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Staff Report on Algorithmic Trading in U.S. Capital Markets [pdf]

223 points by ra7 6y ago

kevinwang 6y ago
Any highlights or summarizations?
- faitswulff 6y ago
  Haven't read it, but there's a summary section in the attached PDF on page 69.
dcolkitt 6y ago
> They find that when the relative tick size, i.e. the minimum tick size increment divided by the stock price, is larger, HFTs compete more intensely to be the first one to the front of the limit order book queue in order to supply liquidity. Although I think the SEC has generally done a good job in terms of market microstructure (especially in terms of resisting ill-informed populist rhetoric), I really wish they'd start exploring sub-penny tick sizes, at the very least on the most liquid low-priced stocks. Since decimalization, it's been two decades since we've had a tick size reduction in US equities. When certain stocks sit at a one penny bid-ask spread all day, that's a sign that penny ticks are too economically wide. It's consumers and ordinary investors that pay the cost in terms of higher spreads. You can think of the bid-ask spread as the cost of liquidity. It's how much more you pay for immediate execution. The tick size therefore acts like a price floor on the cost of liquidity. Why are we imposing a price floor, one that's much higher than the free market price, on end-consumers? If we reduced tick sizes from $0.01 to $0.001, the cost of trading for most retail investors on most stocks would fall by 50% or more. It blunts the price discovery process. It incentives HFTs to compete in an arms race of speed to capture queue position, rather than provide better prices. The only group it really benefits are the incumbent exchanges (who can avoid competing with new entrants offering better pricing), and large, active portfolios, like hedge funds, that incur high market impact costs.
- jedberg 6y ago
  I agree with you, but there is an interesting though experiment. What if we made tick sizes $.000000000000001? At what point do we get a diminishing return? At what point is it so small that it blows up the algorithms?
  - ah- 6y ago
    They wouldn't blow up, but if the tick size is too small there's no point in displaying orders on the book and you end up with less liquidity.
  - vii 6y ago
    Well it might blow up some software not expecting these tiny tick sizes but there is an economic motive for larger tick sizes. Traders can compete on - price - queue position Small ticks mean they compete on price and big ticks mean they compete on queue position - to trade they need to have an order on the book, offering to trade at the current tick, that is ahead of other orders. It's easy to see how the market benefits if people compete on price. However, it also benefits if people show how much they are willing to buy and sell. No sophisticated trader wants to reveal that as they will be taken advantage of when they are wrong. By having bigger tick sizes you incentivise people to try to get into the queue at these artificially better prices - it pulls liquidity into the open. The tick size pilot that concluded in 2019 shows how this balance isn't easy to strike https://www.finra.org/rules-guidance/key-topics/tick-size-pilot-program https://www.finra.org/rules-guidance/key-topics/tick-size-pi...
    - rytill 6y ago
      Thank you for this simple explanation. Lowering tick size helps price discovery, but hurts open liquidity. Is there some ideal constant average number of ticks between the bid and ask which optimizes this tradeoff given a desired state of liquidity and price discovery?
  - pierrealexandre 6y ago
    There is some interesting research regarding the optimal tick size (by instrument), eg https://arxiv.org/abs/1207.6325 https://arxiv.org/abs/1207.6325
greatwave1 6y ago
"Although some studies argue otherwise, a number of academic papers study the effects of algorithmic trading and high-frequency trading on volatility in equity markets and find evidence that, under normal market conditions, they reduce short term volatility." That's interesting, and goes against the conventional wisdom that markets driven by automated, high-frequency trading will be much more volatile. I wonder if HFTs made major changes to avoid another Flash Crash.
- jagged-chisel 6y ago
  I'm curious about the number of studies and academic papers ("some" vs. "a number")
- thinkloop 6y ago
  There's also the caveat: "However, there is some evidence, mostly from the Flash Crash, that in certain instances algorithmic trading and HFTs may exacerbate price movements during periods of high volatility or market stress." Volatile volitility reduction
- pydry 6y ago
  >That's interesting, and goes against the conventional wisdom that markets driven by automated, high-frequency trading will be much more volatile. Only if you ignore the word "normal". Otherwise it's what people have been saying for years - HFT reduces volatility when the seas are calm and amplifies it when they're choppy.
- smabie 6y ago
