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The concluding question from the article is fundamentally flawed and completely invalid. The market functions because people who want to buy are matched with p

by lrm242 16y ago

The concluding question from the article is fundamentally flawed and completely invalid. The market functions because people who want to buy are matched with people who want to sell. This fundamental concepts requires there be an asynchrony in market participant motivations. Leaning the market to one type of participant (let's say, long term value investors) will disincent others to participate. By doing this, the market will find it harder and harder to serve those it deems most important because no one will take the other side of their trades. People seem to think that markets are there to serve them. In reality, markets are there to serve two people at once. The unique pairing of a buyer and seller is required for the market to function and by definition requires the market to cater to no one. It simply must provide a service that is deemed fair by all participants. Fair to the point that they are not disincented to participate. From the article, if the mutual funds actually stand up and say, "You know what, I'm not trading Tape C securities anymore, especially not on BATS or Nasdaq. I will now only trade Tape A, NYSE listed, specialist controlled stocks" you can bet that the other exchangse will listen and do what's required to maintain their order flow. Of course, the mutual fund managers WON'T do this precisely because they know whatever disincentive they are faced with by participating in venues where automated trading is prevelant are far outweighed by the benefits they receive by trading there. This is nothing more than a group of people wanting the good old days back. Times change, to keep up you must adapt. Those mutual funds need to invest in better execution. They need to learn to play in the new world and stop trying to introduce misleading rules into the system to fix the game like it's 1993. Markets change, if you want to keep playing you change too.

StrawberryFrog 16y ago
I'm struggling to see exactly what you're saying beyond "the way things are now suits me fine, and you can't do anything about it, so nyah to you".
- lrm242 16y ago
  Interesting. How about this: the rules of the market must be as general as possible to encourage as many participants with competing motivations to participate. Doing anything but this will create a market that is, by definition, less efficient and more costly. Simple enough for you?
  - borism 16y ago
    Less efficient and more costly might be acceptable trade-off depending on "by how much?" Like you say market shouldn't be favoring one type of participant over another. Seems to me like market favors HFT guys more than others these days.
    - joe_the_user 16y ago
      ... except he's saying the market should accommodate them... As far as I can see, HFT makes the market more costly, allocates capital less efficiently and doesn't do so for any "greater good" but the enrichment of a connected few who talk about a rather odd kind of efficiency ... sure, tapping your competitor's phone is another highly "efficient" way to make profits as well.
      - borism 16y ago
        care to explain the difference between "shouldn't be favoring" and "should accommodate"?
        joe_the_user 16y ago
        "Should accommodate X" means that you should not make policy that is unfavorable to X. He's saying that the market should be open to all strategies. There's no statement in there saying that the market should stop favoring one or another strategy. This comes because others have have implied that the present system is favoring HFT and he's basically rebutting those claims using this argument.
  - chipsy 16y ago
    I agree. Alternately, one could make a Darwinian analogy. The market should accommodate as many strategies as possible(biodiversity) to ensure its stability. The market has changed to incorporate new, high-tech strategies, but this is actually a good thing as it can increase diversity - so long as no one strategy is dominant. An ideal market would snap to an exact valuation of companies and commodities, and adjust instantly with each passing second; but our markets are not sufficiently informed on the fundamentals to do such a thing. Hence we'll always have some trading action take place around the true price, in which speculators attempt to beat the market psychology. What we're doing is accelerating the speculation, shortening the timeframes for everything; this doesn't just increase liquidity, but also increases the average spread of prices over a given time period. This could be seen as a better reflection of market uncertainty over true price.
beagle3 16y ago
The system right now significantly favours whoever can invest >$50000/month in infrastructure (regardless of trading volume). For example, in the recent flash-crashes (e.g. 6-may), anyone using the "standard" feed had a lag of several minutes on price data, whereas anyone using the newer interfaces (at $10K "pay-to-play" minimum) got up-to-date prices. While this was extreme, it did happen 4 times in the last 6 months; And it happens every single day to a lesser degree. Also, "flash orders" which got everyone raging last year are still permitted. Their only purpose is to let the faster players profit at the expense of the slower players. The regulation here is broken. Markets change; that does not mean the market today is operating properly. If anything was game, you wouldn't need the SEC or the huge amount of laws and regulations to make it work. Insider-trading laws were needed because some people were able to take advantage of others. The details have changed, but still -- a lot of what is not illegal today should be.
- lrm242 16y ago
  > The system right now significantly favours whoever can invest >$50000/month in infrastructure (regardless of trading volume). You're drastically overstating the costs. I can put a server at the Nasdaq data center using Lightspeed Trading as my broker for $1,000. For no additional fee apart from paying the standard Nasdaq professional market data fee I can have access to the multicast Itch data feed. The rawest form of market data available from the Nasdaq. These aren't hypothetical numbers. These are real. If you want to form a broker/dealer and buy a membership and host your own infrastructure, etc yes you might pay more. But for that the only added benefit you get is the ability to access the market rather than just access the data feed. You get your own MPID or you trade through someone elses. Regardless, you're execution might be about 300 microseconds better than using a broker that caters to this stuff like Lime Brokerage or Lightspeed. > For example, in the recent flash-crashes (e.g. 6-may), anyone using the "standard" feed had a lag of several minutes on price data, whereas anyone using the newer interfaces (at $10K "pay-to-play" minimum) got up-to-date prices. While this was extreme, it did happen 4 times in the last 6 months; And it happens every single day to a lesser degree. Go read about why many of the high-frequency firms pulled out of the market. They pulled out because the exchange's data feeds themselves were starting to fall behind. Their data was suspect, just as was everyone elses. If your data feed is lagged 4 times out of the last 6 months then you might want to go look at DTN's NxCore product. It doesn't lag and it's costs are quite reasonable for anyone who might need data at that level of fidelity. > Also, "flash orders" which got everyone raging last year are still permitted. Where? Please cite a specific exchange and point me to the specific order type in their documentation. I've read the specs of nearly every major futures and equities liquidity venue in the US, so I doubt this is a true statement. > Their only purpose is to let the faster players profit at the expense of the slower players. The regulation here is broken. Wrong, the purpose is to provide incentive for participants to trade at a specific exchange by giving them an opportunity to trade before the broader market does. For this they must improve the NBBO to match the flashed order.

