11 ms·

>Specifically, Nanex saw a spike in the milliseconds before 9:54:58 on December 7th, 2012. To be exact, they saw a flurry at 9:54:57.18, nearly a full second be

by deveac 13y ago

>Specifically, Nanex saw a spike in the milliseconds before 9:54:58 on December 7th, 2012. To be exact, they saw a flurry at 9:54:57.18, nearly a full second before the "third-tier" algorithmic subscribers got their data at 9:54:58 a.m. This is exactly what you would expect to see if someone, or a bunch of someones, had access to the data even before 9:54:58 a.m. In this game you would want to hold your cards until the last possible moment before placing your bets. A phenomenon not unlike what many of us have experienced bidding for an item on ebay. Yet another example of the game being rigged. I don't invest for a living, but I've always thought it folly to approach the exchange in any manner other than a long term diversified one (as an individual investor). Maybe it is my lack of sophistication in the area, but anything else feels like gambling to me.

kasey_junk 13y ago
As someone who does work in this industry, a spike before the number is completely explainable without anyone having early knowledge. Lots of market participants are speculators. If you are speculating on the results of the number, you need to make sure your orders are in before it. Everyone in the low latency game knows when the number is coming, so it makes sense for speculation orders to go in when they do. Now if Nanex wanted to prove something, they could show that a high percentage of those orders are consistently on the "right" side of the number, something they haven't done.
- yummyfajitas 13y ago
  Not only that, but if market makers know volatility is about to increase, they will jump in early to get to the top of the queue.
- theorique 13y ago
  Absolutely true. A spike in orders in advance of an "important" time implies that people are trading in anticipation of market movements around that time. It does not, on its own, imply that anyone has material, non-public information in advance of anybody else.
- deveac 13y ago
  I think that the unethical (illegal?) problem is already inked in black and white where the three tiers of market information recipients exist. I didn't make that clear at all in my comment, but yeah, I agree that the 4th tier is definitely speculation at this point. I agree that it would be interesting to look for the payout skew for the numbers; that would just verify an additional transgression in my book. Unfortunately nobody reads my book so to speak :)
  - theorique 13y ago
    It's neither illegal nor unethical for a private entity to invest money and manpower to compile statistical data, to release it in a staggered fashion, and to charge purchasers for early access.
    - Incinr8r 13y ago
      It sounds innocuous enough with absolutely no context, but the fact is that they are selling market-moving data, and they know it. They know exactly what staggered release of this data does: create an uneven playing field for all but the wealthiest investors. This causes the creation of false profits that don't come from actual risk, or underlying value of securities, but by screwing retail investors, pension funds, and anyone else who doesn't start off with absurd amounts of money to begin with. Sure sounds unethical to me.
      - theorique 13y ago
        Of course they are selling market moving data. If it weren't market-moving, why would anybody pay a premium price for it? Just because something is market-moving does not make it "material, non-public information" about a specific company. And just because something is market-moving doesn't mean that a trader or hedge fund or whoever makes use of this data will gamble correctly and win every time. You see people paying for privileged access to information all over the place. For example, on a slower time scale, industry analysts hawk expensive monthly newsletters or one-time reports. Bloomberg terminals provide news feeds and market data for the bargain price of ~$2000 a month.
- danielweber 13y ago
  I don't want to dismiss the problem, but if the report is supposed to come out at 9:55:23, anyone who is willing to be on the other side of the trade at 9:55:22 is either being greedy or stupid. Refuse to trade for the 10 seconds before 9:55:23 and you know you won't be a victim. You might also miss out on something big, but you can't have it both ways.
  - Daniel_Newby 13y ago
    > ... anyone who is willing to be on the other side of the trade at 9:55:22 is either being greedy or stupid. Or they have paid for their own research and analysis.
vasilipupkin 13y ago
Everyone can get access to this early data if they want to pay Reuters for it. The reason only a few firms do it is because their business is to trade on it. Regular investors are not affected
MichaelGG 13y ago
eBay's problem is that it's an auction with a fixed end time and zero incentive for bidding early. That model makes no sense whatsoever, as it just prioritizes who can cram in a bid as close to closing as possible. eBay could easily fix it by auto-extending an auction for X amount of time after the last bid. That way any activity would allow all participants to respond. Yes, I know the stock answer is "people should always enter the max they would pay", but that's not a good strategy and also not how psychology works.
- cbr 13y ago
  Why is that not a good strategy? It has consistently worked for me.
  - foobarqux 13y ago
    Because if you do that you should be indifferent to whether you win or not. Dutch auctions aim to solve that problem.
    - tedsanders 13y ago
      Doesn't everyone bid until the point of indifference? What better point is there to stop at?
      - foobarqux 13y ago
        Depends on the type of auction. In a Vickrey [1] auction you bid to the point of indifference but pay the second highest bid, that way you potentially capture some utility surplus. [1] I said "Dutch" but apparently that technically refers to something else.
  - MichaelGG 13y ago
    Because it reveals more information to other bidders, as eBay auto-increments. So by bidding early, you get zero advantage. Another bidder might see 2 hours left for a cheap item, and put in a minimum bid, hoping to win. If you auto-bid them up, then they might further increase their bid. If you snipe them, you bypass any response they have. The system works if all bids were kept secret until the end, but that lowers pricing, and isn't what people think when they hear "auction". Meanwhile, as-is, bidding early benefits you nothing and possibly harms you.
baddox 13y ago
How is it "rigged" in a bad sense? Isn't the point of trading that those who are "the best at trading" do the best? Sure, certain people have very real advantages, but it doesn't feel any more "rigged" to me than the other advantages, like having more capital to begin with, or having more knowledge of and experience and interest in markets.

