8 ms·

Last week, Bloomberg published this op-ed defending HFT: http://www.bloomberg.com/news/2012-04-10/high-speed-trading-is-progress-not-piracy.html http://www.bloo

Last week, Bloomberg published this op-ed defending HFT: http://www.bloomberg.com/news/2012-04-10/high-speed-trading-is-progress-not-piracy.html http://www.bloomberg.com/news/2012-04-10/high-speed-trading-... The piece is largely propaganda. A nice rebuttal is found here: http://www.ritholtz.com/blog/2012/04/hft-pirates-and-their-academic-friends/ http://www.ritholtz.com/blog/2012/04/hft-pirates-and-their-a... Can anyone explain why multiple exchanges exist (besides for historical or political reasons)? It seems anti-competitive that exchanges can be private at all, let alone that exchanges can be allowed to operate as monopolies in a market or country.

HeXetic 15y ago
That's not a "nice rebuttal", that's some bullet points spat back. Whereas the original linked article in this discussion provides some context and explanation, the bullet points in your second link are meaningless to the layperson (e.g, me).
- joejohnson 15y ago
  ...the original linked article in this discussion... Do you mean the Chris Stucchio piece? Because, despite it being an apology, it doesn't justify how HFT is socially beneficial. This piece makes hand-wavy claims about liquidity, and says that it will better justify HFT in a coming blog post. As for the Bloomberg piece defending HFT, it fails to address a few issues that the SEC and critics have with HFT. These issues are enumerated in the Ritholtz blog post. Pointing out certain facts that an argument ignores is a valid rebuttal.
  - tptacek 15y ago
    Jiminy! Chris Stucchio is 'yummyfajitas, one of the oldest contributors on HN. He was a dev for an actual HFT firm for a bunch of years before doing a totally unrelated startup. Could he just maybe write a post and spark a discussion about how his field actually works so we can learn something about it? I DO NOT UNDERSTAND this HN mentality that equates "learning more about X" with "joining the death cult of X". And it comes up all the time: no, we can't discuss how SEO works, because that would make us morally black hat SEOs; no, we can't discuss how HFT works, because that would make us morally Goldman Sachs executives; no, we can't discuss how a law is written, but that would mean we want to give the Internet to the MPAA. The particular mode of argument in your comment and many like it on this thread is directly counter to the whole idea behind this site and every other worthwhile message board on the Internet. Yes, we get it, you don't know who G.H. Hardy is or didn't pick up on the joke in the title --- but it's obvious from the rest of the post that it's trying to explain how things work, not make a case for why it works that way.
    - tedunangst 15y ago
      I see you're at the end of your rope too. The "must not know" and "more important to be right than correct" mentalities are really starting to kill it.
      - tptacek 15y ago
        My rope is long and sturdy but it's giving my hands some serious burns.
  - yummyfajitas 15y ago
    This piece makes hand-wavy claims about liquidity... The word "liquidity" doesn't appear in my blog post. All I made were very concrete claims about how a matching engine works (all of which you can verify from the sources I listed) and some explanation of how why being faster helps HFT's to make money.
    - joejohnson 15y ago
      I'm sorry, I didn't intend to put words in your mouth. I read your piece thinking it was going to present some justification for HFT. In your first paragraph you state that the point of this post is "merely an intellectual justification of a field which is often misunderstood." But then you don't directly justify HFT in the post, instead explaining the mechanics of HFT and market making. This is great; you explain it well. However, I was still looking for the justification promised in the opening sentences. So I look for the subtext in your technical explanation that would justify this oft misunderstood field. I clearly misunderstood your justification for HFT. What is your justification for HFT?
      - yummyfajitas 15y ago
        From paragraph 2: "In future blog posts, I’ll attempt to justify the social value of HFT (under some circumstances), and describe other circumstances under which it is not very useful." From paragraph -1: "In future posts, I’ll discuss it’s societal utility and costs."
  - scott_s 15y ago
    These issues are enumerated in the Ritholtz blog post. Pointing out certain facts that an argument ignores is a valid rebuttal. Perhaps to those that already understand the significance of those facts. But to people who want to learn, it's not useful.
yummyfajitas 15y ago
Can anyone explain why multiple exchanges exist...allowed to operate as monopolies in a market or country. Which are you complaining about? The fact that we have multiple privately operated exchanges, or the fact that we don't have a single government-run monopoly on exchanges?
