4 ms·

HFT isn't even that harmful. What's harmful is brokerages that hold large portions of financial instruments who take advantage of customers' live buying and sel

by elif 3y ago

HFT isn't even that harmful. What's harmful is brokerages that hold large portions of financial instruments who take advantage of customers' live buying and selling with delayed swaps, intentional front running, etc. This is how the stock market was bullied before HFT, options markets, trading bots, etc enabled 'everyone' to do skeezy arbitrage and not just market makers. The only meaningful way to limit the efficacy of these modern trading styles would be purposeful market friction through minimum holding times, circuit breakers, etc. You can't just legislate that people mustnt have low ping.. it's impossible to enforce. And those market friction mechanisms can create scary market conditions like backlogs, etc and guess what, enable market making brokerages to do internal swaps etc. in spite of the friction and essentially be the only ones able to bypass restrictions.

bjelkeman-again 3y ago
Wouldn’t a financial transaction tax be the friction required? https://en.wikipedia.org/wiki/Financial_transaction_tax https://en.wikipedia.org/wiki/Financial_transaction_tax
- cvalka 3y ago
  Yes.
strictnein 3y ago
> HFT isn't even that harmful. What's harmful is brokerages that hold large portions of financial instruments who take advantage of customers' live buying and selling with delayed swaps, intentional front running, etc HFT does very similar things, except it's even more opaque to those not doing it. Large financial firms and exchanges sell their order data to HFTs. If you're interested in a deeper dive on what they're doing, a book like Flash Boys will explain how there's a lot more going on than just a quicker network connection.
phkahler 3y ago
>> The only meaningful way to limit the efficacy of these modern trading styles would be purposeful market friction through minimum holding times, circuit breakers, etc So I occasionally try to think of a reason to have a guaranteed delay due to signal propagation delay to/from Mars. Would there be a use for putting an automated exchange there? Maybe, but then whomever gates the orders could monitor and predict what will happen 40 minutes out or whatever. Need TLS from trader to exchange or something.
- govg 3y ago
  You might be interested in IEX [0]. The idea behind that stock exchange was similar to your thought process - introduce a guaranteed delay / random offset so that HFTs can't exploit the markets the way they do others. [0] - https://en.wikipedia.org/wiki/IEX https://en.wikipedia.org/wiki/IEX
DylanDmitri 3y ago
How about forcing public markets to bucket trades within say 2 second windows, executing best matches at the end of each period. Low friction and reduces value of millisecond latency advantages.
- darrin 3y ago
  Even a 1-2 millisecond batch auction would do it. But the big trading firms are the largest "customers" of exchanges, and they've pushed back hard on proposals like this.
- soligern 3y ago
  Then there would be algorithms that analyze the trades in those buckets, make a prediction on the outcome and carry out several counter trades to put into the same bucket. See a lot of people selling, cancel your buy order and replace with a short instead. Get a few of those bots involved and each bucket window would be exploding dueling pits of orders that would require insanely large systems to process.
  - DylanDmitri 3y ago
    These problems are fixable. Use blind bidding, and ban spoofing by preventing order cancellation within a bucket. Too many orders? Set a per-client limit. Most of this is improvable with software. As other commenters point out, the resistance is from incumbent trading institutions who have a lot invested in the status quo.
    - soligern 3y ago
      Blinding bidding would not work given the current way NMS works and it wouldn’t be completely blind either ways, the exchanges would know and that’s a system ripe for abuse. What is an order cancellation? Would different legs on a hedge count as a cancellation? The closing window is a massive challenge as well. It would have to be accurate down to the nano second and you can bet the exchange is going to get litigated against depending on which bucket the order ends up in. If you set up mandatory delays per client you would have each hedge funds split up into hundreds of shell companies to get around it. Having worked at exchanges, most surveillance and analysis of trades happen after the close of day. You’re proposing a literal real-time surveillance system that would be absolutely massive in scale.

by elif 3y ago

bjelkeman-again 3y ago

Wouldn’t a financial transaction tax be the friction required? https://en.wikipedia.org/wiki/Financial_transaction_tax https://en.wikipedia.org/wiki/Financial_transaction_tax

cvalka 3y ago
Yes.

strictnein 3y ago

> HFT isn't even that harmful. What's harmful is brokerages that hold large portions of financial instruments who take advantage of customers' live buying and selling with delayed swaps, intentional front running, etc HFT does very similar things, except it's even more opaque to those not doing it. Large financial firms and exchanges sell their order data to HFTs. If you're interested in a deeper dive on what they're doing, a book like Flash Boys will explain how there's a lot more going on than just a quicker network connection.

phkahler 3y ago

>> The only meaningful way to limit the efficacy of these modern trading styles would be purposeful market friction through minimum holding times, circuit breakers, etc So I occasionally try to think of a reason to have a guaranteed delay due to signal propagation delay to/from Mars. Would there be a use for putting an automated exchange there? Maybe, but then whomever gates the orders could monitor and predict what will happen 40 minutes out or whatever. Need TLS from trader to exchange or something.

govg 3y ago
You might be interested in IEX [0]. The idea behind that stock exchange was similar to your thought process - introduce a guaranteed delay / random offset so that HFTs can't exploit the markets the way they do others. [0] - https://en.wikipedia.org/wiki/IEX https://en.wikipedia.org/wiki/IEX

DylanDmitri 3y ago

How about forcing public markets to bucket trades within say 2 second windows, executing best matches at the end of each period. Low friction and reduces value of millisecond latency advantages.

darrin 3y ago
Even a 1-2 millisecond batch auction would do it. But the big trading firms are the largest "customers" of exchanges, and they've pushed back hard on proposals like this.
soligern 3y ago
Then there would be algorithms that analyze the trades in those buckets, make a prediction on the outcome and carry out several counter trades to put into the same bucket. See a lot of people selling, cancel your buy order and replace with a short instead. Get a few of those bots involved and each bucket window would be exploding dueling pits of orders that would require insanely large systems to process.
- DylanDmitri 3y ago
  These problems are fixable. Use blind bidding, and ban spoofing by preventing order cancellation within a bucket. Too many orders? Set a per-client limit. Most of this is improvable with software. As other commenters point out, the resistance is from incumbent trading institutions who have a lot invested in the status quo.
  - soligern 3y ago
    Blinding bidding would not work given the current way NMS works and it wouldn’t be completely blind either ways, the exchanges would know and that’s a system ripe for abuse. What is an order cancellation? Would different legs on a hedge count as a cancellation? The closing window is a massive challenge as well. It would have to be accurate down to the nano second and you can bet the exchange is going to get litigated against depending on which bucket the order ends up in. If you set up mandatory delays per client you would have each hedge funds split up into hundreds of shell companies to get around it. Having worked at exchanges, most surveillance and analysis of trades happen after the close of day. You’re proposing a literal real-time surveillance system that would be absolutely massive in scale.