7 ms·

It seems like we could save a lot of pointless expenditure on an ultimately meaningless arms race in flash trading if we imposed reasonable limits on the time r

It seems like we could save a lot of pointless expenditure on an ultimately meaningless arms race in flash trading if we imposed reasonable limits on the time required to hold an equity in order for a trade to be legally recognized.

sabujp 7y ago
we should also not allow the president to engage in trade wars, but i possibly digress
- parsnips 7y ago
  please digress.
Guvante 7y ago
Allowing trading of fractional pennies has been theorized to be another way to break up flash trading as you need to accurately guess the real price not just get your exact price up before anyone else.
nickles 7y ago
> pointless expenditure on an ultimately meaningless arms race What about price discovery is pointless? Would you prefer that prices update only once a day? Once a week? Once a month? Realtime pricing of securities and derivatives is critical for an efficiently functioning economy. > if we imposed reasonable limits on the time required to hold an equity in order for a trade to be legally recognized This would damage the ability of market makers to function, ultimately driving up the cost of offering pensions, 401k plans, retail investing, low fee ETFs, etc. If these companies are willing to spend their money competing for the ability to offer you a better, faster price, why is this upsetting? If you're opposed to the emphasis on latency in equity markets, focus on rule 612 of Reg NMS, which prohibits showing more competitive prices.
- whatshisface 7y ago
  Nanosecond pricing updates might be a little more than anybody needs. Maybe if the exchange cleared once every second, that would serve anyone's purposes. Remember the market is ultimately about allocating capital between businesses and governments, and for economic purposes it doesn't need to run any faster than they can.
  - nickles 7y ago
    > Nanosecond pricing updates might be a little more than anybody needs That may be the case, but the 'problem' is caused because market makers aren't legally allowed to offer better prices than they might otherwise desire. It doesn't seem prudent to layer flawed regulation on top of flawed regulation when there's a simpler solution. > Remember the market is ultimately about allocating capital between businesses and governments Equity markets have many purposes. Companies indeed raise money by issuing equity (IPOs and secondaries), and there are cases where governments participate for monetary purposes (BoJ & SNB's equity purchases). But markets also allow: * employees to sell equity compensation they've received whenever they want * retail investors to diversify their asset allocations * sovereign wealth funds, pension funds, endowments, and other real money sources return on their portfolios * for hedging financial risks * companies to return money to shareholders in the form of buy backs > for economic purposes it doesn't need to run any faster than they can All the previously mentioned functions happen all the time, and the marks (prices) generated from this activity helps inform many other economic functions. Everything from central bank policy to insurance pricing depends on well functioning markets. In light of this, why should we make things less efficient by slowing things down and driving the cost up?
  - resters 7y ago
    > Nanosecond pricing updates might be a little more than anybody needs. This statement reveals that you do not understand what is happening when a transaction occurs. The price is simply the market clearing price. It is not as if updates are being published, simply that the correct price is being discovered more rapidly. If you think of the price erroneously as something that has been published, then of course there is nothing beneficial about speeding up the transaction turnaround time. But if you think of each transaction (and every participant willing to transact for close to the clearing price) as a vote that the price being transacted is close to accurate, then the more participants and volume available amount to significantly more information than was previously available. Imagine if trades were available only once per hour. Consider the kind of spread would a market making firm have to utilize to avoid losing money! Speeding up the market adds additional efficiency and reduces inventory risk for market making firms, increasing information and liquidity for all.
- vannevar 7y ago
  Most of these efforts are aimed at taking advantage of lags in information flow, often within the very trading systems on which the trades are occurring. They are exploits, not essential market-making. Noise, not signal. What's the right timeframe? Something based on the time it takes for humans to reason about a price. Not a day, but certainly not milliseconds, either.
