6 ms·

Clamping Down on High-Speed Stock Trades: US, Canada, European regulators

48 points by gtani 15y ago

karzeem 15y ago
It's supposedly regulators driving this crackdown, but almost all the quotes in the article come from competitors to high-speed trading firms claiming — surprise — that high-speed trading firms need to be regulated.
- yuhong 15y ago
  Not that they don't have a point, of course.
donnaware 15y ago
just put a tax on stock trades and people will stop using investment markets as casinos
VladRussian 15y ago
it isn't even a crude/primitive AI, it is just algorithms that are let loose for a limited periods of time in a limited activity space - and humans are already feeling threatened(xenophobic) as this algorithmic trading feels completely unnatural. (The reason of fairness is complete BS because professional traders have always had informational and speed advantage, it is just that it was on the human scale - seconds vs. minutes, and now it crossed into non-human microseconds scale) Well, welcome to the 21st century. The algorithmic trading will look like a child play when in the "drone arm race", the sides would be forced to delegate final shoot decision to the drone algorithms for exactly the same reason - human speed wouldn't be enough as the millisecond advantage makes the critical difference between wining and loosing. That would be a reason to feel slightly xenophobic i guess, though we'll possibly get used to it :) Wrt. unfair advantage vs. investors not utilizing this advanced tool of algorithmic trading - whole human history since the time of apes is just a continuous sequence of "slow" humans being ruthlessly overtaken by other humans taking [unfair like any advantage] advantage through better tools and weapons. We're direct beneficiaries of such an unfair advantage and, as we aren't the ultimate goal, just an intermediate point in this history, we'll be a victims of it in due course of that history.
- huhtenberg 15y ago
  Here's your +1 to get you out of gray area, but WRT "Wrt. unfair advantage" you should really read up on HFT in detail. All of HFT is based on the premise of getting an access to the order flow a split second sooner than everyone else. To get such access HFT firms pay very hefty fee to Nasdaq and other exchanges. That's where the unfair advantage is - not in the use of computers, but in an exclusive access to the information that not even all banks can afford.
  - MKT 15y ago
    everyone can purchase fast access. If a brokerage or a bank wanted to do it, they certainly could. It's like saying that Kinko's has an unfair advantage at making copies because it bought expensive copiers and regular folks have not.
    - joezydeco 15y ago
      I'd say it's more like Kinko's discovering you want to make some copies...and quickly erecting a store right outside your house so you stop there instead of Staples.
      - MKT 15y ago
        and what's wrong with that? Or rather, would you ban that too?
        joezydeco 15y ago
        Yes, because that key word...discovering...implies that our rhetorical Kinko's has somehow gleaned advance knowledge that you're about to leave home to purchase some copies. I don't think HFT in general is ruining things. I think the ability of HFT firms to quickly enter orders and quickly widthdraw those same orders millions of times a minute enables them to gain some insight into the trading market that the market was never designed for. And I believe that is a perversion of the original open-call trading that the stock market was built upon. All buyers should be able to see the ask at the exact same time.
jkahn 15y ago
Stocks should only be allowed to trade at the speed that value is created or lost. The stock market is a human institution, (supposedly) designed to measure value of human businesses. Trading in microseconds is ridiculous. Trades should be in human time - essentially, minutes and hours, not seconds and microseconds. Business value does not change that quickly. HFT is representative of a financial industry set on creating ever more abstract tools and products that are more akin to gambling than representing the value of the actual business. The stock market needs to return to it's roots. There's been enough chaos already.
- cellis 15y ago
  Humans do make decisions in milliseconds.
  - jkahn 15y ago
    Humans make decisions in milliseconds, but market factors do not change that quickly. Even major, unforecasted issues like the Japan Tsunami happened in human time.
- Game_Ender 15y ago
  That has a feel good populist sense to it, but do you have evidence that your idea would improve things? What exactly is your proposal? Computers are better at processing information then people, eventually they will be able to determine, in microseconds, what the market effects of world events are and execute trades. I think the world will be better off for it, not worse.
  - jkahn 15y ago
