10 ms·

A veteran programmer explains how the stock market became “rigged”

92 points by xmpir 13y ago

fleitz 13y ago
I think there should be a new kind of logical fallacy: appeal to grandpa. Today's world is not the same as your grandfathers world, we use computers to do many that they are better at than humans, executing trading stragies in submicrosecond latencies is one of them. Submitting an order to a market causes the price to change, submitting a large order means that you are likely trading against an informed trader, by making a bid they are disseminating information about price to the market, if you don't adapt to the new information (by raising your price) you are an missing a huge opportunity. In an ideal market to trade a large block you'd pay a risk premium less than the price of disseminating that information over a longer period and possibly paying more as supply of the stock at a given price evaporated. Everyone can read the order book to see the market depth for a trade of a given size, if you showing your hand all at once is the same as showing it over a prolonged time as you eat through the depth and the market becomes shallow. Essentially what the anti-HFT people are saying is that for a public company it's rational to expect to buy the entire stock are the current market value, as anyone who has seen a takeover go down, the purchaser must offer a premium over the current market cap in order for a bid to be successful. Simply making an offer usually causes the share price of the underlying company rise to a very similar to the offer discounted for likelihood of regulatory approval and the time value of money. HFT is expected market behaviour simply occurring over a time period of nanoseconds rather than minutes and hours.
- ubernostrum 13y ago
  The issue seems to be that, when you want to buy a somewhat-large amount of stock, regulations exist which: 1. Force you to split up the purchase among multiple exchanges, and 2. To compensate for this disadvantage to the buyer, are supposed to prevent news of the order causing a price change at the other exchanges by spreading faster than filling of the order, so that you don't have to deal with an artificially-inflated price on top of artificially-imposed split of your order. But while (1) is enforced, (2) is not. Which means buyers and most sellers have to play by one set of rules while people who want to inject themselves as middlemen get to play by a different set of rules. At least, that's what seems to be being described here, and I certainly can see problems with it. (not to mention that that "liquidity" and "efficiency" arguments fall flat -- the types of HFT schemes being described here work only by creating artificial illiquidity, and I don't know of any rigorous argument that creating more middlemen improves efficiency)
  - yummyfajitas 13y ago
    There is no regulation which forces you to split up your order. People split their order because one venue does not have enough liquidity. To compensate for this disadvantage to the buyer, are supposed to prevent news of the order causing a price change at the other exchanges by spreading faster than filling of the order, This is simply incorrect. There is a regulation which requires exchanges to transmit news of price changes to the other exchanges as rapidly as possible. The purpose is to ensure that all fills happen at the NBBO. In concrete terms, if BATS has a BUY@$20.00 and ARCA has a BUY@$20.01, BATS is forbidden from filling your order. http://en.wikipedia.org/wiki/National_best_bid_and_offer http://en.wikipedia.org/wiki/National_best_bid_and_offer
    - ubernostrum 13y ago
      If you believe the description is wrong, your issue is with the article. Direct quote from article: With Reg NMS, it essentially took x amount of available stock at one place, and made it one tenth of that x at ten different places. If that isn't a regulation forcing large purchases to split up, then it's on you to explain why.
      - yummyfajitas 13y ago
        The most charitable interpretation of that quote is that after RegNMS, multiple trading venues became legalized. Liquidity providers then chose to spread liquidity out because it was now legal. Here is RegNMS. Find me a place where it says liquidity must be divided between all possible exchanges: https://www.sec.gov/rules/final/34-51808.pdf https://www.sec.gov/rules/final/34-51808.pdf
