10 ms·

IMO the whole system needs to be overhauled. With today's tech there is no reason that trades can't be immediate, the fact that it takes 3 days to "settle" a tr

IMO the whole system needs to be overhauled. With today's tech there is no reason that trades can't be immediate, the fact that it takes 3 days to "settle" a trade is absolutely beyond ridiculous. That and let's also get rid of any special treatment for the investment industry that retail traders don't have (for example as a retail trader, I can trade in the pre or post market but if I do my trades aren't guaranteed to happen in any timely manner like they are during normal trading hours. This lets big investment firms, who can trade in real-time in pre and post market, do things like respond real-time during earnings calls that retail investors are unable to do).

liotier 4y ago
Could rules such as order matching within coarse-grained time increments level the playing field ? What would the drawbacks be ?
- carterschonwald 4y ago
  There’s actually 1-2 venues that have launched in the past year that do something like that.
  - chollida1 4y ago
    > There’s actually 1-2 venues that have launched in the past year that do something like that. interesting, i've not heard about this. Which venues are you referring to that don't just do price time broker priority matching?
    - carterschonwald 4y ago
      One chronos is the main one. I’m not sure what their current state of play is.
- seanhunter 4y ago
  The evidence I read (it was 10+ years ago) suggests that rolling auctions reduces intraday price volatility and and reduces standard dev of many measures of transaction cost (eg implementation shortfall). If you think about this variance since there is a party on either side of the trade, and one will benefit and one will lose out. The downside of reduced variance is you will never gain a “lucky fill” that is much better than you expect. But you will also never get a really bad fill either. Since the whole purpose of hfts In market making is essentially to try to always be the ones yo get the lucky fills, they will on average do this and everyone else will on average lose out (from high execution cost variance). That’s why I said on net retail investors should benefit from this (I think). I hope that explanation makes sense.
- baandang 4y ago
  You first have to define what playing field are we talking about? The playing field in this context is basically latency arbitrage. Who cares what hedge fund is collecting what alpha? We live in the most golden age for retail trading. Retail electronic trading inside a Roth is basically perfection for the individual right now. I think people are confusing the market micro structure for the account returns in a bear market.
seanhunter 4y ago
I quite agree. It should absolutely be a level playing field for everyone as far as possible.
- baandang 4y ago
  I worry though we are trying to fix something that isn't really broke. My first Scott Trade brokerage account years back cost $7 a trade per side Now I pay absolutely nothing. Every trade I make I think about how this probably won't last. An individual has no problem getting near infinite liquidity on their limit orders with no transaction cost. If someone is getting clipped a tick on a market order, oh well. Don't use a market order.
  - f-securus 4y ago
    Do you think near infinite liquidity allows for true price discovery? Do you think paying for order flow gives market makers an advantage over retail?
Majromax 4y ago
> With today's tech there is no reason that trades can't be immediate, Liquidity is a good, non-technological reason that we may not want trades to be immediate. Consider how the price is found at market-open: buy and sell orders are batched into the opening auction, then the exchange finds the single price that results in the most matching orders. All execute at that price. Contrast that with the binary, point-in-time matching that happens during the day. Here, the order book sits there waiting for someone to match an offer. It leads to perversities like "iceberg" orders (that disguise the true size of the order by posting only a small amount) and market-making firms that will really buy a little bit above the bid and sell a little bit below the ask but hide that for strategic reasons. Trade settlement times might be silly, but that's a back-end implementation detail relevant mostly to day traders; it has little to do with the price discovery part of the market.
- no_wizard 4y ago
  I think the frustration that people feel is that they decide to sell at X price, but it doesn't actually sell at X price even though X price was, in fact, a listed price on point of time that the sell order was executed. For instance, lets say I bought a bunch of stock in ACME for 10 dollars a share on say, Wednesday. Lets then, take for example, I notice there was a huge spike on Monday at 12 PM and suddenly, its 15 dollars a share for say, a few minutes, before going back down to 10, so I execute (or, perhaps smartly, have some automation on the account that auto-executes the sale if its at or above N price). Reasonably, I'd expect to get my 15 dollars a share because I sold within the correct window (you can see the timestamp!). And yet, this isn't what happens. I remember, quite distinctly, being bitten due to the delay in settlements, where in fact, you end up right back in the 10 dollar a share sale because of the delay. This is why real time access for everyone matters, IMO, because in any other market, you get to buy or sell at the time of point agreed price, right? Why should stocks be different? Why should only huge institutions be able to execute on point in time pricing? Disclaimer: Its entirely possible that I'm missing something, but when I raised an issue with the broker (This was in the early 2010s, but I can't remember whom, exactly, I worked with) they pretty much made it clear it was because retail trades were cleared "in bulk" at the "agreed price" not the point in time price the sale was executed, if I recall correctly.
Workaccount2 4y ago
It's my understanding that the reason for the delay in settlement is to allow for mistakes to be resolved. Not retail mistakes of course, but mistakes that might impact the people who count (unless your retail mistake impacts someone who counts, i.e. your broker who misfilled your order).
yieldcrv 4y ago
I agree, there is so much more activity and things to keep track of in the options market - data wise - and that still settles in 1 day. Over the past decade, many of the settlement times have been related to the feasibility of data retention capabilities, as opposed to the reality of it being all on top of a slower analog system for re-assigning shares and assets to different owners. So in this decade I would say its over. 0 to 1 day settlement time.
cturner 4y ago