  - voldacar 7y ago
    If they were noise, they would not be profitable strategies.
    - vannevar 7y ago
      Noise compared to the signal actually needed for a market to function. Markets functioned nicely on much, much longer timeframes in the past.
      - infinite8s 7y ago
        They also had much higher transaction and information costs.
    - ggggtez 7y ago
      I don't want to get caught up in arguing what is noise in the mathematical sense. I think the parent is refering to the fact that the arbitrage traders are not adding any real value by making these trades this fast. The market would adjust in miliseconds. Who really wants to let some guy who built a 825 mile cable be a rent seeker on every trade for all eternity? https://www.businessinsider.com/chicago-stock-exchange-responding-to-high-speed-traders-2016-8 https://www.businessinsider.com/chicago-stock-exchange-respo...
      - wbl 7y ago
        He's not a rent seeker. Absent his existence, the people on both sides of the trade would be harmed by crossing a bigger spread.
- ggggtez 7y ago
  >Would you prefer that prices update only once a day? Obviously you are being hyperbolic, but some people have proposed literally laying excess cable to slow down the speed of automatic trades, which can be highly volatile. That's not damaging market makers at all. It's smoothing out the supply and demand to prevent micro-crashes and other arbitrage.
- em500 7y ago
  > What about price discovery is pointless? Would you prefer that prices update only once a day? Once a week? Once a month? Realtime pricing of securities and derivatives is critical for an efficiently functioning economy. Pretty much everything at sub-second resolution is pointless. I'd like to hear a coherent argument how realtime or even sub-second pricing of securities and derivatives is critical for an efficiently functioning economy, yet the largest markets in the world are closed 2/3rd of the day. The fact that most markets are closed on all weekends plus over 10 holidays per year suggests that even an update once per day wouldn't make much of a difference.
  - goatinaboat 7y ago
    Pretty much everything at sub-second resolution is pointless. Some people think so, but the truth is you will simply shift the competition from “as fast as possible” to “within as few picoseconds after exactly one second” or whatever the limit is.
    - nathan_long 7y ago
      Unless you add random delays to each trade.
      - goatinaboat 7y ago
        That uncertainty will only increase the spread and retail investors - ordinary folks like you or I - will pay for it.
      - gpderetta 7y ago
        Ad long as you can model the latency statistically people will still try to play the game. It will be much riskier of course, and I'm not sure why that would be a better outcome.
  - jiggawatts 7y ago
    This. A million times this. All possible arguments for price discovery are totally invalidated by regular market closures. Conversely, if sub-second resolution is somehow "a good", then by extension sub-millisecond price discovery is "even better". There are some insane people that state this kind of gibberish with a straight face. If millisecond are good, then surely microseconds are even better! Next... nanosecond resolution price discovery for the uuuuuultimate liquidity.
golemiprague 7y ago
How is it different to any other competition between companies, what makes this one specifically pointless? Your idea will just put more money in the pocket of the bank traders rather than spreading the wealth to all the IT engineers and equipment manufacturers which supply this slight advantage, what's wrong with that?
friendlybus 7y ago
Even if the business functions were pointless, the research and execution going into these projects is valuable knowledge that likely has broad application.
jwilliams 7y ago
I wouldn't say it's meaningless. These types of technologies are usually arbitraged out; ending up with a few large players that are squeezing out a return. It means high frequency volatility is taken out of the equation for the rest of us -- Which generally is a benefit for other players in the market. FX has (effectively) been that way for a long time.
simula67 7y ago
A simpler solution might be to just increase the transaction tax
dna_polymerase 7y ago
But why? Who is the victim here?
- Jolter 7y ago
  Who pays the $100M? Yes, the customer of the bank, of course. Which usually means you and me are paying in the end.
  - dna_polymerase 7y ago
    You are a client of Goldman Sachs? I think you won't worry about a share of $100M then.