    Why would the world be better off with computers making trades? I don't have a proposal, except that the financial industry needs to be reviewed. A good start would be to remove the products that are abstractions of the value of companies or markets rather than representative of real value. Eliminate futures and most forms of derivatives. Keep shares and managed/indexed funds. Keep everything physical (e.g. Gold, Oil, etc). That would reduce a number of the swings in the market caused by relatively small real stock movement. Return the market to trading value, rather than trading the anticipation of what might happen The stock market should be used for trading companies, not shifting money from owners of stocks to the financial industry by having people manipulate it.
Bud 15y ago
Gosh. You mean allowing billion-dollar-poker by professional gamblers who have a six-orders-of-magnitude speed advantage over regular investors, and are also indemnified against any and all losses, might be dangerous? I'm shocked. Truly shocked. No fucking duh. If ANYONE with any power were serious about fixing society or the world economy, this shit would be banned. Yesterday.
jacoblyles 15y ago
What's the harm in HFT? It certainly increases liquidity in the market, making it easier for other investors to enter or exit a position on short notice. That's a good thing. Let's not fall pray to generalized anti-finance populism without good reason.
- joe_the_user 15y ago
  If you read article, you may find that the argument is that the speed of the trades creates the perception of an unfair advantage and has even supposedly impelled larger buyers and seller to move the "dark pools". Now all this might wrong but it seems like a bit more than "anti-finance populism". And the thing with the liquidity created by HFT is... if that liquidity is going to be suddenly withdrawn all at once, you've lost the advantage of liquid market, which is that you always have a reasonable chance of quickly selling at a reasonable price.
  - johnl 15y ago
    Maybe requiring registering and stress testing of HFTs over a specific volume is a solution. Or as a cost of registering a HFT is a requirement to "make the market" whether the HFTer likes to or not , there should be plenty of opportunities to hedge or offset any unwanted positions.
- _sh 15y ago
  Interesting question. What if HFT algorithms become so efficient they are able to easily out-compete human trading decisions, such that humans exit the system altogether? What if the stock exchange becomes exclusively HFT algorithms competing against eachother on behalf of large funds, such that being a 'trader' is all about which fund to put money into (which algorithm suite to back)? In such a thought experiment, what if the algorithms discovered more money could be realized by trading on a vector different to 'the current/future worth of a company'? Say a genetic algorithm determined that whether the share price ended the week's trading on an odd number rather than an even number is more important for predicting the future direction of the price on Monday. In the world of genetic algorithms, stranger shit has happened. What impact would this have? I don't know much about trading, particularly HFT, so I don't even know if this is possible or realistic. I do love thought experiments though, and believe that HFT algorithms are currently trying to predict human responses to market events and act accordingly. Just wondered what would happen if they dominate a market such that human influence is negligible. So yeah, interesting question.
pnathan 15y ago
All I read was "Oh noes, the computer, we don't understand it". I would suggest that the people involved take the time to understand and learn the new branch of their art, instead of calling it "unholy", as if was some evil device by the antagonist of $religion.
known 15y ago
HFT = https://secure.wikimedia.org/wikipedia/en/wiki/Algorithmic_trading https://secure.wikimedia.org/wikipedia/en/wiki/Algorithmic_t... + https://secure.wikimedia.org/wikipedia/en/wiki/Front_running https://secure.wikimedia.org/wikipedia/en/wiki/Front_running Front running is illegal.
sireat 15y ago
I keep saying that one of the biggest problems with HFT is the false illussion of at will liquidity. This is what happened at the "flash crash", many traders providing liquidity, which included most of HFT scene getting out of market, because they (and their algorithms) decided it was not worth the risk. Old market makers did not operate like this, they were providing quotes even in a very volatile markets. Of course, many lost their shirts doing so, but were obliged by the exchanges to provide this service. If none of the liquidity providers have an obligation, then we have no liquidity in volatile times, when we need it the most.
- MKT 15y ago
  yes but if there is an obligation, you could end up with less total liquidity because if you oblige traders to trade when it is a losing proposition to do so, you will get less traders and less liquidity all the time, including volatile times. That's why exchanges actually pay traders to provide liquidity and charge liquidity takers. Imagine if you ordered convenience stores to sell twinkies to people even if they have no money. How would that work in practice ?

