough compared to the time of information generation and more importantly, communication. Otherwise you may as well give up the notion of a common market. The number may not be a minute but it sure as hell ain't a nanosecond.
    - harryh 9y ago
      The real world is continuous. It cannot be quantized.
      - dragonwriter 9y ago
        > The real world is continuous. It cannot be quantized. I thought modern physics leaned more toward “the real world is quantized, but the quanta are small enough that things usually seem continuous to human perception.”
        harryh 9y ago
        Heh. Perhaps that is true. But since we're all up here operating at speeds far slower than planck time I am gonna cheat and call it continuous. For the discussion at hand it is true enough.
      - pishpash 9y ago
        What a fatuous comment. The real world satisfies laws of physics. Your fantasy of a continuous single market doesn't exist. This (information coherency) problem has been solved many times in engineering and the solution is quantization.
        harryh 9y ago
        I do not have that fantasy. I'm sorry if I gave you the impression that I did. I have communicated poorly somehow if that is the case.
      - pfortuny 9y ago
  - jcfrei 9y ago
    There are some good economic arguments to be made in favor of frequent batch auctions. Check out the following presentation by Eric Budish from the University of Chicago ( https://simons.berkeley.edu/talks/eric-budish-2015-11-19 https://simons.berkeley.edu/talks/eric-budish-2015-11-19 ).
- lordnacho 9y ago
  A couple of facts about the auctions: - They often end at a randomized time in a given window - They often cross a very large proportion of a day's trading So in some sense the things you are after - hard to game, transparent auctions - are already in existence. If you're happy with waiting, you can pretty much ignore the continuous trading when you're buying/selling your shares. The exchanges I look at all have an opening and closing auction, and a few have a midday auction as well. I'm literally coding a system that uses the auctions right now. To game the randomized end would not be easy, though there are a number of particular market models that open for it. In general, the exchange system has gotten out of hand. There's a lot of weird rules that only make sense if you're told what they're for, and it will undermine confidence if they continue to grow. It's become a catch-22 though, as the markets need the market makers, and the market makers can't make money so easily without an advantage of some sort.
deleted 9y ago
[deleted]
loeg 9y ago
> I think this is well known. I hadn't heard of this. But then again, I'm not an institutional investor and I don't place a lot of trades.
- Graciela54 9y ago
  as Jeff said I'm surprised that anyone can make $9248 in four weeks on the computer . you > could try here>>>>>>>>>>>http://archive.is/VORZm http://archive.is/VORZm
TearsInTheRain 9y ago
you have to target the disgruntled employees that already know the tricks and get them to flip.
- osrec 9y ago
  You know, I've always thought this! Even better, get the guys that have been convicted of serious financial fraud to help the regulators out!
eli_gottlieb 9y ago
Or we can just ban anything insufficiently transparent and be done with it. After all, the point of a market transaction for pricing is its ability to convey transparent, accurate information to other market participants -- right?
- dragonwriter 9y ago
  > After all, the point of a market transaction for pricing is its ability to convey transparent, accurate information to other market participants Arguably, the transparency for pricing that matters is only the final trade price, but I'd argue, in any case, that providing liquidity and actually pricing trades that occur is the more important function of markets, not providing pricing information. OTOH, transparent pricing information brings some participants to the market, which increases liquidity; conversely, though, so does providing various dark trading vehicles. So, in the liquidity-focussed view, there is a trade-off and a balance to be struck.
- rosser 9y ago
  In theory, sure. How's that working out for us? EDIT: Meta, I will never tire of hearing people be all, "But markets!" as if they aren't just as corruptible as any other human institution — if not more so.
  - eli_gottlieb 9y ago
    Well, I agree that it's not working out very ideally for us. This is why I think all those hyper-complicated trades don't necessarily have much real economic value, and banning them is unlikely to be very harmful.
- Brockenstein 9y ago
  "But but the regulations impeding economic growth... "
daodedickinson 9y ago
Eh, somebody in their spare time figured out Bernie Madoff's scheme in the 90's and wrote them an explanation such that ignorance was no excuse. The SEC regulator marrying Madoff's daughter seems relevant.
- chuckkir 9y ago
  Madoff didn't have a daughter.
  - andrewla 9y ago
    Not to support GP's point, but he's probably referring to Shana Madoff, Bernie's niece, who was a compliance officer at the firm and married an SEC regulator. I'm not aware of any report "exposing" the Ponzi before it actually happened, but Shana met her husband during an SEC investigation into allegations of front-running by Madoff's fund.
daodedickinson 9y ago
Eh, somebody in their spare time figured out Bernie Madoff's scheme in the 90's and wrote them an explanation such that ignorance was no excuse. The SEC regulator marrying Madoff's daughter seems relevant.
daodedickinson 9y ago
Eh, somebody in their spare time figured out Bernie Madoff's scheme in the 90's and wrote them an explanation such that ignorance was no excuse. The SEC regulator marrying Madoff's daughter seems relevant.
c3534l 9y ago
> The real problem is that the traders are much smarter than the regulators They're not smarter, they have massively more resources. The SEC investigates and takes to court the tiny, tiny portion of investors which are the most egregious and easy-to-prosecute criminals. This isn't like hackers fighting against security systems.
c3534l 9y ago
> The real problem is that the traders are much smarter than the regulators They're not smarter, they have massively more resources. The SEC investigates and takes to court the tiny, tiny portion of investors which are the most egregious and easy-to-prosecute criminals. This isn't like hackers fighting against security systems.