        ubernostrum 13y ago
        If you believe the description in the article is wrong, then as I said your problem is with the article.
      - theorique 13y ago
        Seller(s) of stock are not required to place shares on different exchanges. This is a side effect of the process of trading, as the NBBO price bounces around to different venues. If I offer 100,000 AAPL at NBO at exchange X, and you are willing to purchase 100,000 AAPL at NBO, your buy order matches mine exactly and the transaction takes place. This is highly unlikely, of course, that an enormous stock transaction like this ($50M) will take place this way.
- 1stop 13y ago
  HFTs are only accessible to a select few. And are only worth doing over large sums of capital. Is it rigging if my dice has more sixes than yours?
  - yummyfajitas 13y ago
    This is incorrect - many HFTs are just one programmer investing his savings. Many of the big guys started this way.
    - crdoconnor 13y ago
      THIS is incorrect. From the article: >A direct feed from one exchange could be $10,000 to $60,000 a month. If the SIP is no longer real-time, it means that people who want to get real-time data have to pay, well, significantly more. It’s no exaggeration here to say you go from $1 a month to well over $100,000, with your own networking staff and a room full of computers just to get real-time pricing. $100k a month is now something you can stump up out of your savings is it?
      - deleted 13y ago
        [deleted]
      - yummyfajitas 13y ago
        You don't need to pay $100,000 month for access. My NDA forbids from revealing pricing info, but I can say I worked for an HFT fund that was just a programmer working out of his living room.
    - 1stop 13y ago
      ... Neither of your statements invalidated my statements. Unless you are saying that programmers are a majority, and their savings are typical of the same majority? EDIT: (And reading the other response, it seems you are in fact incorrect).
      - spikels 13y ago
- snarfy 13y ago
  I had this long reply about how HFT allowing you to execute large trades, etc is a bullshit argument, but then I deleted it. I weighed in on how it affects pricing, how it affects the seller, re-read your post, and realized something: I'm grandpa.
yummyfajitas 13y ago
This is not a case of the markets being rigged. This is a case of regulators (actually congress) failing to understand the CAP theorem. But for obvious reasons, an article on WAPO can't use words like "partition tolerance". The problem is that the SIP must be available and it must be consistent. As a result it sacrifices partition tolerance - high latency (which is equivalent to a network partition) causes things to break sometimes. So for all the conspiracy theorists out there, here is the fundamental question: which two should be provided for the markets not to be "rigged"?
- Confusion 13y ago
  That's a false dichotomy. Even something seemingly binary as CAP is actually subject to many assumptions and preconditions. Change one and the question is of whether CAP still holds for the system, is relevant, etc. For one example, partitioning comes in degrees. You can accept partitioning up to a certain threshold and only then choose to sacrifice availability until partitioning crosses below the threshold again.
  - yummyfajitas 13y ago
    Ok - what complicated tradeoff do we make for things to count as "not rigged"? Please be specific.
    - crdoconnor 13y ago
      Don't sell privileged access to the stock exchange and don't enable abuse of the trading system.
      - jzwinck 13y ago
        Can you tell us what you mean technically by "privileged" access? Is there a threshold in dollars you have in mind for what is an acceptable fee for connectivity, or is it something else?
      - runeks 13y ago
spingsprong 13y ago
A veteran geologist explains how the medical industry became "rigged"
cpwright 13y ago