- paulsutter 15y ago
  I don't think he was complaining. I think he asked a really interesting question. What's the benefit of multiple exchanges? It isn't obvious to me that multiple exchanges are either good or bad. If it is obvious to you, I'd love to hear a technical explanation.
  - tptacek 15y ago
    I'm personally confused that we could even ask this question. How could you not have multiple exchanges? They don't sprout out of magic beans; they're markets. Inherently, they're groups of people deciding to do business with each other. Almost the only thing that makes them substantively different from a farmer's market is standardized contracts. In the stock market of the 1950s, if you were a naive corporate buyer or seller, something like 10 different kinds of market participants could (and would) fleece you on every transaction. You probably couldn't even get a quote without getting hit by some kind of scam. How much better would the markets be today if we had taken the 1950s system and granted it a monopoly?
    - paulsutter 15y ago
      Actually, it IS just one big distributed exchange since Reg NMS requires each ATS to route an order to a rival with a better price. This is good, because new ATS's dont need to worry about network effects and can compete on features. On the other hand, this required functionality could limit the set of possible new features. For example, it may be difficult to implement some way to discretize or slow down markets to remove any unnecessary advantages conferred on HFT traders, because of this mechanism.
  - runeks 15y ago
cdk 15y ago
I believe multiple exchanges do foster competition and innovation. I believe NASDAQ was one of the first computerized exchanges in an era when human traded in the pits. Multiple exchanges allow customers to choose from better trading fees, execution times, colocation offering, etc.
- anigbrowl 15y ago
  Multiple exchanges allow customers to choose from better trading fees, execution times, colocation offering, etc. I'm not sure how big of a plus this is. Most people wan to expend effort on picking the right stocks to buy or sell, and while they want low transaction costs the price of too many alternatives is increased complexity.
javert 15y ago
It seems anti-competitive that exchanges can be private at all "Anti-competitive" is a false (i.e. nonsensical) concept. I mean, if I am a really good golf player, and I just keep getting more and more competitive, do I suddenly cross a bright red line that makes me "anti-competitive" because I'm just too competitive? It's just a made-up term used to attack business that lots of people have unknowingly bought into. If it were to actually mean something, it would mean using the government to grant a monopoly. That's the opposite of any kind of private business where two or more parties are voluntarily agreeing to trade. Like, for example, a private exchange.
- Cushman 15y ago
  Anti-competitive behavior would be literally cheating at golf. In both cases, it has been observed over time that allowing individuals to do whatever they want has a negative effect on the game. You are not required to believe that the rules are necessary, in either business or golf, for them to exist.
  - javert 15y ago
    Anti-competitive behavior would be literally cheating at golf. Right, and "cheating" in the real world is defined by fraud and physical violence and their myriad manifestations, not mututal trade to mutual benefit (as on a proprietary exchange, for example). Or offering the best product at the lowest price. But, that's not at all the meaning of "anti-competitive" as people use it.
    - Cushman 15y ago
      It is the position of the United States government, among others, that cheating includes the use of monopoly or oligopoly to unfairly restrict competition in any of several ways which are neither violent nor fraudulent. You're welcome to argue that that position is misguided, but it is certainly not nonsensical.
      - javert 15y ago
sailfrog 15y ago
The rebuttal at ritholtz.com is largely propaganda as well. It was penned by the brokerage firm Themis Trading who has been on a crusade against private exchanges, HFT, reg NMS, and pretty much any change in market structure that could negatively impact their business model. Not only that but the post simply lists properties of the equities markets and implies they are bad. For example: "-the IOI’s that dark pools send to each other" If IOI's are bad, why exactly are they bad? The post fails to explain the "why" for any counter argument it presents. One additional rational not previously mentioned for multiple exchanges is redundancy. Reg NMS allows trading venues to match orders of listed securities from other markets. Because these markets compete as liquidity centers it behooves large market participants to have direct connections to all of them. If the NYSE has technical problems (this happens more often than you may realize, to all the exchanges) trading in NYSE listed securities continues unabated on the other platforms.