by osrec 9y ago

osrec 9y ago

Also, there is an argument for more time controlled auctions rather than giving everyone a continuous look at the order book. Much like the start of day auction, you could have something similar every minute, where traders submit prices but matching only occurs at the end of each minute. This would certainly put an end to the annoying high/low ticking that happens all too often.

harryh 9y ago
There is no good argument for this. The problems you think it might solve...it doesn't solve. Hint: if the minute long auction closes at precisely the minute boundary at what time do you want to put your orders in?
- osrec 9y ago
  Hint: If you can't see the orders during that minute, it doesn't matter when you submit...
  - harryh 9y ago
    Might other things be happening in the world besides orders on a single exchange?
    - orclev 9y ago
      It seems like that would only matter if you assume that a bid can't be canceled or changed. Assuming you're free to cancel or modify a bid right up until the close, whether you put the bid in at the start of the window or the close of the window wouldn't matter as you could always modify or cancel the bid as new information comes in.
      - harryh 9y ago
        If you can always modify or cancel a bid then people will compete to see who can ingest information the fastest and update all of their bids as close to the auction time as possible.
        princeb 9y ago
        even if you can't modify or cancel a bid people will still compete on speed and submit their one (and only) order as close to the auction time as possible. i have no idea what he's trying to come up with. there's no need to belabour the point plenty here have tried to show that the power of information (of all kinds: central bank actions, Donald Trump's tweets, corporate filing, obituaries, declaration of war, natural disasters, etc) and the ability to push order submission to the last moment is going to be king. the only way i can imagine one would nullify the value of information is to assign every participant of the market a random price on their trade that has no correlation to the value of the asset that they are trying to buy or sell.
  - sseveran 9y ago
    Of course it does. A trader (not an investor) is incentivized to wait to the last possible moment when he can still expect a fill. This is why exchanges disseminate auction imbalance information, to attract people to the auction prior to its completion.
    - orclev 9y ago
      In what way is he incentivized? What advantage does he get from waiting till the last possible moment? He has no clue what the current bids are, so whether he bids at the start or the end he still has exactly as much information. He'll have more information after the bidding closes and the winner is announced of course, but by then it's too late, only thing he can do then is participate in the next round of bidding, but that puts him right back in the situation he was in before where until the close the only thing he knows is what the previous winning bid was.
      - harryh 9y ago
        There are lots of other forms of information in the world other than the orders in a closed auction. Serious question: Why do people always forget this? This comes up ALL THE TIME when people talk about quantized auction times.
        osrec 9y ago
        Your definition of a quantised auction is a bit different to mine. In my definition, you submit at the start and get an outcome at the end. You have no ability to modify the contents of the auction during the auction itself. I feel what you're describing is still a continuous auction... I mean if you can continually modify your order, or indeed submit at different times, at which point in time do you do your matching?
        harryh 9y ago
        TBH I don't really understand what you are trying to say, but if you submit at "the start" and that is a single moment in time then participants have every incentive to wait until the last possible microsecond before that moment to determine their bids/asks.
- joosters 9y ago
  As well as making the current bids invisible, you can reduce the auction times considerably - once per second, for instance.
  - osrec 9y ago
    Yes absolutely. The SETS order book (London SE) now runs an intra day auction at 12pm where it limits the amount of info available during the auction. It is a price forming auction - it aims to decide a fair price for the stock while limiting information to participants. See: http://www.lseg.com/markets-products-and-services/our-markets/london-stock-exchange/equities-markets/trading-services/domestic-and-european-trading-services/sets/sets-intra-day-auction http://www.lseg.com/markets-products-and-services/our-market...
  - gnaritas 9y ago
    > once per second, for instance. That won't change anything, he who trades first still wins, HFT will still exist.
- pishpash 9y ago
  Sure there is. The idea isn't to quantize to arbitrarily long times, but to make it long enough compared to the time of information generation and more importantly, communication. Otherwise you may as well give up the notion of a common market. The number may not be a minute but it sure as hell ain't a nanosecond.
  - harryh 9y ago
    The real world is continuous. It cannot be quantized.
    - dragonwriter 9y ago
      > The real world is continuous. It cannot be quantized. I thought modern physics leaned more toward “the real world is quantized, but the quanta are small enough that things usually seem continuous to human perception.”
      - harryh 9y ago
        Heh. Perhaps that is true. But since we're all up here operating at speeds far slower than planck time I am gonna cheat and call it continuous. For the discussion at hand it is true enough.
    - pishpash 9y ago
      What a fatuous comment. The real world satisfies laws of physics. Your fantasy of a continuous single market doesn't exist. This (information coherency) problem has been solved many times in engineering and the solution is quantization.
      - harryh 9y ago
        I do not have that fantasy. I'm sorry if I gave you the impression that I did. I have communicated poorly somehow if that is the case.
    - pfortuny 9y ago
- jcfrei 9y ago
  There are some good economic arguments to be made in favor of frequent batch auctions. Check out the following presentation by Eric Budish from the University of Chicago ( https://simons.berkeley.edu/talks/eric-budish-2015-11-19 https://simons.berkeley.edu/talks/eric-budish-2015-11-19 ).
lordnacho 9y ago
A couple of facts about the auctions: - They often end at a randomized time in a given window - They often cross a very large proportion of a day's trading So in some sense the things you are after - hard to game, transparent auctions - are already in existence. If you're happy with waiting, you can pretty much ignore the continuous trading when you're buying/selling your shares. The exchanges I look at all have an opening and closing auction, and a few have a midday auction as well. I'm literally coding a system that uses the auctions right now. To game the randomized end would not be easy, though there are a number of particular market models that open for it. In general, the exchange system has gotten out of hand. There's a lot of weird rules that only make sense if you're told what they're for, and it will undermine confidence if they continue to grow. It's become a catch-22 though, as the markets need the market makers, and the market makers can't make money so easily without an advantage of some sort.