The exchanges do send the information to the SIP at the same time that they publish it on their own direct feed. NYSE actually got in trouble for not doing this properly. This isn't actually an easy problem, because there is a TCP interconnect with the SIP, and if it gets bogged down, then the SIP packets can be backed up. The real issue is that since the SIP (CQS/UQDF) are cheap; and big/sophisticated players don't actually use them, no one cares about them. Beyond that the performance is necessarily slower than a direct feed, because if I wanted to learn the price of a NYSE listed-security on NASDAQ the path that the SIP would take is far less direct. Specifically, if I have a machine sitting in Carteret (Nasdaq), listening to the proprietary Nasdaq feed, the data from Nasdaq will be sent to me and the SIP at the same time. But to get it from the SIP it has to go to Mahwah and then back, instead of staying local to the data center. Nasdaq makes its feed available to everyone, for a cost. Someone who is providing execution services, or market making, needs the direct feeds so they can provide good execution and know when to get out of the way. A small investor looking at a screen doesn't care about the SIP or a direct feed. They are going to submit their order, and their broker is responsible for executing it.
- jzwinck 13y ago
  What do you think would happen if direct feeds were prohibited and participants had to listen to the consolidated feeds only? This could even include getting one's own fills, if there were a consolidated feed with order IDs included (i.e. you would not know your fills any earlier than anyone else).
  - cpwright 13y ago
    I don't know, but I can't see very many good side-effects, though can think of some negative ones. The first thing I would think is that participants would gravitate towards trading where the SIP is to avoid transit latency, reducing competition for those exchanges that run their own data center and SIP. Also, I'd imagine that there would be a greater risk of getting run over, so spreads would widen to account for it.
  - hft_throwaway 13y ago
    Then HFTs would still win but pricing would widen out since some liquidity is made available because of ability to hedge in another product. Think about if I'm quoting SPY because I can buy/sell the basket better than my quotes. If the feeds are delayed, I'm less confident in where the basket price really is, so I'm going to demand more compensation in bid-ask spread to put up a price. This wouldn't be a big deal in slow markets but when things really started moving, most derivative liquidity would be pulled entirely. In single names HFTs mostly use these feeds to protect themselves from other high-speed traders and they want the granularity of information for their models. They're already faster than retail guys and banks and always will be. It's not an "unfair advantage" like people think. They just have to get on it if any competitor gets on it, similar to all the fast lines. If 20 HFT shops get on a new fast line, none of them are making more money from it.
tempodox 13y ago
Those Washington Post articles are a pain to read on mobile. I will avoid them like the plague.
ThomPete 13y ago
Can anyone explain to me what wouldn't be possible without HFT? Is HFT allowing for some useful types of investments/capital?
- yummyfajitas 13y ago
  Buying a lot of shares at once. I wrote a blog post explaining how to not trade with HFTs if you don't want to: http://www.chrisstucchio.com/blog/2014/how_to_not_get_ripped_off_by_hft.html http://www.chrisstucchio.com/blog/2014/how_to_not_get_ripped... Quoth a trader: "Let me tell you this as trader with 15 years direct bank and hedge fund execution experience. Your suggestion of using such algorithms would result in me never getting filled even remotely close to where I wanted to get filled." tl;dr; He wants to buy 10,000 shares right now and HFTs are the only ones offering that.
  - ThomPete 13y ago
    So its good for the trader who wants to do that. Is there any benefits to the market overall that he wants to do that? Edit: Can someone explain to me why I am being down voted from asking a question? It seems like every time I get into a discussion with yummyfajitas I am being down voted?
    - yummyfajitas 13y ago
      Allowing a trader to make large trades makes price discovery happen faster and more accurately. I've written a more detailed explanation on my blog - read HFT apology 1 and 2. http://www.chrisstucchio.com/blog/tags/high%20frequency%20trading.html http://www.chrisstucchio.com/blog/tags/high%20frequency%20tr... As for the downvotes, I lead a small cult of traders, rationalists and scala programmers - tptacek is my #2 sycophant.