48 points by gtani 15y ago

It's supposedly regulators driving this crackdown, but almost all the quotes in the article come from competitors to high-speed trading firms claiming — surprise — that high-speed trading firms need to be regulated.

yuhong 15y ago
Not that they don't have a point, of course.

donnaware 15y ago

just put a tax on stock trades and people will stop using investment markets as casinos

VladRussian 15y ago

it isn't even a crude/primitive AI, it is just algorithms that are let loose for a limited periods of time in a limited activity space - and humans are already feeling threatened(xenophobic) as this algorithmic trading feels completely unnatural. (The reason of fairness is complete BS because professional traders have always had informational and speed advantage, it is just that it was on the human scale - seconds vs. minutes, and now it crossed into non-human microseconds scale) Well, welcome to the 21st century. The algorithmic trading will look like a child play when in the "drone arm race", the sides would be forced to delegate final shoot decision to the drone algorithms for exactly the same reason - human speed wouldn't be enough as the millisecond advantage makes the critical difference between wining and loosing. That would be a reason to feel slightly xenophobic i guess, though we'll possibly get used to it :) Wrt. unfair advantage vs. investors not utilizing this advanced tool of algorithmic trading - whole human history since the time of apes is just a continuous sequence of "slow" humans being ruthlessly overtaken by other humans taking [unfair like any advantage] advantage through better tools and weapons. We're direct beneficiaries of such an unfair advantage and, as we aren't the ultimate goal, just an intermediate point in this history, we'll be a victims of it in due course of that history.

huhtenberg 15y ago
Here's your +1 to get you out of gray area, but WRT "Wrt. unfair advantage" you should really read up on HFT in detail. All of HFT is based on the premise of getting an access to the order flow a split second sooner than everyone else. To get such access HFT firms pay very hefty fee to Nasdaq and other exchanges. That's where the unfair advantage is - not in the use of computers, but in an exclusive access to the information that not even all banks can afford.
- MKT 15y ago
  everyone can purchase fast access. If a brokerage or a bank wanted to do it, they certainly could. It's like saying that Kinko's has an unfair advantage at making copies because it bought expensive copiers and regular folks have not.
  - joezydeco 15y ago
    I'd say it's more like Kinko's discovering you want to make some copies...and quickly erecting a store right outside your house so you stop there instead of Staples.
    - MKT 15y ago
      and what's wrong with that? Or rather, would you ban that too?
      - joezydeco 15y ago
        Yes, because that key word...discovering...implies that our rhetorical Kinko's has somehow gleaned advance knowledge that you're about to leave home to purchase some copies. I don't think HFT in general is ruining things. I think the ability of HFT firms to quickly enter orders and quickly widthdraw those same orders millions of times a minute enables them to gain some insight into the trading market that the market was never designed for. And I believe that is a perversion of the original open-call trading that the stock market was built upon. All buyers should be able to see the ask at the exact same time.

jkahn 15y ago

Stocks should only be allowed to trade at the speed that value is created or lost. The stock market is a human institution, (supposedly) designed to measure value of human businesses. Trading in microseconds is ridiculous. Trades should be in human time - essentially, minutes and hours, not seconds and microseconds. Business value does not change that quickly. HFT is representative of a financial industry set on creating ever more abstract tools and products that are more akin to gambling than representing the value of the actual business. The stock market needs to return to it's roots. There's been enough chaos already.

cellis 15y ago
Humans do make decisions in milliseconds.
- jkahn 15y ago
  Humans make decisions in milliseconds, but market factors do not change that quickly. Even major, unforecasted issues like the Japan Tsunami happened in human time.
Game_Ender 15y ago
That has a feel good populist sense to it, but do you have evidence that your idea would improve things? What exactly is your proposal? Computers are better at processing information then people, eventually they will be able to determine, in microseconds, what the market effects of world events are and execute trades. I think the world will be better off for it, not worse.
- jkahn 15y ago
  Why would the world be better off with computers making trades? I don't have a proposal, except that the financial industry needs to be reviewed. A good start would be to remove the products that are abstractions of the value of companies or markets rather than representative of real value. Eliminate futures and most forms of derivatives. Keep shares and managed/indexed funds. Keep everything physical (e.g. Gold, Oil, etc). That would reduce a number of the swings in the market caused by relatively small real stock movement. Return the market to trading value, rather than trading the anticipation of what might happen The stock market should be used for trading companies, not shifting money from owners of stocks to the financial industry by having people manipulate it.