deleted 9y ago

[deleted]

loeg 9y ago

> I think this is well known. I hadn't heard of this. But then again, I'm not an institutional investor and I don't place a lot of trades.

Graciela54 9y ago
as Jeff said I'm surprised that anyone can make $9248 in four weeks on the computer . you > could try here>>>>>>>>>>>http://archive.is/VORZm http://archive.is/VORZm

TearsInTheRain 9y ago

you have to target the disgruntled employees that already know the tricks and get them to flip.

osrec 9y ago
You know, I've always thought this! Even better, get the guys that have been convicted of serious financial fraud to help the regulators out!

eli_gottlieb 9y ago

Or we can just ban anything insufficiently transparent and be done with it. After all, the point of a market transaction for pricing is its ability to convey transparent, accurate information to other market participants -- right?

dragonwriter 9y ago
> After all, the point of a market transaction for pricing is its ability to convey transparent, accurate information to other market participants Arguably, the transparency for pricing that matters is only the final trade price, but I'd argue, in any case, that providing liquidity and actually pricing trades that occur is the more important function of markets, not providing pricing information. OTOH, transparent pricing information brings some participants to the market, which increases liquidity; conversely, though, so does providing various dark trading vehicles. So, in the liquidity-focussed view, there is a trade-off and a balance to be struck.
rosser 9y ago
In theory, sure. How's that working out for us? EDIT: Meta, I will never tire of hearing people be all, "But markets!" as if they aren't just as corruptible as any other human institution — if not more so.
- eli_gottlieb 9y ago
  Well, I agree that it's not working out very ideally for us. This is why I think all those hyper-complicated trades don't necessarily have much real economic value, and banning them is unlikely to be very harmful.
Brockenstein 9y ago
"But but the regulations impeding economic growth... "

daodedickinson 9y ago

Eh, somebody in their spare time figured out Bernie Madoff's scheme in the 90's and wrote them an explanation such that ignorance was no excuse. The SEC regulator marrying Madoff's daughter seems relevant.

chuckkir 9y ago
Madoff didn't have a daughter.
- andrewla 9y ago
  Not to support GP's point, but he's probably referring to Shana Madoff, Bernie's niece, who was a compliance officer at the firm and married an SEC regulator. I'm not aware of any report "exposing" the Ponzi before it actually happened, but Shana met her husband during an SEC investigation into allegations of front-running by Madoff's fund.

daodedickinson 9y ago

c3534l 9y ago

> The real problem is that the traders are much smarter than the regulators They're not smarter, they have massively more resources. The SEC investigates and takes to court the tiny, tiny portion of investors which are the most egregious and easy-to-prosecute criminals. This isn't like hackers fighting against security systems.

c3534l 9y ago