HeXetic 15y ago

That's not a "nice rebuttal", that's some bullet points spat back. Whereas the original linked article in this discussion provides some context and explanation, the bullet points in your second link are meaningless to the layperson (e.g, me).

joejohnson 15y ago
...the original linked article in this discussion... Do you mean the Chris Stucchio piece? Because, despite it being an apology, it doesn't justify how HFT is socially beneficial. This piece makes hand-wavy claims about liquidity, and says that it will better justify HFT in a coming blog post. As for the Bloomberg piece defending HFT, it fails to address a few issues that the SEC and critics have with HFT. These issues are enumerated in the Ritholtz blog post. Pointing out certain facts that an argument ignores is a valid rebuttal.
- tptacek 15y ago
  Jiminy! Chris Stucchio is 'yummyfajitas, one of the oldest contributors on HN. He was a dev for an actual HFT firm for a bunch of years before doing a totally unrelated startup. Could he just maybe write a post and spark a discussion about how his field actually works so we can learn something about it? I DO NOT UNDERSTAND this HN mentality that equates "learning more about X" with "joining the death cult of X". And it comes up all the time: no, we can't discuss how SEO works, because that would make us morally black hat SEOs; no, we can't discuss how HFT works, because that would make us morally Goldman Sachs executives; no, we can't discuss how a law is written, but that would mean we want to give the Internet to the MPAA. The particular mode of argument in your comment and many like it on this thread is directly counter to the whole idea behind this site and every other worthwhile message board on the Internet. Yes, we get it, you don't know who G.H. Hardy is or didn't pick up on the joke in the title --- but it's obvious from the rest of the post that it's trying to explain how things work, not make a case for why it works that way.
  - tedunangst 15y ago
    I see you're at the end of your rope too. The "must not know" and "more important to be right than correct" mentalities are really starting to kill it.
    - tptacek 15y ago
      My rope is long and sturdy but it's giving my hands some serious burns.
- yummyfajitas 15y ago
  This piece makes hand-wavy claims about liquidity... The word "liquidity" doesn't appear in my blog post. All I made were very concrete claims about how a matching engine works (all of which you can verify from the sources I listed) and some explanation of how why being faster helps HFT's to make money.
  - joejohnson 15y ago
    I'm sorry, I didn't intend to put words in your mouth. I read your piece thinking it was going to present some justification for HFT. In your first paragraph you state that the point of this post is "merely an intellectual justification of a field which is often misunderstood." But then you don't directly justify HFT in the post, instead explaining the mechanics of HFT and market making. This is great; you explain it well. However, I was still looking for the justification promised in the opening sentences. So I look for the subtext in your technical explanation that would justify this oft misunderstood field. I clearly misunderstood your justification for HFT. What is your justification for HFT?
    - yummyfajitas 15y ago
      From paragraph 2: "In future blog posts, I’ll attempt to justify the social value of HFT (under some circumstances), and describe other circumstances under which it is not very useful." From paragraph -1: "In future posts, I’ll discuss it’s societal utility and costs."
- scott_s 15y ago
  These issues are enumerated in the Ritholtz blog post. Pointing out certain facts that an argument ignores is a valid rebuttal. Perhaps to those that already understand the significance of those facts. But to people who want to learn, it's not useful.

yummyfajitas 15y ago

Can anyone explain why multiple exchanges exist...allowed to operate as monopolies in a market or country. Which are you complaining about? The fact that we have multiple privately operated exchanges, or the fact that we don't have a single government-run monopoly on exchanges?