sabujp 7y ago

we should also not allow the president to engage in trade wars, but i possibly digress

parsnips 7y ago
please digress.

Guvante 7y ago

Allowing trading of fractional pennies has been theorized to be another way to break up flash trading as you need to accurately guess the real price not just get your exact price up before anyone else.

nickles 7y ago

> pointless expenditure on an ultimately meaningless arms race What about price discovery is pointless? Would you prefer that prices update only once a day? Once a week? Once a month? Realtime pricing of securities and derivatives is critical for an efficiently functioning economy. > if we imposed reasonable limits on the time required to hold an equity in order for a trade to be legally recognized This would damage the ability of market makers to function, ultimately driving up the cost of offering pensions, 401k plans, retail investing, low fee ETFs, etc. If these companies are willing to spend their money competing for the ability to offer you a better, faster price, why is this upsetting? If you're opposed to the emphasis on latency in equity markets, focus on rule 612 of Reg NMS, which prohibits showing more competitive prices.

whatshisface 7y ago
Nanosecond pricing updates might be a little more than anybody needs. Maybe if the exchange cleared once every second, that would serve anyone's purposes. Remember the market is ultimately about allocating capital between businesses and governments, and for economic purposes it doesn't need to run any faster than they can.
- nickles 7y ago
  > Nanosecond pricing updates might be a little more than anybody needs That may be the case, but the 'problem' is caused because market makers aren't legally allowed to offer better prices than they might otherwise desire. It doesn't seem prudent to layer flawed regulation on top of flawed regulation when there's a simpler solution. > Remember the market is ultimately about allocating capital between businesses and governments Equity markets have many purposes. Companies indeed raise money by issuing equity (IPOs and secondaries), and there are cases where governments participate for monetary purposes (BoJ & SNB's equity purchases). But markets also allow: * employees to sell equity compensation they've received whenever they want * retail investors to diversify their asset allocations * sovereign wealth funds, pension funds, endowments, and other real money sources return on their portfolios * for hedging financial risks * companies to return money to shareholders in the form of buy backs > for economic purposes it doesn't need to run any faster than they can All the previously mentioned functions happen all the time, and the marks (prices) generated from this activity helps inform many other economic functions. Everything from central bank policy to insurance pricing depends on well functioning markets. In light of this, why should we make things less efficient by slowing things down and driving the cost up?
- resters 7y ago
  > Nanosecond pricing updates might be a little more than anybody needs. This statement reveals that you do not understand what is happening when a transaction occurs. The price is simply the market clearing price. It is not as if updates are being published, simply that the correct price is being discovered more rapidly. If you think of the price erroneously as something that has been published, then of course there is nothing beneficial about speeding up the transaction turnaround time. But if you think of each transaction (and every participant willing to transact for close to the clearing price) as a vote that the price being transacted is close to accurate, then the more participants and volume available amount to significantly more information than was previously available. Imagine if trades were available only once per hour. Consider the kind of spread would a market making firm have to utilize to avoid losing money! Speeding up the market adds additional efficiency and reduces inventory risk for market making firms, increasing information and liquidity for all.
vannevar 7y ago
Most of these efforts are aimed at taking advantage of lags in information flow, often within the very trading systems on which the trades are occurring. They are exploits, not essential market-making. Noise, not signal. What's the right timeframe? Something based on the time it takes for humans to reason about a price. Not a day, but certainly not milliseconds, either.
- voldacar 7y ago
  If they were noise, they would not be profitable strategies.
  - vannevar 7y ago
    Noise compared to the signal actually needed for a market to function. Markets functioned nicely on much, much longer timeframes in the past.
    - infinite8s 7y ago
      They also had much higher transaction and information costs.
  - ggggtez 7y ago
    I don't want to get caught up in arguing what is noise in the mathematical sense. I think the parent is refering to the fact that the arbitrage traders are not adding any real value by making these trades this fast. The market would adjust in miliseconds. Who really wants to let some guy who built a 825 mile cable be a rent seeker on every trade for all eternity? https://www.businessinsider.com/chicago-stock-exchange-responding-to-high-speed-traders-2016-8 https://www.businessinsider.com/chicago-stock-exchange-respo...
    - wbl 7y ago
      He's not a rent seeker. Absent his existence, the people on both sides of the trade would be harmed by crossing a bigger spread.
ggggtez 7y ago
>Would you prefer that prices update only once a day? Obviously you are being hyperbolic, but some people have proposed literally laying excess cable to slow down the speed of automatic trades, which can be highly volatile. That's not damaging market makers at all. It's smoothing out the supply and demand to prevent micro-crashes and other arbitrage.
em500 7y ago
> What about price discovery is pointless? Would you prefer that prices update only once a day? Once a week? Once a month? Realtime pricing of securities and derivatives is critical for an efficiently functioning economy. Pretty much everything at sub-second resolution is pointless. I'd like to hear a coherent argument how realtime or even sub-second pricing of securities and derivatives is critical for an efficiently functioning economy, yet the largest markets in the world are closed 2/3rd of the day. The fact that most markets are closed on all weekends plus over 10 holidays per year suggests that even an update once per day wouldn't make much of a difference.
- goatinaboat 7y ago
  Pretty much everything at sub-second resolution is pointless. Some people think so, but the truth is you will simply shift the competition from “as fast as possible” to “within as few picoseconds after exactly one second” or whatever the limit is.
  - nathan_long 7y ago
    Unless you add random delays to each trade.
    - goatinaboat 7y ago
      That uncertainty will only increase the spread and retail investors - ordinary folks like you or I - will pay for it.
    - gpderetta 7y ago
      Ad long as you can model the latency statistically people will still try to play the game. It will be much riskier of course, and I'm not sure why that would be a better outcome.
- jiggawatts 7y ago
  This. A million times this. All possible arguments for price discovery are totally invalidated by regular market closures. Conversely, if sub-second resolution is somehow "a good", then by extension sub-millisecond price discovery is "even better". There are some insane people that state this kind of gibberish with a straight face. If millisecond are good, then surely microseconds are even better! Next... nanosecond resolution price discovery for the uuuuuultimate liquidity.

golemiprague 7y ago

How is it different to any other competition between companies, what makes this one specifically pointless? Your idea will just put more money in the pocket of the bank traders rather than spreading the wealth to all the IT engineers and equipment manufacturers which supply this slight advantage, what's wrong with that?

friendlybus 7y ago

Even if the business functions were pointless, the research and execution going into these projects is valuable knowledge that likely has broad application.

jwilliams 7y ago

I wouldn't say it's meaningless. These types of technologies are usually arbitraged out; ending up with a few large players that are squeezing out a return. It means high frequency volatility is taken out of the equation for the rest of us -- Which generally is a benefit for other players in the market. FX has (effectively) been that way for a long time.

simula67 7y ago

A simpler solution might be to just increase the transaction tax

dna_polymerase 7y ago

But why? Who is the victim here?

Jolter 7y ago
Who pays the $100M? Yes, the customer of the bank, of course. Which usually means you and me are paying in the end.
- dna_polymerase 7y ago
  You are a client of Goldman Sachs? I think you won't worry about a share of $100M then.