  The heart of the problem isn't with HFT, it's that an order book isn't reflective of real supply and demand. A human realizes that, while HFT algos sometimes don't. For example, no one is listing buy orders for Apple at $1, even though everyone would love to buy Apple stock for one dollar. A human trader has enough sense to realize that most liquidity in any marketplace is off the order book, and act appropriately. But even so, I don't anyone really believes that HFT creates higher average market volatility. Some freak occurrences have happened, but I'm sure they'll go down over time.
- 6y ago
mukundmohan 6y ago
The money quotes: Broadly speaking, and as more fully discussed below, algorithmic trading in the equities and to a lesser extent—in the debt market, has improved many measures of market quality and liquidity provision during normal market conditions, though studies have also shown that some types of algorithmic trading may exacerbate periods of unusual market stress or volatility. Advances in technology and communications have enabled many market participants to more efficiently provide liquidity, more efficiently access market liquidity, implement new trading services, and more effectively manage risk across a range of markets. Today, algorithms address many of the problems and decisions that have long been central to the business of trading. What instrument(s) should be invested in or traded? What price should be bid or offered? What order size is optimal? What should be the response to a request for a quotation? What risk will be taken on by facilitating a trade? How does that risk change with the size of the trade? Is the risk of a trade appropriate to a firm’s available capital? What is the relationship between the price of different but related securities or financial products? To what market should an order be sent? Is it more effective to provide liquidity or demand liquidity? Should an order be displayed or non-displayed? To which broker should an order be sent? When should an order be submitted to a trading center?
encyclopedia 6y ago
Related to a new kind of algorithm being used in the market 'Dexamethasone Announcement Could Have Made Hedge Funds A Fortune — Alpha Week' https://www.alpha-week.com/dexamethasone-announcement-could-have-made-hedge-funds-fortune https://www.alpha-week.com/dexamethasone-announcement-could-...
supernova87a 6y ago
While I read the report, here is a question I would love to know more about: Many of these quant/algorithmic trading firms are exploiting market inefficiencies at the millisecond (microsecond??) level. To the point that no human person is participating on the same timescale, yet every "real person's" trade gets just a little bit shaved off by some algorithm able to take advantage of it. What would be so bad about putting in human-sized time intervals as the minimum trading frequency? Like, buyers and sellers can only be cleared on a 1.0 second frequency, or even 0.1 second frequency. So that the millions of times-per-second arms race is nullified. Are these algorithmic trades serving some public good? Why not have the SEC / exchanges put in this delay for everyone's benefit, and not have these firms make $ off everyone? Or is that not actually the main market inefficiency happening / being questioned here, and the bigger loss is bulk movements driven by algorithms over hours/days, not milliseconds?
- bob1029 6y ago
  IEX does something like this WRT a minimum delay. Tom Scott has a video on it: https://www.youtube.com/watch?v=d8BcCLLX4N4 https://www.youtube.com/watch?v=d8BcCLLX4N4
  - kasey_junk 6y ago
    It’s not human scale though. It’s “big market participants computers scale”.
- kasey_junk 6y ago
  You need to walk through your assumptions about how the algos are “shaving” off humans.
  - supernova87a 6y ago
    So what is algorithmic trading doing that's undesirable?
- deleted 6y ago
  [deleted]
nateh90 6y ago
> Today’s equity market structure is highly fragmented, consisting of fifteen national securities exchanges, over thirty alternative trading systems, multiple single-dealer platforms within broker-dealers, and other forms of order matching While the fragmentation of trading venues has led to competition on fees, in my experience it has actually widened the effective spread (spread + fees) and created a more difficult environment for customers. Let's say a market-maker would like to trade 100 contracts. Any less than that is great, and any more than that is bad, as the counter-party is likely well informed about their trade. With one exchange, the market-maker can post their 100 contracts on that exchange, and be confident that the most risk they will take on is 100 contracts. With multiple exchanges, the market-maker now needs to spread their exposure across exchanges (say, 10 contracts each on 15 exchanges), which can leave them (A) overexposed across exchanges, and (B) underexposed on any given exchange. (A) causes a problem because the market-makers compensate for this risk by widening spreads. If the most sophisticated counterparties in the market can access liquidity across exchanges, the market-maker needs to at least statistically account for that possibility. (B) causes a problem for customers with less sophisticated market access. In the example above, a customer with access to 1 of 15 exchanges only has the ability to trade 10 contracts, when they could trade 150 contracts with connectivity to all 15 exchanges. For a real life example of where single listing works, you can currently trade over 20m of notional value with a spread of about .01 basis points in the ES future listed on the CME. Source: HFT trader