Multi-day settlement is good for market stability. If there is an error, it gets picked up in clearing. If there is a catastrophe, the regulator can cancel the day's trading. T+2 would be an improvement, but less than that would create new problems. Something the US could do to improve its situation would be to change from end of day novation to novation within five seconds of a trade. This might reduce the amount of capital that firms had to post.
- chollida1 4y ago
  > T+2 would be an improvement, but less than that would create new problems. US Cash equities already settle in T+2. Have for some time now. IT did used to be T+3
- hitpointdrew 4y ago
  >Multi-day settlement is good for market stability. If there is an error, it gets picked up in clearing. Why is this a good thing? There are consequences to actions, lets just live with that. If you mistakenly order something you didn't mean to the solution isn't to "catch the error" and prevent a transaction from happening, the solution is to make an new entry/transaction that reverses the previous one. If you end up having to eat some cost to reverse the "mistake" oh well, lesson (hopefully) learned you will be more careful next time. There should be no settling, no clearing, every transaction should be immediate and final. This would open up the possibility to not have any arbitrary market "open" and "close" times. There should be no need to settle up, clear, reconcile for the day/week etc. All transactions are immediate and final and the market can run 24/7 365.
  - growse 4y ago
    > There should be no settling, no clearing, every transaction should be immediate and final. I hear they're trying this idea on something called the "Blockchain" and that it's all going really well.
    - hitpointdrew 4y ago
      The reason blockchain isn't doing well has absolutely nothing to do with there being "no settling, no clearing, every transaction should be immediate and final." and everything to do with the "assets" that the blockchain represents.
chollida1 4y ago
> With today's tech there is no reason that trades can't be immediate, the fact that it takes 3 days to "settle" a trade is absolutely beyond ridiculous. Well good news here for you, trades settle in T+2 and have for some time. > That and let's also get rid of any special treatment for the investment industry that retail traders don't have Well that is limited by only the deal you and your broker have. You can send all the complex order types that funds do, you are limited only by your broker. Trading pre/post market still happens on exchanges so any delay is related to your broker. I can trade in "realtime" from my personal brokerage account with no issue or delay.
- hitpointdrew 4y ago
  >Well good news here for you, trades settle in T+2 and have for some time. T + 2 is WAY too long. I click a button to buy/sell, money goes to one party, the stock goes to the other party, transaction is final and complete within milliseconds. That is how it should be.
HWR_14 4y ago
1) AFAIK, big firms also aren't guaranteed to have their trades resolved in any timely manner after hours. 2) What difference does it make how long it takes trades to settle? I tell my broker what I want. They have it show up in my account. Any 3 days for settlement is handled at no cost to me.
- CoolGuySteve 4y ago
  You're indirectly paying the float during that settlement period. There's also a whole clearing industry that you're funding with your fees even though more efficient technologies could mostly eliminate it. Like yeah, it's fun going to fancy restaurants with your salesperson from the clearing firm, but the only reason they can do that is due to massive amounts of rent-seeking. The more I work in finance, the more I think any high touch sales activity is an indication of a broken/corrupt market.
  - HWR_14 4y ago
    I mean, I have no faith that I will somehow make more money if my broker no longer is paying the float. In my estimation, it's likely to result in employees of my brokerage getting a slightly bigger boat and fewer comped meals from salespeople, while leaving my bottom line the same.
cesaref 4y ago
Settlement in Europe is T+2, there's talk of T+1 settlement, but there are complications around some classes of securities, things like ETFs, where the underlying might be in a different country/exchange/timezone with bank holidays and stuff like that which complicate matters. I'm also interested in this idea that large investment firms can trade out of hours - this has never been the case in any market that i've seen. There are some 24/7 markets though (CME is like this I believe?) so maybe there is a disconnect between the hours offered to customers vs the exchange hours? I suppose the other possibility is that the broker trades the opening auction and doesn't offer this to their customers, but i'd have thought they would simply bundle everything into the auction from overnight. Back in the day, the UK settled twice per month, with the various brokers having tracked all of the trades for the fortnight then the accounts departments moving the difference once they had agreed the actual total (which of course would never match with a word of mouth + paper based system). It's amazing it worked so well for so long, all basically based on trust and hence why being an exchange member was so important for trading. The move to a rolling settlement date part of the Taurus/Talisman project in the 1980s. This got cancelled, lots of IT companies had invested heavily to be ready for this got burnt, but what emerged was the less extensive CREST system which is still in use today. The original move was to a T+5 rolling settlement, which moved to T+3 in the early 2000s and is now T+2.
zie 4y ago
Most nice brokerages will cover the float for the settlement as long as you don't try to withdraw the money outside of the brokerage. Also it's T+2 days now in the USA at least. So this is mostly a non-issue in practice and has nothing to do with your actual complaint. ACH is T+2, Checks and everything else is T+2 to T+5(some paper checks can take 5 days to fully settle). This settlement, like the other commenters have mentioned is to fix any problems. I've seen giant companies screw up ACH payrolls, that they have to recall every ACH and re-submit. This T+2 is to fix those mistakes. Brokerages screw up sometimes too. T+2 let's them fix those mistakes. Yes automation and technology could make it all instant, but human error still happens, so T+2 is there to fix the human error, without having to reach out and undo transactions that have landed. No trades are guaranteed because you have to find someone willing to take the other side of the trade. This applies pre or post market. Some brokerages are happy to let you try and trade pre and post market, but that still doesn't mean you can find a buyer or seller to complete your trade, much less trades happen, so it's much harder to fill them. Large investment firms don't really get special treatment here, like you seem to think.

