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The SEC and other regulators try to make markets fair and avoid corruption because otherwise people would sensibly stay away, and then the money would dry up.

The SEC and other regulators try to make markets fair and avoid corruption because otherwise people would sensibly stay away, and then the money would dry up. That's how I understand it. And it feels like a leaky dam with fingers stuck all over it. What are the major, huge, "no-one will go for that" changes that might simply replace the dam? If we apply a Tobin Tax? If we time box trades to every five minutes? If we end trading on margin? Place derivatives under insurance law ? Or is it that experienced players have a huge incentive to fleece inexperienced players and that's just the way of the world, and the casino needs to have really good pit bosses, or there is no casino?

batmansmom1 3y ago
Time box for trades is a very interesting idea that I've never heard of before. Would probably equalize the playing field by a lot, reducing the advantage firms have simply by being close to the market. Have there been serious discussions about this in the past? I wonder what the downsides would be, besides that it would hurt the bottom line of market makers
- steveklabnik 3y ago
  No matter what time box you choose, someone is not going to be able to react to information for longer than the time box. It introduces complexity for dubious benefit, IMHO. And yes, this has been talked about endlessly. Heck, some people have proposed even further restrictions; for example, in practice, the first and last hours that the exchange are open tend to have the highest volume, so why not only keep the exchange open for those two hours?
  - Dylan16807 3y ago
    > No matter what time box you choose, someone is not going to be able to react to information for longer than the time box. It introduces complexity for dubious benefit, IMHO. If releases like this were scheduled for 30 seconds into a 5 minute box, basically any trader that cares would be able to react inside the box. We could say 99.9% for the sake of argument. I can't exactly state whether it's a good idea overall, but the idea that it might not catch literally everyone doesn't really matter. It's an extreme example of letting the perfect be the enemy of the good, when it comes to this single aspect.
    - steveklabnik 3y ago
      I personally tend to believe that the more complexity you introduce into systems like this, the more unintended consequences and more opportunities for shenanigans arise. I don’t think that five minute boxes moves the needle on societal good via the exchange. I am also not an expert.
      - kadoban 3y ago
        Is a system where you only process orders every X minutes actually more complex? The current system is _full_ of stupid shenanigans specifically due to a lack of a timebox.
    - bluGill 3y ago
      A computer can process your release in 4 minutes. However if your release is complex at all a human would not be able to figure it out.
      - Dylan16807 3y ago
        A computer can process it in 4 seconds, but badly. Given 4 minutes I think a human with reasonable tools could do as good of a job as a computer.
        bluGill 3y ago
        That depends on what the information his, and the add on side effects. Some things are subtle and take a while for a human to figure out.
- bluGill 3y ago
  Warren Buffet has stated the markets should be open only one day per year before. I can't find his exact words though. It would equalize the field. However it also means unexpected expenses cannot be handled. Furnace breaks, even though you have plenty of $$$ in stocks you are unable to get it fixed. (I know a retired person who was forced to buy a new car with cash because the bank didn't accept their > $million in investments as proof they could pay for a small loan)
  - steveklabnik 3y ago
    I believe you're slightly mis-remembering; the quote that I'm aware of is "Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years." It's a statement about strategy, not about suggesting regulation.
    - bluGill 3y ago
      He has said that type of thing a lot more often. I seem to recall the suggestion the market shutdown except for once a year as well. As I recall he admitted that it wasn't workable. Or maybe I remember wrong.
- JumpCrisscross 3y ago
  > Time box for trades is a very interesting idea It's how the market opens every morning and closes every afternoon [1]. There is still an advantage to low latency--the closer your get your order to the submission deadline, the more information you can incorporate into it. [1] https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Opening_and_Closing_Auctions_Fact_Sheet.pdf https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Openi...
saintkaye 3y ago
This is correct and what’s lost in legislation their goal isn’t to make markets fair, it’s instead to make them inviting to capital. Though there is some overlap, they are very distinct incentives.
- futuretaint 3y ago
  thats a great point. its fair in a 'pursuit of happiness' type of way.
JumpCrisscross 3y ago
> regulators try to make markets fair and avoid corruption because otherwise people would sensibly stay away Cryptocurrency seems to refute this assumption. I'd be curious to see if these fairness regulations actually lower capital costs for companies more than they cost to comply with.
smolder 3y ago
Sounds like you're talking about anti-latency arbitrage mechanisms, which aren't a new subject. The book Flash Boys talked about IEX, an exchange set up in Canada with an enforced minimum latency via propagation delay, just by having long coils of fiberoptic cable... I don't think nanosecond-sensitive trading should be a thing, personally, but sweeping changes to the way security exchange works seems less likely than societal collapse. Most apparent experts insist that letting algorithmic money vacuums operate is "good for liquidity," and that there is no viable more-fair alternative. I don't really buy it. IMO the obstacles to something better are just public ignorance, industry inertia, and a deeply lacking interest in fairness, i.e. corruption.
- BoiledCabbage 3y ago
  > Most apparent experts insist that letting algorithmic money vacuums operate is "good for liquidity," You do realize those "apparent experts" are mainly those ones making money from it (or are closely associated with them)? I also think the best policy national is for everyone to pay me $10 daily. And I can give you hundreds of pages in support as to why that is. And after I've made a few tens of millions of that, I can buy you an army of "apparent experts" that will agree with it. And for starters, by ensuring that money is moving daily (to my pocket), regardless of if a person is sitting on the couch at home watching tv all day, "greatly increases liquidity".
  - smolder 3y ago
    I do realize that "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" I'm likewise very aware that that's a factor in people's defense of the status quo.