- kasey_junk 6y ago
  The CME’s monopoly definitely causes problems though. For instance it’s much more expensive in fees to trade there and your recourse when you observe shenanigans is less. Source: Used to be an HFT.
- smabie 6y ago
  Yeah it's clear that centralized markets would hurt HFT and benefit most institutional and retail investors. Citadel and the like have strong incentives to resist any consolidation in the market place. After all, the market makers and latency arb guys are the ones bearing that multiple exchange risk (and thus are compensated for it), not the buyside investor.
bonestamp2 6y ago
Side question, can anybody recommend a good brokerage for running my own trading algorithm? I'm getting tired of inputting very similar trades every day and being limited by the types of limit orders they allow in after hours trading. So far it looks like the winner might be Interactive Brokers or maybe Centerpoint (if I meet their guidelines).
- NavinF 6y ago
  I use Interactive Brokers for the same purpose. They're pretty much your only option :)
- kp98 6y ago
  interactive brokers is really the best you're going to get. Its a low level API which is generally good. Terrible documentation, in fact the worst documentation I've ever seen on such a large project, but once you figure it out it'll give you all the functionality needed.
- smabie 6y ago
  I like Alpaca. No fees and comes with a Python library called pylivetrader that is easy to use.
deleted 6y ago
[deleted]
bitxbit 6y ago
The algos being talked about here do not add true liquidity. The fact that over 2/3 of investable wealth is parked in passive funds would suggest there’s not a lot of trading being done (2020 craze excepted). Therefore, what’s happened in the past decade is artificial liquidity with very sharp unexpected moves. Some of the biggest algos I’ve seen proliferate and capture exactly this phenomenon. Started in 2015 with year ends being targeted (see 2018, 2019 and 2020). Of course, the pandemic unleashed a different beast altogether.
- gpderetta 6y ago
  those passive funds still need to continuously rebalance their holdings.
artemonster 6y ago
While we’re on this topic, can some expert ELI5 how or/why HFT is good for markets/economy?
- ldoughty 6y ago
  HFT is specifically a tool that benefits the haves (HFT) over the have nots. It can benefit stock prices for companies too, since it can cause the market to move more in their direction if machines think they should buy based on whatever they're programmed to look at. I looked into this for a while, but I simply felt it was immoral and dropped the project.
  - tuyguntn 6y ago
    > It can benefit stock prices for companies too, since it can cause the market to move more in their direction which can also harm companies if algorithms decide to sell, which might trigger sell chain for everyone
  - smabie 6y ago
    It's clear that you have no idea what HFT firms actually do. Which is okay, but then don't pass judgment.
- LatteLazy 6y ago
  It shrinks spreads saving investors money. It increases liquidity for smaller orders at least (good for retail investors). There are complex reasons why improving price discovery and price harmony between markets is good for the wider economy but they're a bit more hand-wavey...
- maccam912 6y ago
  I'll give it a shot. When you place an order for 1000 shares of AAPL for example your order is sent to a bunch of exchanges and you are supposed to get your shares from the 1000 cheapest shares available to be purchased. If your order gets to exchange A where a HFT is operating they might sell you 100 shares at $131.99, but then the know there is someone buying AAPL. they send orders on faster networks than you to buy up all the shares at other exchanges for 131.99, then list them for sale for 132.00. Your order arrives, and depending on order type you'll probably buy those up that milliseconds earlier would have been a penny cheaper. For you this is only $9.00 more than before, but doing this all the time is where HFT makes money, without really offering any benefit to other market participants.
anthony_r 6y ago
Never forget that ETFs are only really possible due to HFT. Most ETF users do not even realise this, unless they ask themselves "how do ETFs actually work", and they start reading about Authorized Participants.
- ric2b 6y ago
  Can you expand on this? From my understanding ETF's re-balance quite slowly, once every few months, how does HFT even help, much less make ETF's possible?
  - smabie 6y ago
    ETF shares are created and destroyed all the, bringing their value inline with the underlying. So for a S&P 500 ETF, HFT firms are creating shares when the price of the ETF is too low and destroying them when they are too high. It doesn't have to do with how ETFs rebalance, rather how shares are created and destroyed.

