3 ms·

I thought they did find negative effects? I’m not necessarily for or against but didn’t the creation of dark pools lead to front-running and worse prices for c

by shw1n 3y ago

I thought they did find negative effects? I’m not necessarily for or against but didn’t the creation of dark pools lead to front-running and worse prices for customers? Michael Lewis covered this beautifully in Flashboys

denotational 3y ago
Can you explain how "dark pools lead to front-running and worse prices for customers"? I would agree that the price discovery works best when liquidity is lit up on a single CLOB, but claims about HFT leading to front-running or worse prices for customers (I assume you mean retail investors?) need justification. What do you mean when you say "front-running"? It has a fairly specific definition, but it is often used inaccurately in discussions around HFT. If by front-running you mean "HFT firms accept instructions as agent and then deal as principle prior to executing their client's instructions so as to benefit from the price move their client's order may induce" then you would be using the term correctly, and the SEC would be very interested, but this isn't what HFT firms do.
- AlbertCory 3y ago
  That's my (naive) understanding of front-running. But I'm not familiar with the argument that HFT facilitates it. The best argument is that HFT serves no legitimate purpose, and is just a pointless arms race. Money should flow to better trades, not faster ones.
  - denotational 3y ago
    Usually when people claim that HFT strategies “front-run” they are talking about aggressor/taker strategies that are trying to shave off every nanosecond of latency to increase the chance of a fill at the best possible price. Because these strategies are actively racing other participants for a fill, some people (inaccurately) call this “front-running”, presumably because they are “running in front” of other participants, but this isn’t what is usually meant by front-running. As another commented has pointed out, front-running (in the sense I described it in my previous comment) is explicitly prohibited by regulation in the US, so to misuse the term in this way is to accuse someone of acting illegally without actually understanding what the terms mean.
infecto 3y ago
Just my own tangent but I found that Flashboys was a little too sensational and the book Darkpools did a much better job at going over what led up to some of the issues in the market. Not that you made this point but I found Darkpools to give a view that it is a lot more nuanced.
gruez 3y ago
Since we're playing "just asking questions" >I’m not necessarily for or against but didn’t the creation of dark pools lead to front-running How does creation of dark pools lead to front running? Isn't that explicitly banned by the SEC? >and worse prices for customers? How so? Regulation NMS forces brokers to provide equal or better prices than the national best bid offer.
Redoubts 3y ago
> Michael Lewis covered this beautifully in Flashboys That was actually quite a bad book https://www.amazon.com/dp/B00P0QI2M2 https://www.amazon.com/dp/B00P0QI2M2

by shw1n 3y ago

denotational 3y ago

Can you explain how "dark pools lead to front-running and worse prices for customers"? I would agree that the price discovery works best when liquidity is lit up on a single CLOB, but claims about HFT leading to front-running or worse prices for customers (I assume you mean retail investors?) need justification. What do you mean when you say "front-running"? It has a fairly specific definition, but it is often used inaccurately in discussions around HFT. If by front-running you mean "HFT firms accept instructions as agent and then deal as principle prior to executing their client's instructions so as to benefit from the price move their client's order may induce" then you would be using the term correctly, and the SEC would be very interested, but this isn't what HFT firms do.

AlbertCory 3y ago
That's my (naive) understanding of front-running. But I'm not familiar with the argument that HFT facilitates it. The best argument is that HFT serves no legitimate purpose, and is just a pointless arms race. Money should flow to better trades, not faster ones.
- denotational 3y ago
  Usually when people claim that HFT strategies “front-run” they are talking about aggressor/taker strategies that are trying to shave off every nanosecond of latency to increase the chance of a fill at the best possible price. Because these strategies are actively racing other participants for a fill, some people (inaccurately) call this “front-running”, presumably because they are “running in front” of other participants, but this isn’t what is usually meant by front-running. As another commented has pointed out, front-running (in the sense I described it in my previous comment) is explicitly prohibited by regulation in the US, so to misuse the term in this way is to accuse someone of acting illegally without actually understanding what the terms mean.

infecto 3y ago

Just my own tangent but I found that Flashboys was a little too sensational and the book Darkpools did a much better job at going over what led up to some of the issues in the market. Not that you made this point but I found Darkpools to give a view that it is a lot more nuanced.

gruez 3y ago

Since we're playing "just asking questions" >I’m not necessarily for or against but didn’t the creation of dark pools lead to front-running How does creation of dark pools lead to front running? Isn't that explicitly banned by the SEC? >and worse prices for customers? How so? Regulation NMS forces brokers to provide equal or better prices than the national best bid offer.

Redoubts 3y ago

> Michael Lewis covered this beautifully in Flashboys That was actually quite a bad book https://www.amazon.com/dp/B00P0QI2M2 https://www.amazon.com/dp/B00P0QI2M2