7 ms·
Reg NMS’s Order Protection Rule (Rule 611) says you can’t trade through protected NBBO quotes, outside a few narrow exceptions. That’s the letter of the law. T
by resters 1y ago
Reg NMS’s Order Protection Rule (Rule 611) says you can’t trade through protected NBBO quotes, outside a few narrow exceptions. That’s the letter of the law.
The practical effect isn’t just a bit of latency. It rewires incentives. With 611 in place, the question for latency-sensitive firms becomes: what HFT tactics can I run that are 611-compatible? Without 611, the question would be: what HFT tactics actually add value for my counterparties? That’s a very different optimization.
For firms on direct feeds (often building their own synthetic NBBO), 611 doesn’t add much information. The constraint is compliance, not discovery.
Because NBBO is size-agnostic and top-of-book, anchoring execution to it lets micro-lot quotes steer outcomes. You can influence the protected price with tiny displayed size. That’s great for gamesmanship, bad for displayed depth, size-sensitive pricing, and near-touch discovery.
Also: if two informed counterparties want to trade away from the protected price to reflect size or information, 611 mostly blocks that outside limited carve-outs. We lose mutually beneficial, size-aware prints to satisfy a benchmark that ignores size.
On settlement, the uniform benchmark helps in calm markets. But it’s naïve to think that holds through a real black swan. In stress, timestamp ambiguities and fragmented data make “what was executable” contestable, and disputes spike regardless of quote protection.
In a sound market structure, the clearer (CCP or clearing broker) should carry and underwrite that tail risk—margin, default funds, capital, and enforceable rulebooks. Instead, 611 shifts accountability onto quote-protection mechanics, insulating clearers from responsibility and, perversely, amplifying systemic risk when the system most needs well-capitalized risk absorbers.
- UltraSane 1y agoThere is no reason why shares should be bought on sold in time frames far too short for anything to have meaningfully changed about the companies or market conditions.
- bawolff 1y agoThe fact that people make money off of HFT by definition means that the market conditions have changed in those time frames.
- UltraSane 1y agoNo, it is proof that they are parasitically extracting money via non-productive strategies like latency arbitrage and order front-running.
- bawolff 1y agoWhich is changing market conditions.
- jpfromlondon 1y agoLiquidity provision is valuable though, and it's not really parasitic to exploit inefficiencies, it's not even that profitable a strategy today.
- UltraSane 1y agoIt isn't nearly valuable enough to compensate for the wealth HFT extracts from the market.
- jpfromlondon 1y agoyour information seems to be at least a decade out of date
- jdonaldson 1y agoThe issue isn't that there's a lot of change coming from inside the markets, it's that there's a lot of change coming from outside the market, and it's all interconnected.
- CyberDildonics 1y agoIn a millionth of a second? This a rationalization for something that is only being done because it can be done.
- lotsofpulp 1y agoWhen I press the buy and sell button, I want the transaction to happen as quickly as possible. So does everyone else. My millionth of a second is different than yours, and everyone else’s. It is no different than buying or selling anything else. And there is no loss from the additional liquidity, you can easily set a limit at which you want to buy or sell.
- cool_dude85 1y ago>When I press the buy and sell button, I want the transaction to happen as quickly as possible. So does everyone else. Nope, not me. I don't mind if it takes like 20 seconds or so.
- JumpCrisscross 1y ago> not me. I don't mind if it takes like 20 seconds or so Which is fine! You can probably find a broker who will give you fee-free trading with that preference. The price you execute at won’t be as good. But unless you’re trading millions, that’s probably fine.
- CyberDildonics 1y ago> My millionth of a second is different than yours, and everyone else’s. No it isn't. > I want the transaction to happen as quickly as possible. So does everyone else. Your monitor refresh is about 16,000 times slower so you aren't going to know. The only reason you need something faster is because you think you have to compete with other people trading on microseconds. If matches happened at 1 second intervals you wouldn't have to worry about it at all.
- drob518 1y agoSo, you want everyone to trade only daily or weekly or quarterly?
- jiggawatts 1y agoEvery few seconds is fine. Disagree? You think milliseconds is “better” somehow? Then by that logic microseconds are better still! (A straight-faced argument made by thousands of HFT people.) Then, surely, nanoseconds matter. Again, some traders care deeply about shaving single digit “nanos” off their response times by using smart NICs that can respond before the incoming packet has even finished arriving! Bypassing the CPU entirely because ermahgerd that would waste precious nanos! Okay, what about femtoseconds? Attoseconds? Low single digit Plank time units? Clearly the extrapolation is nonsense. The problem is that there’s always an advantage to some rent-seeker to be faster than everyone else, so there will never be consensus between them and the general public. Or each other. It’s a classic tragedy of the commons. This is why laws are required, to prevent that one greedy guy putting “just one more cow” onto the pasture than the other greedy guys.