liotier 4y ago

Could rules such as order matching within coarse-grained time increments level the playing field ? What would the drawbacks be ?

carterschonwald 4y ago
There’s actually 1-2 venues that have launched in the past year that do something like that.
- chollida1 4y ago
  > There’s actually 1-2 venues that have launched in the past year that do something like that. interesting, i've not heard about this. Which venues are you referring to that don't just do price time broker priority matching?
  - carterschonwald 4y ago
    One chronos is the main one. I’m not sure what their current state of play is.
seanhunter 4y ago
The evidence I read (it was 10+ years ago) suggests that rolling auctions reduces intraday price volatility and and reduces standard dev of many measures of transaction cost (eg implementation shortfall). If you think about this variance since there is a party on either side of the trade, and one will benefit and one will lose out. The downside of reduced variance is you will never gain a “lucky fill” that is much better than you expect. But you will also never get a really bad fill either. Since the whole purpose of hfts In market making is essentially to try to always be the ones yo get the lucky fills, they will on average do this and everyone else will on average lose out (from high execution cost variance). That’s why I said on net retail investors should benefit from this (I think). I hope that explanation makes sense.
baandang 4y ago
You first have to define what playing field are we talking about? The playing field in this context is basically latency arbitrage. Who cares what hedge fund is collecting what alpha? We live in the most golden age for retail trading. Retail electronic trading inside a Roth is basically perfection for the individual right now. I think people are confusing the market micro structure for the account returns in a bear market.

seanhunter 4y ago

I quite agree. It should absolutely be a level playing field for everyone as far as possible.

baandang 4y ago
I worry though we are trying to fix something that isn't really broke. My first Scott Trade brokerage account years back cost $7 a trade per side Now I pay absolutely nothing. Every trade I make I think about how this probably won't last. An individual has no problem getting near infinite liquidity on their limit orders with no transaction cost. If someone is getting clipped a tick on a market order, oh well. Don't use a market order.
- f-securus 4y ago
  Do you think near infinite liquidity allows for true price discovery? Do you think paying for order flow gives market makers an advantage over retail?