by lrm242 16y ago

StrawberryFrog 16y ago

I'm struggling to see exactly what you're saying beyond "the way things are now suits me fine, and you can't do anything about it, so nyah to you".

lrm242 16y ago
Interesting. How about this: the rules of the market must be as general as possible to encourage as many participants with competing motivations to participate. Doing anything but this will create a market that is, by definition, less efficient and more costly. Simple enough for you?
- borism 16y ago
  Less efficient and more costly might be acceptable trade-off depending on "by how much?" Like you say market shouldn't be favoring one type of participant over another. Seems to me like market favors HFT guys more than others these days.
  - joe_the_user 16y ago
    ... except he's saying the market should accommodate them... As far as I can see, HFT makes the market more costly, allocates capital less efficiently and doesn't do so for any "greater good" but the enrichment of a connected few who talk about a rather odd kind of efficiency ... sure, tapping your competitor's phone is another highly "efficient" way to make profits as well.
    - borism 16y ago
      care to explain the difference between "shouldn't be favoring" and "should accommodate"?
      - joe_the_user 16y ago
        "Should accommodate X" means that you should not make policy that is unfavorable to X. He's saying that the market should be open to all strategies. There's no statement in there saying that the market should stop favoring one or another strategy. This comes because others have have implied that the present system is favoring HFT and he's basically rebutting those claims using this argument.
- chipsy 16y ago
  I agree. Alternately, one could make a Darwinian analogy. The market should accommodate as many strategies as possible(biodiversity) to ensure its stability. The market has changed to incorporate new, high-tech strategies, but this is actually a good thing as it can increase diversity - so long as no one strategy is dominant. An ideal market would snap to an exact valuation of companies and commodities, and adjust instantly with each passing second; but our markets are not sufficiently informed on the fundamentals to do such a thing. Hence we'll always have some trading action take place around the true price, in which speculators attempt to beat the market psychology. What we're doing is accelerating the speculation, shortening the timeframes for everything; this doesn't just increase liquidity, but also increases the average spread of prices over a given time period. This could be seen as a better reflection of market uncertainty over true price.

beagle3 16y ago

The system right now significantly favours whoever can invest >$50000/month in infrastructure (regardless of trading volume). For example, in the recent flash-crashes (e.g. 6-may), anyone using the "standard" feed had a lag of several minutes on price data, whereas anyone using the newer interfaces (at $10K "pay-to-play" minimum) got up-to-date prices. While this was extreme, it did happen 4 times in the last 6 months; And it happens every single day to a lesser degree. Also, "flash orders" which got everyone raging last year are still permitted. Their only purpose is to let the faster players profit at the expense of the slower players. The regulation here is broken. Markets change; that does not mean the market today is operating properly. If anything was game, you wouldn't need the SEC or the huge amount of laws and regulations to make it work. Insider-trading laws were needed because some people were able to take advantage of others. The details have changed, but still -- a lot of what is not illegal today should be.

lrm242 16y ago
> The system right now significantly favours whoever can invest >$50000/month in infrastructure (regardless of trading volume). You're drastically overstating the costs. I can put a server at the Nasdaq data center using Lightspeed Trading as my broker for $1,000. For no additional fee apart from paying the standard Nasdaq professional market data fee I can have access to the multicast Itch data feed. The rawest form of market data available from the Nasdaq. These aren't hypothetical numbers. These are real. If you want to form a broker/dealer and buy a membership and host your own infrastructure, etc yes you might pay more. But for that the only added benefit you get is the ability to access the market rather than just access the data feed. You get your own MPID or you trade through someone elses. Regardless, you're execution might be about 300 microseconds better than using a broker that caters to this stuff like Lime Brokerage or Lightspeed. > For example, in the recent flash-crashes (e.g. 6-may), anyone using the "standard" feed had a lag of several minutes on price data, whereas anyone using the newer interfaces (at $10K "pay-to-play" minimum) got up-to-date prices. While this was extreme, it did happen 4 times in the last 6 months; And it happens every single day to a lesser degree. Go read about why many of the high-frequency firms pulled out of the market. They pulled out because the exchange's data feeds themselves were starting to fall behind. Their data was suspect, just as was everyone elses. If your data feed is lagged 4 times out of the last 6 months then you might want to go look at DTN's NxCore product. It doesn't lag and it's costs are quite reasonable for anyone who might need data at that level of fidelity. > Also, "flash orders" which got everyone raging last year are still permitted. Where? Please cite a specific exchange and point me to the specific order type in their documentation. I've read the specs of nearly every major futures and equities liquidity venue in the US, so I doubt this is a true statement. > Their only purpose is to let the faster players profit at the expense of the slower players. The regulation here is broken. Wrong, the purpose is to provide incentive for participants to trade at a specific exchange by giving them an opportunity to trade before the broader market does. For this they must improve the NBBO to match the flashed order.