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I said compare insider trading. I'm aware that it doesn't involve insider information; the point is that some information advantages can be unfair. We want the
by allenz 8y ago
I said compare insider trading. I'm aware that it doesn't involve insider information; the point is that some information advantages can be unfair. We want the market to reward real research, and not front-running.
- tptacek 8y agoI don't understand what you're trying to argue. Front-running is also an agency problem: it occurs when you hire a broker/dealer to execute orders from you, and, upon receiving your order, the broker trades for their own account off it first. HFTs are proprietary traders. Front-running doesn't simply mean "someone who races to trade first". If you think about it, that definition doesn't even make sense. Does everyone who owns a Bloomberg terminal front-run everyone who doesn't?
- allenz 8y agoThe more expansive view of front running was most famously argued in Flash Boys, where "Lewis concludes that HFT is used as a method to front run orders placed by investors".[1] Under this definition, yes, why should traders need a Bloomberg terminal just to remain on a level playing field? The five-second batch proposal would make the market more fair. We should compete on real information and not on microsecond latency. You say that this doesn't make sense, but I'm very interested in why. Of course, we want price updates to be timely, but why would microsecond resolution be useful? [1] https://en.wikipedia.org/wiki/Flash_Boys https://en.wikipedia.org/wiki/Flash_Boys
- tptacek 8y agoSee Peter Kovac's book-length rebuttal to Flash Boys: https://www.amazon.com/Flash-Boys-Insiders-Perspective-High-Frequency-ebook/dp/B00P0QI2M2 https://www.amazon.com/Flash-Boys-Insiders-Perspective-High-... Lewis' book is not well-regarded. At the point where you've argued that using a Bloomberg terminal means you're front-running everyone who doesn't have one, I feel like I can end this unproductive discussion by asking: "what's a definition of front-running that would be persuasive to someone who doesn't believe that simply owning a Bloomberg terminal is unfair?"
- allenz 8y agoI don't want to argue semantics. I would like a straight answer on why you think that "fastest trader takes all" is a level playing field, or conversely, why implementing a batch auction format would be nonsensical. I'm agree that Lewis's book has many problems, and Kovac's book does not address batch auctions at all.
- tptacek 8y agoIf your whole argument is that HFT is bad because it's "front running" or "insider trading", and you can't define the terms in ways that don't also invalidate the commonplace ways everyone accesses the market today, then what we haven't isn't a mere semantic argument; it's that you don't have a coherent argument at all. Is HFT not front-running or insider trading? (I'd agree!) Then what's wrong with it? Otherwise: what's the useful definition of either of those terms that you're working from?
- allenz 8y agoThe problem with HFT is that it's unfair and discourages investor participation. A batch auction system would level the playing field. Obviously, HFT is currently legal and profitable; I'm talking about reforming the market.
- tptacek 8y agoIn what way does HFT "discourage investor participation"? Before there was high-speed electronic trading, virtually no investors were out there trying to outcompete market makers or run elaborate pairs trading strategies.
- allenz 8y agoThat's the term the SEC uses to explain why a fair market is important. If ordinary investors and traders believe that low latency traders have systematic advantages over them, they will lose confidence in the market and choose not to participate.