Majromax 4y ago

> With today's tech there is no reason that trades can't be immediate, Liquidity is a good, non-technological reason that we may not want trades to be immediate. Consider how the price is found at market-open: buy and sell orders are batched into the opening auction, then the exchange finds the single price that results in the most matching orders. All execute at that price. Contrast that with the binary, point-in-time matching that happens during the day. Here, the order book sits there waiting for someone to match an offer. It leads to perversities like "iceberg" orders (that disguise the true size of the order by posting only a small amount) and market-making firms that will really buy a little bit above the bid and sell a little bit below the ask but hide that for strategic reasons. Trade settlement times might be silly, but that's a back-end implementation detail relevant mostly to day traders; it has little to do with the price discovery part of the market.

no_wizard 4y ago
I think the frustration that people feel is that they decide to sell at X price, but it doesn't actually sell at X price even though X price was, in fact, a listed price on point of time that the sell order was executed. For instance, lets say I bought a bunch of stock in ACME for 10 dollars a share on say, Wednesday. Lets then, take for example, I notice there was a huge spike on Monday at 12 PM and suddenly, its 15 dollars a share for say, a few minutes, before going back down to 10, so I execute (or, perhaps smartly, have some automation on the account that auto-executes the sale if its at or above N price). Reasonably, I'd expect to get my 15 dollars a share because I sold within the correct window (you can see the timestamp!). And yet, this isn't what happens. I remember, quite distinctly, being bitten due to the delay in settlements, where in fact, you end up right back in the 10 dollar a share sale because of the delay. This is why real time access for everyone matters, IMO, because in any other market, you get to buy or sell at the time of point agreed price, right? Why should stocks be different? Why should only huge institutions be able to execute on point in time pricing? Disclaimer: Its entirely possible that I'm missing something, but when I raised an issue with the broker (This was in the early 2010s, but I can't remember whom, exactly, I worked with) they pretty much made it clear it was because retail trades were cleared "in bulk" at the "agreed price" not the point in time price the sale was executed, if I recall correctly.

Workaccount2 4y ago

It's my understanding that the reason for the delay in settlement is to allow for mistakes to be resolved. Not retail mistakes of course, but mistakes that might impact the people who count (unless your retail mistake impacts someone who counts, i.e. your broker who misfilled your order).

yieldcrv 4y ago

I agree, there is so much more activity and things to keep track of in the options market - data wise - and that still settles in 1 day. Over the past decade, many of the settlement times have been related to the feasibility of data retention capabilities, as opposed to the reality of it being all on top of a slower analog system for re-assigning shares and assets to different owners. So in this decade I would say its over. 0 to 1 day settlement time.

cturner 4y ago

Multi-day settlement is good for market stability. If there is an error, it gets picked up in clearing. If there is a catastrophe, the regulator can cancel the day's trading. T+2 would be an improvement, but less than that would create new problems. Something the US could do to improve its situation would be to change from end of day novation to novation within five seconds of a trade. This might reduce the amount of capital that firms had to post.

chollida1 4y ago
> T+2 would be an improvement, but less than that would create new problems. US Cash equities already settle in T+2. Have for some time now. IT did used to be T+3
hitpointdrew 4y ago
>Multi-day settlement is good for market stability. If there is an error, it gets picked up in clearing. Why is this a good thing? There are consequences to actions, lets just live with that. If you mistakenly order something you didn't mean to the solution isn't to "catch the error" and prevent a transaction from happening, the solution is to make an new entry/transaction that reverses the previous one. If you end up having to eat some cost to reverse the "mistake" oh well, lesson (hopefully) learned you will be more careful next time. There should be no settling, no clearing, every transaction should be immediate and final. This would open up the possibility to not have any arbitrary market "open" and "close" times. There should be no need to settle up, clear, reconcile for the day/week etc. All transactions are immediate and final and the market can run 24/7 365.
- growse 4y ago
  > There should be no settling, no clearing, every transaction should be immediate and final. I hear they're trying this idea on something called the "Blockchain" and that it's all going really well.
  - hitpointdrew 4y ago
    The reason blockchain isn't doing well has absolutely nothing to do with there being "no settling, no clearing, every transaction should be immediate and final." and everything to do with the "assets" that the blockchain represents.