223 points by ra7 6y ago

kevinwang 6y ago

Any highlights or summarizations?

faitswulff 6y ago
Haven't read it, but there's a summary section in the attached PDF on page 69.

dcolkitt 6y ago

> They find that when the relative tick size, i.e. the minimum tick size increment divided by the stock price, is larger, HFTs compete more intensely to be the first one to the front of the limit order book queue in order to supply liquidity. Although I think the SEC has generally done a good job in terms of market microstructure (especially in terms of resisting ill-informed populist rhetoric), I really wish they'd start exploring sub-penny tick sizes, at the very least on the most liquid low-priced stocks. Since decimalization, it's been two decades since we've had a tick size reduction in US equities. When certain stocks sit at a one penny bid-ask spread all day, that's a sign that penny ticks are too economically wide. It's consumers and ordinary investors that pay the cost in terms of higher spreads. You can think of the bid-ask spread as the cost of liquidity. It's how much more you pay for immediate execution. The tick size therefore acts like a price floor on the cost of liquidity. Why are we imposing a price floor, one that's much higher than the free market price, on end-consumers? If we reduced tick sizes from $0.01 to $0.001, the cost of trading for most retail investors on most stocks would fall by 50% or more. It blunts the price discovery process. It incentives HFTs to compete in an arms race of speed to capture queue position, rather than provide better prices. The only group it really benefits are the incumbent exchanges (who can avoid competing with new entrants offering better pricing), and large, active portfolios, like hedge funds, that incur high market impact costs.

jedberg 6y ago
I agree with you, but there is an interesting though experiment. What if we made tick sizes $.000000000000001? At what point do we get a diminishing return? At what point is it so small that it blows up the algorithms?
- ah- 6y ago
  They wouldn't blow up, but if the tick size is too small there's no point in displaying orders on the book and you end up with less liquidity.
- vii 6y ago
  Well it might blow up some software not expecting these tiny tick sizes but there is an economic motive for larger tick sizes. Traders can compete on - price - queue position Small ticks mean they compete on price and big ticks mean they compete on queue position - to trade they need to have an order on the book, offering to trade at the current tick, that is ahead of other orders. It's easy to see how the market benefits if people compete on price. However, it also benefits if people show how much they are willing to buy and sell. No sophisticated trader wants to reveal that as they will be taken advantage of when they are wrong. By having bigger tick sizes you incentivise people to try to get into the queue at these artificially better prices - it pulls liquidity into the open. The tick size pilot that concluded in 2019 shows how this balance isn't easy to strike https://www.finra.org/rules-guidance/key-topics/tick-size-pilot-program https://www.finra.org/rules-guidance/key-topics/tick-size-pi...
  - rytill 6y ago
    Thank you for this simple explanation. Lowering tick size helps price discovery, but hurts open liquidity. Is there some ideal constant average number of ticks between the bid and ask which optimizes this tradeoff given a desired state of liquidity and price discovery?
- pierrealexandre 6y ago
  There is some interesting research regarding the optimal tick size (by instrument), eg https://arxiv.org/abs/1207.6325 https://arxiv.org/abs/1207.6325

greatwave1 6y ago

"Although some studies argue otherwise, a number of academic papers study the effects of algorithmic trading and high-frequency trading on volatility in equity markets and find evidence that, under normal market conditions, they reduce short term volatility." That's interesting, and goes against the conventional wisdom that markets driven by automated, high-frequency trading will be much more volatile. I wonder if HFTs made major changes to avoid another Flash Crash.

jagged-chisel 6y ago
I'm curious about the number of studies and academic papers ("some" vs. "a number")
thinkloop 6y ago
There's also the caveat: "However, there is some evidence, mostly from the Flash Crash, that in certain instances algorithmic trading and HFTs may exacerbate price movements during periods of high volatility or market stress." Volatile volitility reduction
pydry 6y ago
>That's interesting, and goes against the conventional wisdom that markets driven by automated, high-frequency trading will be much more volatile. Only if you ignore the word "normal". Otherwise it's what people have been saying for years - HFT reduces volatility when the seas are calm and amplifies it when they're choppy.
smabie 6y ago
The heart of the problem isn't with HFT, it's that an order book isn't reflective of real supply and demand. A human realizes that, while HFT algos sometimes don't. For example, no one is listing buy orders for Apple at $1, even though everyone would love to buy Apple stock for one dollar. A human trader has enough sense to realize that most liquidity in any marketplace is off the order book, and act appropriately. But even so, I don't anyone really believes that HFT creates higher average market volatility. Some freak occurrences have happened, but I'm sure they'll go down over time.
6y ago