      - ThomPete 13y ago
        So again the trader not the market/society. Whats the benefit outside the stock market to society in general? I.e. how is HFT a net profit to other than those involved in HFT? You are asking people to be specific, can you you?
hawkharris 13y ago
"The market is a pendulum that forever swings between unsustainable optimism and unjustifiable pessimism." - Benjamin Graham
runeks 13y ago
Here's an interesting counterargument: http://streetwiseprofessor.com/?p=8333 http://streetwiseprofessor.com/?p=8333
nanexllc 13y ago
Here's an animation showing the SIP vs Direct Feed issue: http://www.nanex.net/aqck2/4599.html http://www.nanex.net/aqck2/4599.html Much of the games being played no would no longer work if the SIP was the defacto source of "real-time" prices (as specified in Reg NMS). Sure, there would be new games, but we have rules specifying the SIP as the key to Reg NMS. At least there would be a decent audit trail if rules were being followed. People would be able to detect delays (currently obscured by the changing time stamp) and many games would be exposed. It's helpful to actually read Reg NMS - a link is provided on that animation page. P.S. I'm the veteran programmer in that article.
- hft_throwaway 13y ago
  Can you describe in detail what "games" this enables and how often they actually happen in the data? You claim SIP slowness enables a fictional trade called "latency arb" where HFTs can trade with orders at stale prices, for example: -A user is pegged to mid at a pool where they think NBBO is bid: 20.01 ask: 20.02 -An HFT with direct feeds sees the market go to 20.02 bid 20.03 ask -The HFT buys the midpoint order on the dark pool at 20.015 -User regrets trading since they could have sold 20.02 How often does this really happen and how is it really any different from the following scenario: -A user is pegged to mid at a pool where they think NBBO is bid: 20.01 ask: 20.02 -An HFT with direct feeds sees the market as 20.01 bid for 100000 shares and 20.02 ask for 1 share. -The HFT predicts the price will move up with near certainty and buys the order for 20.015 -User regrets trading since they could have joined small 20.02 ask and traded quickly If the user or broker is pegging their order to the midpoint and not adjusting it based on market conditions, they're going to trade at disadvantageous times no matter what. I'm not sure how pricing off the SIP makes a big difference. It's not HFT's fault that the broker sucks and can't trade well.
- jcfrei 13y ago
  thanks for cutting through all the bullshit and showing the real technical facts. I'm tired of listening to HFT defendants pointing out the necessity of their service in their own overly generalized and useless models.
kasey_junk 13y ago
" they will signal up to their other machine to say, “Buy everything that’s available.”" This sentence is very problematic as it implies that HFT are injecting themselves between 2 intermediaries that don't need the HFT in the first place. What is actually happening is the HFT is not buying or selling anything. They are changing the prices they themselves were offering originally. There is no intermediary involved.
minimax 13y ago
A direct feed from one exchange could be $10,000 to $60,000 a month. That's way off the mark. It's more in the $1k - $3k range. http://cdn.batstrading.com/resources/regulation/BATS_US_Market_Data_Price_List.pdf http://cdn.batstrading.com/resources/regulation/BATS_US_Mark... http://www.nyxdata.com/page/1084 http://www.nyxdata.com/page/1084 https://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2#itch https://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading...
- nanexllc 13y ago
  This is the SEC filing with proposed fees http://www.sec.gov/rules/sro/nysemkt/2013/34-70285.pdf http://www.sec.gov/rules/sro/nysemkt/2013/34-70285.pdf
  - Idocrase 13y ago
    That's for a full colocation - not just a direct feed. The originally posted links are the correct prices for direct feeds.
    - nanexllc 13y ago
      You are referring to direct feed content, I was explaining (in the interview) direct feed speed and content. Who buys a direct feed for a speed advantage and then doesn't colocate?!