paulsutter 15y ago
I don't think he was complaining. I think he asked a really interesting question. What's the benefit of multiple exchanges? It isn't obvious to me that multiple exchanges are either good or bad. If it is obvious to you, I'd love to hear a technical explanation.
- tptacek 15y ago
  I'm personally confused that we could even ask this question. How could you not have multiple exchanges? They don't sprout out of magic beans; they're markets. Inherently, they're groups of people deciding to do business with each other. Almost the only thing that makes them substantively different from a farmer's market is standardized contracts. In the stock market of the 1950s, if you were a naive corporate buyer or seller, something like 10 different kinds of market participants could (and would) fleece you on every transaction. You probably couldn't even get a quote without getting hit by some kind of scam. How much better would the markets be today if we had taken the 1950s system and granted it a monopoly?
  - paulsutter 15y ago
    Actually, it IS just one big distributed exchange since Reg NMS requires each ATS to route an order to a rival with a better price. This is good, because new ATS's dont need to worry about network effects and can compete on features. On the other hand, this required functionality could limit the set of possible new features. For example, it may be difficult to implement some way to discretize or slow down markets to remove any unnecessary advantages conferred on HFT traders, because of this mechanism.
- runeks 15y ago

cdk 15y ago

I believe multiple exchanges do foster competition and innovation. I believe NASDAQ was one of the first computerized exchanges in an era when human traded in the pits. Multiple exchanges allow customers to choose from better trading fees, execution times, colocation offering, etc.

anigbrowl 15y ago
Multiple exchanges allow customers to choose from better trading fees, execution times, colocation offering, etc. I'm not sure how big of a plus this is. Most people wan to expend effort on picking the right stocks to buy or sell, and while they want low transaction costs the price of too many alternatives is increased complexity.

javert 15y ago

It seems anti-competitive that exchanges can be private at all "Anti-competitive" is a false (i.e. nonsensical) concept. I mean, if I am a really good golf player, and I just keep getting more and more competitive, do I suddenly cross a bright red line that makes me "anti-competitive" because I'm just too competitive? It's just a made-up term used to attack business that lots of people have unknowingly bought into. If it were to actually mean something, it would mean using the government to grant a monopoly. That's the opposite of any kind of private business where two or more parties are voluntarily agreeing to trade. Like, for example, a private exchange.

Cushman 15y ago
Anti-competitive behavior would be literally cheating at golf. In both cases, it has been observed over time that allowing individuals to do whatever they want has a negative effect on the game. You are not required to believe that the rules are necessary, in either business or golf, for them to exist.
- javert 15y ago
  Anti-competitive behavior would be literally cheating at golf. Right, and "cheating" in the real world is defined by fraud and physical violence and their myriad manifestations, not mututal trade to mutual benefit (as on a proprietary exchange, for example). Or offering the best product at the lowest price. But, that's not at all the meaning of "anti-competitive" as people use it.
  - Cushman 15y ago
    It is the position of the United States government, among others, that cheating includes the use of monopoly or oligopoly to unfairly restrict competition in any of several ways which are neither violent nor fraudulent. You're welcome to argue that that position is misguided, but it is certainly not nonsensical.
    - javert 15y ago

sailfrog 15y ago

The rebuttal at ritholtz.com is largely propaganda as well. It was penned by the brokerage firm Themis Trading who has been on a crusade against private exchanges, HFT, reg NMS, and pretty much any change in market structure that could negatively impact their business model. Not only that but the post simply lists properties of the equities markets and implies they are bad. For example: "-the IOI’s that dark pools send to each other" If IOI's are bad, why exactly are they bad? The post fails to explain the "why" for any counter argument it presents. One additional rational not previously mentioned for multiple exchanges is redundancy. Reg NMS allows trading venues to match orders of listed securities from other markets. Because these markets compete as liquidity centers it behooves large market participants to have direct connections to all of them. If the NYSE has technical problems (this happens more often than you may realize, to all the exchanges) trading in NYSE listed securities continues unabated on the other platforms.