8 ms·

Trading has continued hours ago, probably even before this article was even published. In a first statement, they blamed algo-traders which created (and within

Trading has continued hours ago, probably even before this article was even published. In a first statement, they blamed algo-traders which created (and within milliseconds deleted) a ton of pointless orders, like buying Wirecard for 0,05EUR (which is ~1/100th of the current price). Yes, they explicitly called out orders on Wirecard. So basically... Denial of Service by bot-traders.

snarf21 6y ago
This is such an easy problem to solve. All orders must stand for at least 1 minute before they can be cancelled. It stops all this crazy nonsense to try to move the price and arbitrage the pennies.
- logicchains 6y ago
  That's not a solution, it would mean most market makers instantly left your exchange, or just quote really widely (providing a worse spread, so people wishing to trade have to pay a worse price), because holding your orders in the market for a minute is incredibly dangerous given how much the value of the underlying product could move at any time, especially when it's correlated with something traded on another exchange.
  - raxxorrax 6y ago
    It could be a solution if markets agreed to the same rules. To me, this form of trading has questionable economic effects in my opinion.
    - logicchains 6y ago
      >To me, this form of trading has questionable economic effects in my opinion. Have you ever actually researched the economic effects, or is that just a gut feeling? If you look at it historically, as machines have come to dominate market making, spreads (the difference between buy and sell price) have continually fallen, meaning institutional investors and retailers can buy what they want at a better price. Machines are able to offer these better deals because they know they can get out of their position faster if the market suddenly moves; removing their ability to react faster would remove their ability to offer better prices.
      - raxxorrax 6y ago
        I actually did read about it. Wikipedia alone can enlighten you about respective controversies. I think critical voices sound more reasonable but it is an open question at least. It is still my opinion as stated. Show me the produce, some say it is liquidity, and I withdraw my criticism.
        logicchains 6y ago
        I don't see any controversies mentioned on https://en.wikipedia.org/wiki/Market_maker https://en.wikipedia.org/wiki/Market_maker. https://en.wikipedia.org/wiki/High-frequency_trading https://en.wikipedia.org/wiki/High-frequency_trading mentions some controversies about high-frequency trading in general, but none specifically about market making.
      - rdm70 6y ago
        The part about spreads being smaller because machines are making markets is true, but there are important caveats. The one that comes to mind first is that the tight market is only there for small quantities. If you want to trade in size, then you are out of luck. Machine based market making tends to work well when markets are operating "normally". When some regime-changing news comes out, it's not uncommon for the over-fit algorithms to perform badly so the managers just turn them off. I.e. liquidity disappears just when it's needed most. https://www.wsj.com/articles/thinning-liquidity-in-key-futures-market-worries-traders-11553515200 https://www.wsj.com/articles/thinning-liquidity-in-key-futur...
        gpderetta 6y ago
        well, yes, if you have a market moving trade, you'll have to pay a premium for it to be executed. MM are not there to give money away. Similarly, if your house is on fire, it is hard to complain that buyers go away until they can evaluate how much the hashes are worth. Market makers mostly provide a service for retail investors.
      - gowld 6y ago
        To me that sounds like customers are getting a slight discount on everyday transactions, but getting creamed the market suddenly moves faster
  - bebna 6y ago
    That is why I call that gambling and not investing.
    - logicchains 6y ago
      Why do you call it gambling? The market maker doesn't want to take a position on the stock, that's why he tries to get out quickly if it starts moving. He just wants to provide liquidity (be willing to buy and sell to anyone at any time, so that buyers don't need to wait for a matching seller to come along), and collect a small fee for that in the form of a spread.
      - gowld 6y ago