92 points by xmpir 13y ago

I think there should be a new kind of logical fallacy: appeal to grandpa. Today's world is not the same as your grandfathers world, we use computers to do many that they are better at than humans, executing trading stragies in submicrosecond latencies is one of them. Submitting an order to a market causes the price to change, submitting a large order means that you are likely trading against an informed trader, by making a bid they are disseminating information about price to the market, if you don't adapt to the new information (by raising your price) you are an missing a huge opportunity. In an ideal market to trade a large block you'd pay a risk premium less than the price of disseminating that information over a longer period and possibly paying more as supply of the stock at a given price evaporated. Everyone can read the order book to see the market depth for a trade of a given size, if you showing your hand all at once is the same as showing it over a prolonged time as you eat through the depth and the market becomes shallow. Essentially what the anti-HFT people are saying is that for a public company it's rational to expect to buy the entire stock are the current market value, as anyone who has seen a takeover go down, the purchaser must offer a premium over the current market cap in order for a bid to be successful. Simply making an offer usually causes the share price of the underlying company rise to a very similar to the offer discounted for likelihood of regulatory approval and the time value of money. HFT is expected market behaviour simply occurring over a time period of nanoseconds rather than minutes and hours.

ubernostrum 13y ago
The issue seems to be that, when you want to buy a somewhat-large amount of stock, regulations exist which: 1. Force you to split up the purchase among multiple exchanges, and 2. To compensate for this disadvantage to the buyer, are supposed to prevent news of the order causing a price change at the other exchanges by spreading faster than filling of the order, so that you don't have to deal with an artificially-inflated price on top of artificially-imposed split of your order. But while (1) is enforced, (2) is not. Which means buyers and most sellers have to play by one set of rules while people who want to inject themselves as middlemen get to play by a different set of rules. At least, that's what seems to be being described here, and I certainly can see problems with it. (not to mention that that "liquidity" and "efficiency" arguments fall flat -- the types of HFT schemes being described here work only by creating artificial illiquidity, and I don't know of any rigorous argument that creating more middlemen improves efficiency)
- yummyfajitas 13y ago
  There is no regulation which forces you to split up your order. People split their order because one venue does not have enough liquidity. To compensate for this disadvantage to the buyer, are supposed to prevent news of the order causing a price change at the other exchanges by spreading faster than filling of the order, This is simply incorrect. There is a regulation which requires exchanges to transmit news of price changes to the other exchanges as rapidly as possible. The purpose is to ensure that all fills happen at the NBBO. In concrete terms, if BATS has a BUY@$20.00 and ARCA has a BUY@$20.01, BATS is forbidden from filling your order. http://en.wikipedia.org/wiki/National_best_bid_and_offer http://en.wikipedia.org/wiki/National_best_bid_and_offer
  - ubernostrum 13y ago
    If you believe the description is wrong, your issue is with the article. Direct quote from article: With Reg NMS, it essentially took x amount of available stock at one place, and made it one tenth of that x at ten different places. If that isn't a regulation forcing large purchases to split up, then it's on you to explain why.
    - yummyfajitas 13y ago
      The most charitable interpretation of that quote is that after RegNMS, multiple trading venues became legalized. Liquidity providers then chose to spread liquidity out because it was now legal. Here is RegNMS. Find me a place where it says liquidity must be divided between all possible exchanges: https://www.sec.gov/rules/final/34-51808.pdf https://www.sec.gov/rules/final/34-51808.pdf
      - ubernostrum 13y ago
        If you believe the description in the article is wrong, then as I said your problem is with the article.
    - theorique 13y ago
      Seller(s) of stock are not required to place shares on different exchanges. This is a side effect of the process of trading, as the NBBO price bounces around to different venues. If I offer 100,000 AAPL at NBO at exchange X, and you are willing to purchase 100,000 AAPL at NBO, your buy order matches mine exactly and the transaction takes place. This is highly unlikely, of course, that an enormous stock transaction like this ($50M) will take place this way.
1stop 13y ago
HFTs are only accessible to a select few. And are only worth doing over large sums of capital. Is it rigging if my dice has more sixes than yours?
- yummyfajitas 13y ago
  This is incorrect - many HFTs are just one programmer investing his savings. Many of the big guys started this way.
  - crdoconnor 13y ago
    THIS is incorrect. From the article: >A direct feed from one exchange could be $10,000 to $60,000 a month. If the SIP is no longer real-time, it means that people who want to get real-time data have to pay, well, significantly more. It’s no exaggeration here to say you go from $1 a month to well over $100,000, with your own networking staff and a room full of computers just to get real-time pricing. $100k a month is now something you can stump up out of your savings is it?
    - deleted 13y ago
      [deleted]
    - yummyfajitas 13y ago
      You don't need to pay $100,000 month for access. My NDA forbids from revealing pricing info, but I can say I worked for an HFT fund that was just a programmer working out of his living room.
  - 1stop 13y ago
    ... Neither of your statements invalidated my statements. Unless you are saying that programmers are a majority, and their savings are typical of the same majority? EDIT: (And reading the other response, it seems you are in fact incorrect).
    - spikels 13y ago
snarfy 13y ago
I had this long reply about how HFT allowing you to execute large trades, etc is a bullshit argument, but then I deleted it. I weighed in on how it affects pricing, how it affects the seller, re-read your post, and realized something: I'm grandpa.

yummyfajitas 13y ago

This is not a case of the markets being rigged. This is a case of regulators (actually congress) failing to understand the CAP theorem. But for obvious reasons, an article on WAPO can't use words like "partition tolerance". The problem is that the SIP must be available and it must be consistent. As a result it sacrifices partition tolerance - high latency (which is equivalent to a network partition) causes things to break sometimes. So for all the conspiracy theorists out there, here is the fundamental question: which two should be provided for the markets not to be "rigged"?