chollida1 4y ago

> With today's tech there is no reason that trades can't be immediate, the fact that it takes 3 days to "settle" a trade is absolutely beyond ridiculous. Well good news here for you, trades settle in T+2 and have for some time. > That and let's also get rid of any special treatment for the investment industry that retail traders don't have Well that is limited by only the deal you and your broker have. You can send all the complex order types that funds do, you are limited only by your broker. Trading pre/post market still happens on exchanges so any delay is related to your broker. I can trade in "realtime" from my personal brokerage account with no issue or delay.

hitpointdrew 4y ago
>Well good news here for you, trades settle in T+2 and have for some time. T + 2 is WAY too long. I click a button to buy/sell, money goes to one party, the stock goes to the other party, transaction is final and complete within milliseconds. That is how it should be.

HWR_14 4y ago

1) AFAIK, big firms also aren't guaranteed to have their trades resolved in any timely manner after hours. 2) What difference does it make how long it takes trades to settle? I tell my broker what I want. They have it show up in my account. Any 3 days for settlement is handled at no cost to me.

CoolGuySteve 4y ago
You're indirectly paying the float during that settlement period. There's also a whole clearing industry that you're funding with your fees even though more efficient technologies could mostly eliminate it. Like yeah, it's fun going to fancy restaurants with your salesperson from the clearing firm, but the only reason they can do that is due to massive amounts of rent-seeking. The more I work in finance, the more I think any high touch sales activity is an indication of a broken/corrupt market.
- HWR_14 4y ago
  I mean, I have no faith that I will somehow make more money if my broker no longer is paying the float. In my estimation, it's likely to result in employees of my brokerage getting a slightly bigger boat and fewer comped meals from salespeople, while leaving my bottom line the same.

cesaref 4y ago

Settlement in Europe is T+2, there's talk of T+1 settlement, but there are complications around some classes of securities, things like ETFs, where the underlying might be in a different country/exchange/timezone with bank holidays and stuff like that which complicate matters. I'm also interested in this idea that large investment firms can trade out of hours - this has never been the case in any market that i've seen. There are some 24/7 markets though (CME is like this I believe?) so maybe there is a disconnect between the hours offered to customers vs the exchange hours? I suppose the other possibility is that the broker trades the opening auction and doesn't offer this to their customers, but i'd have thought they would simply bundle everything into the auction from overnight. Back in the day, the UK settled twice per month, with the various brokers having tracked all of the trades for the fortnight then the accounts departments moving the difference once they had agreed the actual total (which of course would never match with a word of mouth + paper based system). It's amazing it worked so well for so long, all basically based on trust and hence why being an exchange member was so important for trading. The move to a rolling settlement date part of the Taurus/Talisman project in the 1980s. This got cancelled, lots of IT companies had invested heavily to be ready for this got burnt, but what emerged was the less extensive CREST system which is still in use today. The original move was to a T+5 rolling settlement, which moved to T+3 in the early 2000s and is now T+2.

zie 4y ago

Most nice brokerages will cover the float for the settlement as long as you don't try to withdraw the money outside of the brokerage. Also it's T+2 days now in the USA at least. So this is mostly a non-issue in practice and has nothing to do with your actual complaint. ACH is T+2, Checks and everything else is T+2 to T+5(some paper checks can take 5 days to fully settle). This settlement, like the other commenters have mentioned is to fix any problems. I've seen giant companies screw up ACH payrolls, that they have to recall every ACH and re-submit. This T+2 is to fix those mistakes. Brokerages screw up sometimes too. T+2 let's them fix those mistakes. Yes automation and technology could make it all instant, but human error still happens, so T+2 is there to fix the human error, without having to reach out and undo transactions that have landed. No trades are guaranteed because you have to find someone willing to take the other side of the trade. This applies pre or post market. Some brokerages are happy to let you try and trade pre and post market, but that still doesn't mean you can find a buyer or seller to complete your trade, much less trades happen, so it's much harder to fill them. Large investment firms don't really get special treatment here, like you seem to think.