batmansmom1 3y ago

Time box for trades is a very interesting idea that I've never heard of before. Would probably equalize the playing field by a lot, reducing the advantage firms have simply by being close to the market. Have there been serious discussions about this in the past? I wonder what the downsides would be, besides that it would hurt the bottom line of market makers

steveklabnik 3y ago
No matter what time box you choose, someone is not going to be able to react to information for longer than the time box. It introduces complexity for dubious benefit, IMHO. And yes, this has been talked about endlessly. Heck, some people have proposed even further restrictions; for example, in practice, the first and last hours that the exchange are open tend to have the highest volume, so why not only keep the exchange open for those two hours?
- Dylan16807 3y ago
  > No matter what time box you choose, someone is not going to be able to react to information for longer than the time box. It introduces complexity for dubious benefit, IMHO. If releases like this were scheduled for 30 seconds into a 5 minute box, basically any trader that cares would be able to react inside the box. We could say 99.9% for the sake of argument. I can't exactly state whether it's a good idea overall, but the idea that it might not catch literally everyone doesn't really matter. It's an extreme example of letting the perfect be the enemy of the good, when it comes to this single aspect.
  - steveklabnik 3y ago
    I personally tend to believe that the more complexity you introduce into systems like this, the more unintended consequences and more opportunities for shenanigans arise. I don’t think that five minute boxes moves the needle on societal good via the exchange. I am also not an expert.
    - kadoban 3y ago
      Is a system where you only process orders every X minutes actually more complex? The current system is _full_ of stupid shenanigans specifically due to a lack of a timebox.
  - bluGill 3y ago
    A computer can process your release in 4 minutes. However if your release is complex at all a human would not be able to figure it out.
    - Dylan16807 3y ago
      A computer can process it in 4 seconds, but badly. Given 4 minutes I think a human with reasonable tools could do as good of a job as a computer.
      - bluGill 3y ago
        That depends on what the information his, and the add on side effects. Some things are subtle and take a while for a human to figure out.
bluGill 3y ago
Warren Buffet has stated the markets should be open only one day per year before. I can't find his exact words though. It would equalize the field. However it also means unexpected expenses cannot be handled. Furnace breaks, even though you have plenty of $$$ in stocks you are unable to get it fixed. (I know a retired person who was forced to buy a new car with cash because the bank didn't accept their > $million in investments as proof they could pay for a small loan)
- steveklabnik 3y ago
  I believe you're slightly mis-remembering; the quote that I'm aware of is "Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years." It's a statement about strategy, not about suggesting regulation.
  - bluGill 3y ago
    He has said that type of thing a lot more often. I seem to recall the suggestion the market shutdown except for once a year as well. As I recall he admitted that it wasn't workable. Or maybe I remember wrong.
JumpCrisscross 3y ago
> Time box for trades is a very interesting idea It's how the market opens every morning and closes every afternoon [1]. There is still an advantage to low latency--the closer your get your order to the submission deadline, the more information you can incorporate into it. [1] https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Opening_and_Closing_Auctions_Fact_Sheet.pdf https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Openi...

saintkaye 3y ago

This is correct and what’s lost in legislation their goal isn’t to make markets fair, it’s instead to make them inviting to capital. Though there is some overlap, they are very distinct incentives.

futuretaint 3y ago
thats a great point. its fair in a 'pursuit of happiness' type of way.

JumpCrisscross 3y ago

> regulators try to make markets fair and avoid corruption because otherwise people would sensibly stay away Cryptocurrency seems to refute this assumption. I'd be curious to see if these fairness regulations actually lower capital costs for companies more than they cost to comply with.

smolder 3y ago

Sounds like you're talking about anti-latency arbitrage mechanisms, which aren't a new subject. The book Flash Boys talked about IEX, an exchange set up in Canada with an enforced minimum latency via propagation delay, just by having long coils of fiberoptic cable... I don't think nanosecond-sensitive trading should be a thing, personally, but sweeping changes to the way security exchange works seems less likely than societal collapse. Most apparent experts insist that letting algorithmic money vacuums operate is "good for liquidity," and that there is no viable more-fair alternative. I don't really buy it. IMO the obstacles to something better are just public ignorance, industry inertia, and a deeply lacking interest in fairness, i.e. corruption.

BoiledCabbage 3y ago
> Most apparent experts insist that letting algorithmic money vacuums operate is "good for liquidity," You do realize those "apparent experts" are mainly those ones making money from it (or are closely associated with them)? I also think the best policy national is for everyone to pay me $10 daily. And I can give you hundreds of pages in support as to why that is. And after I've made a few tens of millions of that, I can buy you an army of "apparent experts" that will agree with it. And for starters, by ensuring that money is moving daily (to my pocket), regardless of if a person is sitting on the couch at home watching tv all day, "greatly increases liquidity".
- smolder 3y ago
  I do realize that "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" I'm likewise very aware that that's a factor in people's defense of the status quo.