        But who are the customers? Why do investors need orders filled instantly? It seems the only customers of this service are day-trading troublemakers.
    - deleted 6y ago
      [deleted]
  - buran77 6y ago
    Usually what works for such abuses is either to charge extra (tiers depending on volume) to discourage abuse or at lest to cover losses, or throttling the biggest offenders when getting unreasonable peaks in order to keep the system always running. Both are used in many other sectors. If you have "industrial level" needs you usually have to pay extra either for the service or for additional infrastructure needed to provide you that service, or you simply get everything throttled to sustainable level (think water, electricity, etc). Most traders would not see any difference and the ones that would will have to think twice before DoSing.
    - logicchains 6y ago
      >They could put tiered charging and above a certain volume of transactions apply an additional fee (one time or per transaction). This is a model used in many other sectors. It's actually quite common for exchanges to offer discounts/rebates to firms that trade more, because these firms are essentially providing a service to the exchange (market making, and generating turnover). Much like how other industries offer discounts for buying in bulk. >The other option is to rate limit the biggest offenders when the system's performance limit is reached. I don't know why people always suggest solutions like this when it comes to exchanges. If it was an e-commerce service and somebody suggested "let's rate limit customers to reduce load", it's be shot down as a lazy solution (and a great way to lose customers). If a platform isn't good enough to support the load its customers place on it, then it needs to be improved. If AWS goes down during the world's biggest shopping day, we don't blame the customers, we blame Amazon.
      - buran77 6y ago
        > It's actually quite common for exchanges to offer discounts/rebates to firms that trade more I reworded a bit to give a better idea of what I meant. In general there are bulk discounts but there's always some form of "QoS". Either you get throttled above a ceiling, or you pay through the nose to have that ceiling higher for yourself and have everyone else throttled. All tiered systems work like this. The fixed price goes up and gives you access to better service, higher limits, lower price per usage, etc. As long as you don't have virtually unlimited capacity you can't treat your system as if you do. Mobile operators have to do the same. They charge a base contract price that sets the tier, then charge per usage within that tier, give different ceilings, QoS priorities, and throttling rates. And no matter how big you are as a customer at some point you either pay a surcharge or get throttled so the system stays up and other customers are also served. (source: I worked both for a large telco, and for a customer that payed ~3million E per month to get the consumption costs for min/MB down to almost 0). > I don't know why people always suggest solutions like this when it comes to exchanges. By any chance do the suggestions always come after the exchange was down due to high transaction volumes? Sure, they could implement unlimited capacity. But since this is a tad unrealistic and actually crashing the system is worse than limiting to keep it just below crashing, perhaps the suggestion makes sense. There aren't many sectors that I can think of which give you "unlimited usage no matter what". There's "rate limiting" even in hospitals, where lives are at stake.
- kasey_junk 6y ago
  Even without the obvious impacts to market makers and the subsequent price increases to investors, this doesn’t help. Most things trade with price/time priority. This means that first tie breaker is price but second tie breaker on what fills is who had their order into the market first. This means that market makers layer orders in as early as possible, some strategies I’ve seen layering them weeks or months in advance. So this proposal would add cost to the market without changing anything about the cancel race. The real solution to this sort of problem (which I don’t believe actually caused this issue) is the same mechanism you put in any request/reply system, rate limits. Most exchanges have them.
  - FabHK 6y ago