- resters 1y agoThis is the “speculation is bad” take with a side of naïveté about how markets work. Open an order book. Prices and quantities aren’t decoration; they’re live telemetry for supply, demand, and how tight the crowd’s consensus is at each level. That’s information, full stop. A human (or machine) trader forms a view of fair value against that tape. The book helps decide how to trade—size, urgency, venue—regardless of motive: arbitrage, hedge, speculation, investment, cash-out. Intent doesn’t change the math. Prints are messages. Every execution updates everyone else’s priors. More prints → more information → smoother discovery. Make the book sparse—only a handful of trades per day—and watch confidence collapse. With weaker consensus and wider error bars, people step back. Liquidity thins, friction rises. That’s not morality; that’s microstructure. Time horizon doesn’t invalidate the signal. A strategy that unfolds over days and one that resolves in milliseconds both add to the dataset. If it trades, it teaches. More resolution in others’ behavior means better prices and deeper books. That’s the game.
- anonu 1y agoThis is the free market speaking. If there was one exchange there would be ~no~ less latency arbitrage. But there are many... Which creates a competitive landscape and reduces fees for investors. The by product is you have many HFTs that come in to take advantage of mispricings, even if they are on sub millisecond scales. It doesn't harm the company or the investor. Its quite the opposite... Investors benefit from competition amongst exchanges and HFTs. In addition you have redundancy in the markets system. Exchanges are important for national security... Having everything centralized would risk people's retirements, savings, and more
- KPGv2 1y agoOne other aspect of HFT that is good for the general investor is that HFT injects liquidity, making it easier for a general investor to liquidate their position, which is a desirable thing for human traders. HFT does not magically make human investors engage in more or less speculative behavior. HFT is an easy thing to attack, but I've never encountered a lucid argument for why it's bad. "It's not fair that I'm not as fast" isn't really a reason unless you explain why removing liquidity (i.e., making it harder for you to find a buyer at your price point), paired with you moving up the "trading swiftness" rankings, is preferable.
- serf 1y agothe common argument against it is that it guarantees a technological arms race and by those conditions pushes the smaller groups out of the competition. it's unfair in the same vein that the rich are always offered better loan rates than the poor. Yeah, it's obvious why that would be, but it's not fair either. although imo pushing small-backer arbitrage out of the equation is a good thing.
- simonh 1y agoWhat HFT arbitrage does is rapidly push markets with different prices into alignment with each other. If you banned HFT but kept multiple markets, the inevitable result would be markets with bigger differences in prices for longer. The only kind of trading that really good HFT trading pushes out is other slower less efficient arbitrage traders, but why should we want more worse arbitrage traders if the result is markets being more out of sync? What's important economically is that traders that trade based on fundamentals can do so efficiently across multiple markets. Efficient HFT arbitrage trading helps that, it doesn't hinder it.
- Razengan 1y agohah someone finally said it. The financial market or whatever the f it's called has become a Monty Python sketch. Like those "pro" StarCraft gamers that keep randomly clicking their mouse for no reason except to keep their APM counter high.
- UltraSane 1y agoNotice how no one actually has a good reason for why shares should be bought and sold in milliseconds?
- Razengan 1y agoBut well, you see, the mArKeT..
- UltraSane 1y agoand lIqUiDiTy!
- KPGv2 1y agoIt's exhausting to see good reasons offered and then y'all proudly failing to understand those reasons. Like, there are literally multiple comments here explaining it.
- Razengan 1y agoIf I have a condition that is resolved by standing upside down on my head, and I invent a 100 ways to balance my body on my head and explain the reasons for each of them, it doesn't mean that standing on my head is a good or sensible thing to do. And none of them address the core problem that is the condition that requires me to stand on my head. Look at why shares and the stock market were created in the place, and how many layers we laid on top of them and made the means the end and the purpose. If it takes you more than 2-3 sentences to explain something that's purely invented by humans it was probably silly to begin with. Like the other day I was just watching a video about UTF-8. It spent a good chunk explaining all its various quirks and rules and workaround that all went back to how ASCII was dumb in some of its choices in the first place and now we're stuck with that forever.
- fnordpiglet 1y agoExcept for the fact that people don’t know what the price is even with all available knowledge. HFTs serve a pretty useful function in converging to a discovered price the market can bear continuously. Prior to HFT markets were generally less stable on their pricing and liquidity was much worse. The fact you can basically trade at any time on anything instantly is made possible by HFT. I look at them as providing a service like an energy exchange does in ensuring power distributes evenly and regularly across a region across providers and grids. They clip a fee in the middle but they provide a service in stable supply and prices. This doesn’t mean automation isn’t without risk, and like an energy exchange, when things go badly they can go very badly. But by and large you never notice either the HFT or the energy exchange while you benefit from their existence.