by deveac 13y ago

kasey_junk 13y ago

As someone who does work in this industry, a spike before the number is completely explainable without anyone having early knowledge. Lots of market participants are speculators. If you are speculating on the results of the number, you need to make sure your orders are in before it. Everyone in the low latency game knows when the number is coming, so it makes sense for speculation orders to go in when they do. Now if Nanex wanted to prove something, they could show that a high percentage of those orders are consistently on the "right" side of the number, something they haven't done.

yummyfajitas 13y ago
Not only that, but if market makers know volatility is about to increase, they will jump in early to get to the top of the queue.
theorique 13y ago
Absolutely true. A spike in orders in advance of an "important" time implies that people are trading in anticipation of market movements around that time. It does not, on its own, imply that anyone has material, non-public information in advance of anybody else.
deveac 13y ago
I think that the unethical (illegal?) problem is already inked in black and white where the three tiers of market information recipients exist. I didn't make that clear at all in my comment, but yeah, I agree that the 4th tier is definitely speculation at this point. I agree that it would be interesting to look for the payout skew for the numbers; that would just verify an additional transgression in my book. Unfortunately nobody reads my book so to speak :)
- theorique 13y ago
  It's neither illegal nor unethical for a private entity to invest money and manpower to compile statistical data, to release it in a staggered fashion, and to charge purchasers for early access.
  - Incinr8r 13y ago
    It sounds innocuous enough with absolutely no context, but the fact is that they are selling market-moving data, and they know it. They know exactly what staggered release of this data does: create an uneven playing field for all but the wealthiest investors. This causes the creation of false profits that don't come from actual risk, or underlying value of securities, but by screwing retail investors, pension funds, and anyone else who doesn't start off with absurd amounts of money to begin with. Sure sounds unethical to me.
    - theorique 13y ago
      Of course they are selling market moving data. If it weren't market-moving, why would anybody pay a premium price for it? Just because something is market-moving does not make it "material, non-public information" about a specific company. And just because something is market-moving doesn't mean that a trader or hedge fund or whoever makes use of this data will gamble correctly and win every time. You see people paying for privileged access to information all over the place. For example, on a slower time scale, industry analysts hawk expensive monthly newsletters or one-time reports. Bloomberg terminals provide news feeds and market data for the bargain price of ~$2000 a month.
danielweber 13y ago
I don't want to dismiss the problem, but if the report is supposed to come out at 9:55:23, anyone who is willing to be on the other side of the trade at 9:55:22 is either being greedy or stupid. Refuse to trade for the 10 seconds before 9:55:23 and you know you won't be a victim. You might also miss out on something big, but you can't have it both ways.
- Daniel_Newby 13y ago
  > ... anyone who is willing to be on the other side of the trade at 9:55:22 is either being greedy or stupid. Or they have paid for their own research and analysis.

vasilipupkin 13y ago

Everyone can get access to this early data if they want to pay Reuters for it. The reason only a few firms do it is because their business is to trade on it. Regular investors are not affected

MichaelGG 13y ago

eBay's problem is that it's an auction with a fixed end time and zero incentive for bidding early. That model makes no sense whatsoever, as it just prioritizes who can cram in a bid as close to closing as possible. eBay could easily fix it by auto-extending an auction for X amount of time after the last bid. That way any activity would allow all participants to respond. Yes, I know the stock answer is "people should always enter the max they would pay", but that's not a good strategy and also not how psychology works.

cbr 13y ago
Why is that not a good strategy? It has consistently worked for me.
- foobarqux 13y ago
  Because if you do that you should be indifferent to whether you win or not. Dutch auctions aim to solve that problem.
  - tedsanders 13y ago
    Doesn't everyone bid until the point of indifference? What better point is there to stop at?
    - foobarqux 13y ago
      Depends on the type of auction. In a Vickrey [1] auction you bid to the point of indifference but pay the second highest bid, that way you potentially capture some utility surplus. [1] I said "Dutch" but apparently that technically refers to something else.
- MichaelGG 13y ago
  Because it reveals more information to other bidders, as eBay auto-increments. So by bidding early, you get zero advantage. Another bidder might see 2 hours left for a cheap item, and put in a minimum bid, hoping to win. If you auto-bid them up, then they might further increase their bid. If you snipe them, you bypass any response they have. The system works if all bids were kept secret until the end, but that lowers pricing, and isn't what people think when they hear "auction". Meanwhile, as-is, bidding early benefits you nothing and possibly harms you.

baddox 13y ago

How is it "rigged" in a bad sense? Isn't the point of trading that those who are "the best at trading" do the best? Sure, certain people have very real advantages, but it doesn't feel any more "rigged" to me than the other advantages, like having more capital to begin with, or having more knowledge of and experience and interest in markets.