    Rate limits, or discrete (in time) instead of continuous trading. An auction every minute or so, for three hours a day. That would be much better. (When I started in equities in Hong Kong in 2007, the stock market was open for 4 hours a day... 10 to 12:30, two hour lunch break to drink and socialise^W^W^W have important business discussions with clients, then 14:30 to 16:00. Today it's open 5.5 hours a day. EDIT to add: "Reactions from both brokers and the restaurant industry were mixed." (1) XETRA is open 8.5 hours a day without lunch break, while Frankfurt (FSX) is open 12 hours a day, from 8 to 8. WHY???) (1) https://en.wikipedia.org/wiki/Hong_Kong_Stock_Exchange#Trading_hours https://en.wikipedia.org/wiki/Hong_Kong_Stock_Exchange#Tradi...
    - logicchains 6y ago
      >WHY??? The exchange wants to make more money, and people want to be able to trade at whatever time they feel like.
      - ashtonkem 6y ago
        The answer is also “foreigners”. Regular working hours for a German exchange can produce some pretty brutal trading hours for say, London. When I worked in finance they started serving breakfast at IIRC 5am, since some trading desks started their day then and ended around noon. Expanding those hours can entice foreigners to trade during non-insane local hours.
- kome 6y ago
  I fully agree with you. I have no idea why you are down-voted so heavily.
  - logicchains 6y ago
    > I fully agree with you. I have no idea why you are down-voted so heavily. Maybe because they claimed it's easy to solve when the solution they proposed in fact has a whole lot of undesirable consequences that are obvious to anyone more familiar with how markets work.
    - kome 6y ago
      Sending out orders and withdrawing them immediately after is market abuse, there is a regulation in Europe against it (MIFID II): the real question about the "whole lot of undesirable consequences" is, to whom? and who would benefit instead? The truth is that the real effects of algo trading are still poorly understood as a system, and they have been able to crash markets a couple of time in the past, for no reason. Do we really need this form of speculation "because liquidity"?
      - logicchains 6y ago
        >sending out orders and withdrawing them immediately after is market abuse It's abuse if it's done for the purpose of manipulating the market (spoofing) or deliberately to slow it (quote stuffing), but not if it just happens because somebody put in a bunch of orders and then realised their mistake. >"a whole lot of undesirable consequences" is, to whom To all the institutional and retail traders on the exchange, who have to pay worse prices for their trades because the market makers can't quote so tightly.
        GordonS 6y ago
        > but not if it just happens because somebody put in a bunch of orders and then realised their mistake. Surely that would be an occasion thing though, not several times a second for a prolonged time? I can see how throttling of some kind could work, as long as it's not too aggressive.
- alkonaut 6y ago
  Or make taxes on gains start at 100% and exponentially decay as you hold a certain instrument longer. If the final tax is 30%, that could be reached e.g. after a week.
  - gowld 6y ago
    Should that rule also apply to retailers of other products, so they pay 100% tax if they turn over wholesale products too quickly? Why or why not?
- deleted 6y ago
  [deleted]
- quickthrowman 6y ago
  A minute? Have you ever traded before? Prices move so fast that this would destroy market makers and so on. Sometimes I cancel 4-5 orders before getting a fill on an option trade, manually.
- nv-vn 6y ago
  Is it even a legitimate problem? Exchanges are well-equipped to deal with this kind of thing and direct access to exchanges is moderated by broker-dealers. As a normal user (algo trader or otherwise), you cannot directly plug into the exchange and spam orders. And anyways, exchanges (even IEX) _want_ the arbitrage and liquidity that market makers offer.
lima 6y ago
Have a source for that statement? All I found were speculations by traders.
- Rockslide 6y ago
  It was on German n-tv. Although they now state the opposite here: https://www.n-tv.de/wirtschaft/der_boersen_tag/Arger-ueber-Fantasiepreise-durch-Xetra-Ausfall-article21883080.html https://www.n-tv.de/wirtschaft/der_boersen_tag/Arger-ueber-F...
blibble 6y ago
the order entry gateways normally have rate limits and if a member does bad things the exchange can just cut them off several good incentives for members to exercise control over their client's order flows
gowld 6y ago
Is it possibly a bug where they meant to buy 1/100 the number of orders at 100x the price?