Confusion 13y ago
That's a false dichotomy. Even something seemingly binary as CAP is actually subject to many assumptions and preconditions. Change one and the question is of whether CAP still holds for the system, is relevant, etc. For one example, partitioning comes in degrees. You can accept partitioning up to a certain threshold and only then choose to sacrifice availability until partitioning crosses below the threshold again.
- yummyfajitas 13y ago
  Ok - what complicated tradeoff do we make for things to count as "not rigged"? Please be specific.
  - crdoconnor 13y ago
    Don't sell privileged access to the stock exchange and don't enable abuse of the trading system.
    - jzwinck 13y ago
      Can you tell us what you mean technically by "privileged" access? Is there a threshold in dollars you have in mind for what is an acceptable fee for connectivity, or is it something else?
    - runeks 13y ago

spingsprong 13y ago

A veteran geologist explains how the medical industry became "rigged"

cpwright 13y ago

The exchanges do send the information to the SIP at the same time that they publish it on their own direct feed. NYSE actually got in trouble for not doing this properly. This isn't actually an easy problem, because there is a TCP interconnect with the SIP, and if it gets bogged down, then the SIP packets can be backed up. The real issue is that since the SIP (CQS/UQDF) are cheap; and big/sophisticated players don't actually use them, no one cares about them. Beyond that the performance is necessarily slower than a direct feed, because if I wanted to learn the price of a NYSE listed-security on NASDAQ the path that the SIP would take is far less direct. Specifically, if I have a machine sitting in Carteret (Nasdaq), listening to the proprietary Nasdaq feed, the data from Nasdaq will be sent to me and the SIP at the same time. But to get it from the SIP it has to go to Mahwah and then back, instead of staying local to the data center. Nasdaq makes its feed available to everyone, for a cost. Someone who is providing execution services, or market making, needs the direct feeds so they can provide good execution and know when to get out of the way. A small investor looking at a screen doesn't care about the SIP or a direct feed. They are going to submit their order, and their broker is responsible for executing it.

jzwinck 13y ago
What do you think would happen if direct feeds were prohibited and participants had to listen to the consolidated feeds only? This could even include getting one's own fills, if there were a consolidated feed with order IDs included (i.e. you would not know your fills any earlier than anyone else).
- cpwright 13y ago
  I don't know, but I can't see very many good side-effects, though can think of some negative ones. The first thing I would think is that participants would gravitate towards trading where the SIP is to avoid transit latency, reducing competition for those exchanges that run their own data center and SIP. Also, I'd imagine that there would be a greater risk of getting run over, so spreads would widen to account for it.
- hft_throwaway 13y ago
  Then HFTs would still win but pricing would widen out since some liquidity is made available because of ability to hedge in another product. Think about if I'm quoting SPY because I can buy/sell the basket better than my quotes. If the feeds are delayed, I'm less confident in where the basket price really is, so I'm going to demand more compensation in bid-ask spread to put up a price. This wouldn't be a big deal in slow markets but when things really started moving, most derivative liquidity would be pulled entirely. In single names HFTs mostly use these feeds to protect themselves from other high-speed traders and they want the granularity of information for their models. They're already faster than retail guys and banks and always will be. It's not an "unfair advantage" like people think. They just have to get on it if any competitor gets on it, similar to all the fast lines. If 20 HFT shops get on a new fast line, none of them are making more money from it.

tempodox 13y ago

Those Washington Post articles are a pain to read on mobile. I will avoid them like the plague.

ThomPete 13y ago

Can anyone explain to me what wouldn't be possible without HFT? Is HFT allowing for some useful types of investments/capital?

yummyfajitas 13y ago
Buying a lot of shares at once. I wrote a blog post explaining how to not trade with HFTs if you don't want to: http://www.chrisstucchio.com/blog/2014/how_to_not_get_ripped_off_by_hft.html http://www.chrisstucchio.com/blog/2014/how_to_not_get_ripped... Quoth a trader: "Let me tell you this as trader with 15 years direct bank and hedge fund execution experience. Your suggestion of using such algorithms would result in me never getting filled even remotely close to where I wanted to get filled." tl;dr; He wants to buy 10,000 shares right now and HFTs are the only ones offering that.
- ThomPete 13y ago
  So its good for the trader who wants to do that. Is there any benefits to the market overall that he wants to do that? Edit: Can someone explain to me why I am being down voted from asking a question? It seems like every time I get into a discussion with yummyfajitas I am being down voted?
  - yummyfajitas 13y ago
    Allowing a trader to make large trades makes price discovery happen faster and more accurately. I've written a more detailed explanation on my blog - read HFT apology 1 and 2. http://www.chrisstucchio.com/blog/tags/high%20frequency%20trading.html http://www.chrisstucchio.com/blog/tags/high%20frequency%20tr... As for the downvotes, I lead a small cult of traders, rationalists and scala programmers - tptacek is my #2 sycophant.
    - ThomPete 13y ago
      So again the trader not the market/society. Whats the benefit outside the stock market to society in general? I.e. how is HFT a net profit to other than those involved in HFT? You are asking people to be specific, can you you?