mukundmohan 6y ago

The money quotes: Broadly speaking, and as more fully discussed below, algorithmic trading in the equities and to a lesser extent—in the debt market, has improved many measures of market quality and liquidity provision during normal market conditions, though studies have also shown that some types of algorithmic trading may exacerbate periods of unusual market stress or volatility. Advances in technology and communications have enabled many market participants to more efficiently provide liquidity, more efficiently access market liquidity, implement new trading services, and more effectively manage risk across a range of markets. Today, algorithms address many of the problems and decisions that have long been central to the business of trading. What instrument(s) should be invested in or traded? What price should be bid or offered? What order size is optimal? What should be the response to a request for a quotation? What risk will be taken on by facilitating a trade? How does that risk change with the size of the trade? Is the risk of a trade appropriate to a firm’s available capital? What is the relationship between the price of different but related securities or financial products? To what market should an order be sent? Is it more effective to provide liquidity or demand liquidity? Should an order be displayed or non-displayed? To which broker should an order be sent? When should an order be submitted to a trading center?

encyclopedia 6y ago

Related to a new kind of algorithm being used in the market 'Dexamethasone Announcement Could Have Made Hedge Funds A Fortune — Alpha Week' https://www.alpha-week.com/dexamethasone-announcement-could-have-made-hedge-funds-fortune https://www.alpha-week.com/dexamethasone-announcement-could-...

supernova87a 6y ago

While I read the report, here is a question I would love to know more about: Many of these quant/algorithmic trading firms are exploiting market inefficiencies at the millisecond (microsecond??) level. To the point that no human person is participating on the same timescale, yet every "real person's" trade gets just a little bit shaved off by some algorithm able to take advantage of it. What would be so bad about putting in human-sized time intervals as the minimum trading frequency? Like, buyers and sellers can only be cleared on a 1.0 second frequency, or even 0.1 second frequency. So that the millions of times-per-second arms race is nullified. Are these algorithmic trades serving some public good? Why not have the SEC / exchanges put in this delay for everyone's benefit, and not have these firms make $ off everyone? Or is that not actually the main market inefficiency happening / being questioned here, and the bigger loss is bulk movements driven by algorithms over hours/days, not milliseconds?

bob1029 6y ago
IEX does something like this WRT a minimum delay. Tom Scott has a video on it: https://www.youtube.com/watch?v=d8BcCLLX4N4 https://www.youtube.com/watch?v=d8BcCLLX4N4
- kasey_junk 6y ago
  It’s not human scale though. It’s “big market participants computers scale”.
kasey_junk 6y ago
You need to walk through your assumptions about how the algos are “shaving” off humans.
- supernova87a 6y ago
  So what is algorithmic trading doing that's undesirable?
deleted 6y ago
[deleted]

nateh90 6y ago

> Today’s equity market structure is highly fragmented, consisting of fifteen national securities exchanges, over thirty alternative trading systems, multiple single-dealer platforms within broker-dealers, and other forms of order matching While the fragmentation of trading venues has led to competition on fees, in my experience it has actually widened the effective spread (spread + fees) and created a more difficult environment for customers. Let's say a market-maker would like to trade 100 contracts. Any less than that is great, and any more than that is bad, as the counter-party is likely well informed about their trade. With one exchange, the market-maker can post their 100 contracts on that exchange, and be confident that the most risk they will take on is 100 contracts. With multiple exchanges, the market-maker now needs to spread their exposure across exchanges (say, 10 contracts each on 15 exchanges), which can leave them (A) overexposed across exchanges, and (B) underexposed on any given exchange. (A) causes a problem because the market-makers compensate for this risk by widening spreads. If the most sophisticated counterparties in the market can access liquidity across exchanges, the market-maker needs to at least statistically account for that possibility. (B) causes a problem for customers with less sophisticated market access. In the example above, a customer with access to 1 of 15 exchanges only has the ability to trade 10 contracts, when they could trade 150 contracts with connectivity to all 15 exchanges. For a real life example of where single listing works, you can currently trade over 20m of notional value with a spread of about .01 basis points in the ES future listed on the CME. Source: HFT trader