snarf21 6y ago

This is such an easy problem to solve. All orders must stand for at least 1 minute before they can be cancelled. It stops all this crazy nonsense to try to move the price and arbitrage the pennies.

logicchains 6y ago
That's not a solution, it would mean most market makers instantly left your exchange, or just quote really widely (providing a worse spread, so people wishing to trade have to pay a worse price), because holding your orders in the market for a minute is incredibly dangerous given how much the value of the underlying product could move at any time, especially when it's correlated with something traded on another exchange.
- raxxorrax 6y ago
  It could be a solution if markets agreed to the same rules. To me, this form of trading has questionable economic effects in my opinion.
  - logicchains 6y ago
    >To me, this form of trading has questionable economic effects in my opinion. Have you ever actually researched the economic effects, or is that just a gut feeling? If you look at it historically, as machines have come to dominate market making, spreads (the difference between buy and sell price) have continually fallen, meaning institutional investors and retailers can buy what they want at a better price. Machines are able to offer these better deals because they know they can get out of their position faster if the market suddenly moves; removing their ability to react faster would remove their ability to offer better prices.
    - raxxorrax 6y ago
      I actually did read about it. Wikipedia alone can enlighten you about respective controversies. I think critical voices sound more reasonable but it is an open question at least. It is still my opinion as stated. Show me the produce, some say it is liquidity, and I withdraw my criticism.
      - logicchains 6y ago
        I don't see any controversies mentioned on https://en.wikipedia.org/wiki/Market_maker https://en.wikipedia.org/wiki/Market_maker. https://en.wikipedia.org/wiki/High-frequency_trading https://en.wikipedia.org/wiki/High-frequency_trading mentions some controversies about high-frequency trading in general, but none specifically about market making.
    - rdm70 6y ago
      The part about spreads being smaller because machines are making markets is true, but there are important caveats. The one that comes to mind first is that the tight market is only there for small quantities. If you want to trade in size, then you are out of luck. Machine based market making tends to work well when markets are operating "normally". When some regime-changing news comes out, it's not uncommon for the over-fit algorithms to perform badly so the managers just turn them off. I.e. liquidity disappears just when it's needed most. https://www.wsj.com/articles/thinning-liquidity-in-key-futures-market-worries-traders-11553515200 https://www.wsj.com/articles/thinning-liquidity-in-key-futur...
      - gpderetta 6y ago
        well, yes, if you have a market moving trade, you'll have to pay a premium for it to be executed. MM are not there to give money away. Similarly, if your house is on fire, it is hard to complain that buyers go away until they can evaluate how much the hashes are worth. Market makers mostly provide a service for retail investors.
    - gowld 6y ago
      To me that sounds like customers are getting a slight discount on everyday transactions, but getting creamed the market suddenly moves faster
- bebna 6y ago
  That is why I call that gambling and not investing.
  - logicchains 6y ago
    Why do you call it gambling? The market maker doesn't want to take a position on the stock, that's why he tries to get out quickly if it starts moving. He just wants to provide liquidity (be willing to buy and sell to anyone at any time, so that buyers don't need to wait for a matching seller to come along), and collect a small fee for that in the form of a spread.
    - gowld 6y ago
      But who are the customers? Why do investors need orders filled instantly? It seems the only customers of this service are day-trading troublemakers.
  - deleted 6y ago
    [deleted]
- buran77 6y ago
  Usually what works for such abuses is either to charge extra (tiers depending on volume) to discourage abuse or at lest to cover losses, or throttling the biggest offenders when getting unreasonable peaks in order to keep the system always running. Both are used in many other sectors. If you have "industrial level" needs you usually have to pay extra either for the service or for additional infrastructure needed to provide you that service, or you simply get everything throttled to sustainable level (think water, electricity, etc). Most traders would not see any difference and the ones that would will have to think twice before DoSing.
  - logicchains 6y ago
    >They could put tiered charging and above a certain volume of transactions apply an additional fee (one time or per transaction). This is a model used in many other sectors. It's actually quite common for exchanges to offer discounts/rebates to firms that trade more, because these firms are essentially providing a service to the exchange (market making, and generating turnover). Much like how other industries offer discounts for buying in bulk. >The other option is to rate limit the biggest offenders when the system's performance limit is reached. I don't know why people always suggest solutions like this when it comes to exchanges. If it was an e-commerce service and somebody suggested "let's rate limit customers to reduce load", it's be shot down as a lazy solution (and a great way to lose customers). If a platform isn't good enough to support the load its customers place on it, then it needs to be improved. If AWS goes down during the world's biggest shopping day, we don't blame the customers, we blame Amazon.
    - buran77 6y ago