hawkharris 13y ago

"The market is a pendulum that forever swings between unsustainable optimism and unjustifiable pessimism." - Benjamin Graham

runeks 13y ago

Here's an interesting counterargument: http://streetwiseprofessor.com/?p=8333 http://streetwiseprofessor.com/?p=8333

nanexllc 13y ago

Here's an animation showing the SIP vs Direct Feed issue: http://www.nanex.net/aqck2/4599.html http://www.nanex.net/aqck2/4599.html Much of the games being played no would no longer work if the SIP was the defacto source of "real-time" prices (as specified in Reg NMS). Sure, there would be new games, but we have rules specifying the SIP as the key to Reg NMS. At least there would be a decent audit trail if rules were being followed. People would be able to detect delays (currently obscured by the changing time stamp) and many games would be exposed. It's helpful to actually read Reg NMS - a link is provided on that animation page. P.S. I'm the veteran programmer in that article.

hft_throwaway 13y ago
Can you describe in detail what "games" this enables and how often they actually happen in the data? You claim SIP slowness enables a fictional trade called "latency arb" where HFTs can trade with orders at stale prices, for example: -A user is pegged to mid at a pool where they think NBBO is bid: 20.01 ask: 20.02 -An HFT with direct feeds sees the market go to 20.02 bid 20.03 ask -The HFT buys the midpoint order on the dark pool at 20.015 -User regrets trading since they could have sold 20.02 How often does this really happen and how is it really any different from the following scenario: -A user is pegged to mid at a pool where they think NBBO is bid: 20.01 ask: 20.02 -An HFT with direct feeds sees the market as 20.01 bid for 100000 shares and 20.02 ask for 1 share. -The HFT predicts the price will move up with near certainty and buys the order for 20.015 -User regrets trading since they could have joined small 20.02 ask and traded quickly If the user or broker is pegging their order to the midpoint and not adjusting it based on market conditions, they're going to trade at disadvantageous times no matter what. I'm not sure how pricing off the SIP makes a big difference. It's not HFT's fault that the broker sucks and can't trade well.
jcfrei 13y ago
thanks for cutting through all the bullshit and showing the real technical facts. I'm tired of listening to HFT defendants pointing out the necessity of their service in their own overly generalized and useless models.

kasey_junk 13y ago

" they will signal up to their other machine to say, “Buy everything that’s available.”" This sentence is very problematic as it implies that HFT are injecting themselves between 2 intermediaries that don't need the HFT in the first place. What is actually happening is the HFT is not buying or selling anything. They are changing the prices they themselves were offering originally. There is no intermediary involved.

minimax 13y ago

A direct feed from one exchange could be $10,000 to $60,000 a month. That's way off the mark. It's more in the $1k - $3k range. http://cdn.batstrading.com/resources/regulation/BATS_US_Market_Data_Price_List.pdf http://cdn.batstrading.com/resources/regulation/BATS_US_Mark... http://www.nyxdata.com/page/1084 http://www.nyxdata.com/page/1084 https://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2#itch https://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading...

nanexllc 13y ago
This is the SEC filing with proposed fees http://www.sec.gov/rules/sro/nysemkt/2013/34-70285.pdf http://www.sec.gov/rules/sro/nysemkt/2013/34-70285.pdf
- Idocrase 13y ago
  That's for a full colocation - not just a direct feed. The originally posted links are the correct prices for direct feeds.
  - nanexllc 13y ago
    You are referring to direct feed content, I was explaining (in the interview) direct feed speed and content. Who buys a direct feed for a speed advantage and then doesn't colocate?!