Bud 15y ago

Gosh. You mean allowing billion-dollar-poker by professional gamblers who have a six-orders-of-magnitude speed advantage over regular investors, and are also indemnified against any and all losses, might be dangerous? I'm shocked. Truly shocked. No fucking duh. If ANYONE with any power were serious about fixing society or the world economy, this shit would be banned. Yesterday.

jacoblyles 15y ago

What's the harm in HFT? It certainly increases liquidity in the market, making it easier for other investors to enter or exit a position on short notice. That's a good thing. Let's not fall pray to generalized anti-finance populism without good reason.

joe_the_user 15y ago
If you read article, you may find that the argument is that the speed of the trades creates the perception of an unfair advantage and has even supposedly impelled larger buyers and seller to move the "dark pools". Now all this might wrong but it seems like a bit more than "anti-finance populism". And the thing with the liquidity created by HFT is... if that liquidity is going to be suddenly withdrawn all at once, you've lost the advantage of liquid market, which is that you always have a reasonable chance of quickly selling at a reasonable price.
- johnl 15y ago
  Maybe requiring registering and stress testing of HFTs over a specific volume is a solution. Or as a cost of registering a HFT is a requirement to "make the market" whether the HFTer likes to or not , there should be plenty of opportunities to hedge or offset any unwanted positions.
_sh 15y ago
Interesting question. What if HFT algorithms become so efficient they are able to easily out-compete human trading decisions, such that humans exit the system altogether? What if the stock exchange becomes exclusively HFT algorithms competing against eachother on behalf of large funds, such that being a 'trader' is all about which fund to put money into (which algorithm suite to back)? In such a thought experiment, what if the algorithms discovered more money could be realized by trading on a vector different to 'the current/future worth of a company'? Say a genetic algorithm determined that whether the share price ended the week's trading on an odd number rather than an even number is more important for predicting the future direction of the price on Monday. In the world of genetic algorithms, stranger shit has happened. What impact would this have? I don't know much about trading, particularly HFT, so I don't even know if this is possible or realistic. I do love thought experiments though, and believe that HFT algorithms are currently trying to predict human responses to market events and act accordingly. Just wondered what would happen if they dominate a market such that human influence is negligible. So yeah, interesting question.

pnathan 15y ago

All I read was "Oh noes, the computer, we don't understand it". I would suggest that the people involved take the time to understand and learn the new branch of their art, instead of calling it "unholy", as if was some evil device by the antagonist of $religion.

known 15y ago

HFT = https://secure.wikimedia.org/wikipedia/en/wiki/Algorithmic_trading https://secure.wikimedia.org/wikipedia/en/wiki/Algorithmic_t... + https://secure.wikimedia.org/wikipedia/en/wiki/Front_running https://secure.wikimedia.org/wikipedia/en/wiki/Front_running Front running is illegal.

sireat 15y ago

I keep saying that one of the biggest problems with HFT is the false illussion of at will liquidity. This is what happened at the "flash crash", many traders providing liquidity, which included most of HFT scene getting out of market, because they (and their algorithms) decided it was not worth the risk. Old market makers did not operate like this, they were providing quotes even in a very volatile markets. Of course, many lost their shirts doing so, but were obliged by the exchanges to provide this service. If none of the liquidity providers have an obligation, then we have no liquidity in volatile times, when we need it the most.

MKT 15y ago
yes but if there is an obligation, you could end up with less total liquidity because if you oblige traders to trade when it is a losing proposition to do so, you will get less traders and less liquidity all the time, including volatile times. That's why exchanges actually pay traders to provide liquidity and charge liquidity takers. Imagine if you ordered convenience stores to sell twinkies to people even if they have no money. How would that work in practice ?