      > It's actually quite common for exchanges to offer discounts/rebates to firms that trade more I reworded a bit to give a better idea of what I meant. In general there are bulk discounts but there's always some form of "QoS". Either you get throttled above a ceiling, or you pay through the nose to have that ceiling higher for yourself and have everyone else throttled. All tiered systems work like this. The fixed price goes up and gives you access to better service, higher limits, lower price per usage, etc. As long as you don't have virtually unlimited capacity you can't treat your system as if you do. Mobile operators have to do the same. They charge a base contract price that sets the tier, then charge per usage within that tier, give different ceilings, QoS priorities, and throttling rates. And no matter how big you are as a customer at some point you either pay a surcharge or get throttled so the system stays up and other customers are also served. (source: I worked both for a large telco, and for a customer that payed ~3million E per month to get the consumption costs for min/MB down to almost 0). > I don't know why people always suggest solutions like this when it comes to exchanges. By any chance do the suggestions always come after the exchange was down due to high transaction volumes? Sure, they could implement unlimited capacity. But since this is a tad unrealistic and actually crashing the system is worse than limiting to keep it just below crashing, perhaps the suggestion makes sense. There aren't many sectors that I can think of which give you "unlimited usage no matter what". There's "rate limiting" even in hospitals, where lives are at stake.
kasey_junk 6y ago
Even without the obvious impacts to market makers and the subsequent price increases to investors, this doesn’t help. Most things trade with price/time priority. This means that first tie breaker is price but second tie breaker on what fills is who had their order into the market first. This means that market makers layer orders in as early as possible, some strategies I’ve seen layering them weeks or months in advance. So this proposal would add cost to the market without changing anything about the cancel race. The real solution to this sort of problem (which I don’t believe actually caused this issue) is the same mechanism you put in any request/reply system, rate limits. Most exchanges have them.
- FabHK 6y ago
  Rate limits, or discrete (in time) instead of continuous trading. An auction every minute or so, for three hours a day. That would be much better. (When I started in equities in Hong Kong in 2007, the stock market was open for 4 hours a day... 10 to 12:30, two hour lunch break to drink and socialise^W^W^W have important business discussions with clients, then 14:30 to 16:00. Today it's open 5.5 hours a day. EDIT to add: "Reactions from both brokers and the restaurant industry were mixed." (1) XETRA is open 8.5 hours a day without lunch break, while Frankfurt (FSX) is open 12 hours a day, from 8 to 8. WHY???) (1) https://en.wikipedia.org/wiki/Hong_Kong_Stock_Exchange#Trading_hours https://en.wikipedia.org/wiki/Hong_Kong_Stock_Exchange#Tradi...
  - logicchains 6y ago
    >WHY??? The exchange wants to make more money, and people want to be able to trade at whatever time they feel like.
    - ashtonkem 6y ago
      The answer is also “foreigners”. Regular working hours for a German exchange can produce some pretty brutal trading hours for say, London. When I worked in finance they started serving breakfast at IIRC 5am, since some trading desks started their day then and ended around noon. Expanding those hours can entice foreigners to trade during non-insane local hours.
kome 6y ago
I fully agree with you. I have no idea why you are down-voted so heavily.
- logicchains 6y ago
  > I fully agree with you. I have no idea why you are down-voted so heavily. Maybe because they claimed it's easy to solve when the solution they proposed in fact has a whole lot of undesirable consequences that are obvious to anyone more familiar with how markets work.
  - kome 6y ago
    Sending out orders and withdrawing them immediately after is market abuse, there is a regulation in Europe against it (MIFID II): the real question about the "whole lot of undesirable consequences" is, to whom? and who would benefit instead? The truth is that the real effects of algo trading are still poorly understood as a system, and they have been able to crash markets a couple of time in the past, for no reason. Do we really need this form of speculation "because liquidity"?
    - logicchains 6y ago
      >sending out orders and withdrawing them immediately after is market abuse It's abuse if it's done for the purpose of manipulating the market (spoofing) or deliberately to slow it (quote stuffing), but not if it just happens because somebody put in a bunch of orders and then realised their mistake. >"a whole lot of undesirable consequences" is, to whom To all the institutional and retail traders on the exchange, who have to pay worse prices for their trades because the market makers can't quote so tightly.
      - GordonS 6y ago
        > but not if it just happens because somebody put in a bunch of orders and then realised their mistake. Surely that would be an occasion thing though, not several times a second for a prolonged time? I can see how throttling of some kind could work, as long as it's not too aggressive.
alkonaut 6y ago
Or make taxes on gains start at 100% and exponentially decay as you hold a certain instrument longer. If the final tax is 30%, that could be reached e.g. after a week.
- gowld 6y ago
  Should that rule also apply to retailers of other products, so they pay 100% tax if they turn over wholesale products too quickly? Why or why not?
deleted 6y ago
[deleted]
quickthrowman 6y ago
A minute? Have you ever traded before? Prices move so fast that this would destroy market makers and so on. Sometimes I cancel 4-5 orders before getting a fill on an option trade, manually.
nv-vn 6y ago
Is it even a legitimate problem? Exchanges are well-equipped to deal with this kind of thing and direct access to exchanges is moderated by broker-dealers. As a normal user (algo trader or otherwise), you cannot directly plug into the exchange and spam orders. And anyways, exchanges (even IEX) _want_ the arbitrage and liquidity that market makers offer.

lima 6y ago

Have a source for that statement? All I found were speculations by traders.

Rockslide 6y ago
It was on German n-tv. Although they now state the opposite here: https://www.n-tv.de/wirtschaft/der_boersen_tag/Arger-ueber-Fantasiepreise-durch-Xetra-Ausfall-article21883080.html https://www.n-tv.de/wirtschaft/der_boersen_tag/Arger-ueber-F...

blibble 6y ago

the order entry gateways normally have rate limits and if a member does bad things the exchange can just cut them off several good incentives for members to exercise control over their client's order flows

gowld 6y ago

Is it possibly a bug where they meant to buy 1/100 the number of orders at 100x the price?