kasey_junk 6y ago
The CME’s monopoly definitely causes problems though. For instance it’s much more expensive in fees to trade there and your recourse when you observe shenanigans is less. Source: Used to be an HFT.
smabie 6y ago
Yeah it's clear that centralized markets would hurt HFT and benefit most institutional and retail investors. Citadel and the like have strong incentives to resist any consolidation in the market place. After all, the market makers and latency arb guys are the ones bearing that multiple exchange risk (and thus are compensated for it), not the buyside investor.

bonestamp2 6y ago

Side question, can anybody recommend a good brokerage for running my own trading algorithm? I'm getting tired of inputting very similar trades every day and being limited by the types of limit orders they allow in after hours trading. So far it looks like the winner might be Interactive Brokers or maybe Centerpoint (if I meet their guidelines).

NavinF 6y ago
I use Interactive Brokers for the same purpose. They're pretty much your only option :)
kp98 6y ago
interactive brokers is really the best you're going to get. Its a low level API which is generally good. Terrible documentation, in fact the worst documentation I've ever seen on such a large project, but once you figure it out it'll give you all the functionality needed.
smabie 6y ago
I like Alpaca. No fees and comes with a Python library called pylivetrader that is easy to use.

deleted 6y ago

[deleted]

bitxbit 6y ago

The algos being talked about here do not add true liquidity. The fact that over 2/3 of investable wealth is parked in passive funds would suggest there’s not a lot of trading being done (2020 craze excepted). Therefore, what’s happened in the past decade is artificial liquidity with very sharp unexpected moves. Some of the biggest algos I’ve seen proliferate and capture exactly this phenomenon. Started in 2015 with year ends being targeted (see 2018, 2019 and 2020). Of course, the pandemic unleashed a different beast altogether.

gpderetta 6y ago
those passive funds still need to continuously rebalance their holdings.

artemonster 6y ago

While we’re on this topic, can some expert ELI5 how or/why HFT is good for markets/economy?

ldoughty 6y ago
HFT is specifically a tool that benefits the haves (HFT) over the have nots. It can benefit stock prices for companies too, since it can cause the market to move more in their direction if machines think they should buy based on whatever they're programmed to look at. I looked into this for a while, but I simply felt it was immoral and dropped the project.
- tuyguntn 6y ago
  > It can benefit stock prices for companies too, since it can cause the market to move more in their direction which can also harm companies if algorithms decide to sell, which might trigger sell chain for everyone
- smabie 6y ago
  It's clear that you have no idea what HFT firms actually do. Which is okay, but then don't pass judgment.
LatteLazy 6y ago
It shrinks spreads saving investors money. It increases liquidity for smaller orders at least (good for retail investors). There are complex reasons why improving price discovery and price harmony between markets is good for the wider economy but they're a bit more hand-wavey...
maccam912 6y ago
I'll give it a shot. When you place an order for 1000 shares of AAPL for example your order is sent to a bunch of exchanges and you are supposed to get your shares from the 1000 cheapest shares available to be purchased. If your order gets to exchange A where a HFT is operating they might sell you 100 shares at $131.99, but then the know there is someone buying AAPL. they send orders on faster networks than you to buy up all the shares at other exchanges for 131.99, then list them for sale for 132.00. Your order arrives, and depending on order type you'll probably buy those up that milliseconds earlier would have been a penny cheaper. For you this is only $9.00 more than before, but doing this all the time is where HFT makes money, without really offering any benefit to other market participants.

anthony_r 6y ago

Never forget that ETFs are only really possible due to HFT. Most ETF users do not even realise this, unless they ask themselves "how do ETFs actually work", and they start reading about Authorized Participants.

ric2b 6y ago
Can you expand on this? From my understanding ETF's re-balance quite slowly, once every few months, how does HFT even help, much less make ETF's possible?
- smabie 6y ago
  ETF shares are created and destroyed all the, bringing their value inline with the underlying. So for a S&P 500 ETF, HFT firms are creating shares when the price of the ETF is too low and destroying them when they are too high. It doesn't have to do with how ETFs rebalance, rather how shares are created and destroyed.