4 ms·

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

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
      Is it a matter of the stock exchanges profiting from this, or the fact that it's possible at all? I can't see how it can ever be possible to give everyone the same information at the same time. Latency will always be there, and renting rack space in a building near to the exchange will allow the information to reach you before the opposite coast of the country. Although this might mean that the owner of the neighboring building is the one making money, and not the stock exchange itself.
  - Confusion 13y ago
    Firstly, I wasn't arguing that the market is rigged: I was arguing that your argument doesn't hold, because there is actually an infinite amount of options to choose from, instead of just two (or one, as you are implying). Secondly, you are not being constructive in your questioning, as you have already marked any answer I would give as 'complicated' (as if the system isn't complicated already). Thirdly you are unfairly asking for 'specifics', where you yourself are arguing in generalities. Why won't you be specific: explain why the market is not rigged? 'The market' is not 'innocent until proven guilty' or 'efficient until proven otherwise'. You claim the market is fair: prove it. Please be specific. Fourthly, as long as you are asking: I think we don't need the amount of Availability the system currently has. Quote stuffing is currently possible and you can get rid of that by reducing the availability of the system. Any form of rate limiting is a deliberate sacrifice of availability to achieve some other goal. Rate limiting the number of orders per licensed party, per instrument, per unit of time is eminently doable. In conclusion, from the whole of your posts here on HN, I think you are way too infatuated with capitalism and unable to see her for the bitch she sometimes is. Your response was uncivil and uncalled for.
    - yummyfajitas 13y ago
      I didn't mean to imply there were only two possibilities. I merely wanted to ask what "not rigged" means to you? As the current article shows, there are real technical details necessary to figure out and the CAP theorem limits what can be done. It isn't a simple question to answer, and I personally lean towards "the SEC did a generally good job". I don't know why you feel I was "uncivil" - I merely asked a question. However, please accept my apologies. If you want to see assorted defenses of specific aspects of HFT, I have quite a few on my blog. I just posted a new one today. If you look way back, you'll also find a tutorial explaining the basic mechanics of HFT. I'm planning to publish an explanation of "quote stuffing" (aka screwups in your algorithm) shortly, as well as a takedown of Mark Cuban's idiotic article on the topic. http://www.chrisstucchio.com/blog/tags/high%20frequency%20trading.html http://www.chrisstucchio.com/blog/tags/high%20frequency%20tr...
pfortuny 13y ago
As I read the article, what you claim happens "sometimes" is rather "most of the time, let us say 99.999999% of the time", which is not so acceptable because it almost always (i.e. always) benefits HF traders. So, I had rather it would be designed in a different way which does not benefit the people with more money. For example, sacrificing latency so that there is no partition. This way, everybody has the same information at the same time, which is the basic tenet of an equal market. Also, having different routes for different actors (as per the graphs) does not look like a road map to equality. BTW: I do not get why you have been downvoted although in some sense your comment might be seen as a misunderstanding of the text. But I am surprised.
crdoconnor 13y ago
>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"? There is no need to make any complicated tradeoff. For it to count as non-rigged, you simply need a system where: * You cannot pay to gain privileged access. * Abuse of the system (e.g. quote stuffing) gets you punished. I find it amusing that you call us 'conspiracy theorists'. These aren't allegations of a government cover-up of alien UFOs - it's mundane criminal behavior with a very minor twist.
- jzwinck 13y ago
  To avoid payment for access, presumably access would need to be free. Who would pay for it, then? Should we have state-sponsored exchanges? The networks and rack space required to let people trade in near-time are not cheap (and using the internet doesn't really work because people would go right back to paying for lower latency, higher throughput, and/or better reliability). We could make the markets go super-slowly, but you know what will happen then? Correlated securities in other countries will trade at high frequency and dominate the price discovery process for "our" listings. That won't help our economy, it won't help reliability, and it won't help us assess taxes.
  - crdoconnor 13y ago
    >To avoid payment for access, presumably access would need to be free. There is absolutely no reason to presume that. It could be one flat rate. >We could make the markets go super-slowly, but you know what will happen then? Correlated securities in other countries will trade at high frequency and dominate the price discovery process for "our" listings. That won't help our economy, it won't help reliability, and it won't help us assess taxes. If our intention is to kill HFT (and it probably should be), we could simply levy a very tiny transaction tax on trades. It would instantly render the practice unprofitable. Retail and institutional investors wouldn't even notice the tax (although they would probably notice the fact that HFT isn't skimming money from their trades).
    - jzwinck 13y ago

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
    Is it a matter of the stock exchanges profiting from this, or the fact that it's possible at all? I can't see how it can ever be possible to give everyone the same information at the same time. Latency will always be there, and renting rack space in a building near to the exchange will allow the information to reach you before the opposite coast of the country. Although this might mean that the owner of the neighboring building is the one making money, and not the stock exchange itself.
- Confusion 13y ago
  Firstly, I wasn't arguing that the market is rigged: I was arguing that your argument doesn't hold, because there is actually an infinite amount of options to choose from, instead of just two (or one, as you are implying). Secondly, you are not being constructive in your questioning, as you have already marked any answer I would give as 'complicated' (as if the system isn't complicated already). Thirdly you are unfairly asking for 'specifics', where you yourself are arguing in generalities. Why won't you be specific: explain why the market is not rigged? 'The market' is not 'innocent until proven guilty' or 'efficient until proven otherwise'. You claim the market is fair: prove it. Please be specific. Fourthly, as long as you are asking: I think we don't need the amount of Availability the system currently has. Quote stuffing is currently possible and you can get rid of that by reducing the availability of the system. Any form of rate limiting is a deliberate sacrifice of availability to achieve some other goal. Rate limiting the number of orders per licensed party, per instrument, per unit of time is eminently doable. In conclusion, from the whole of your posts here on HN, I think you are way too infatuated with capitalism and unable to see her for the bitch she sometimes is. Your response was uncivil and uncalled for.
  - yummyfajitas 13y ago
    I didn't mean to imply there were only two possibilities. I merely wanted to ask what "not rigged" means to you? As the current article shows, there are real technical details necessary to figure out and the CAP theorem limits what can be done. It isn't a simple question to answer, and I personally lean towards "the SEC did a generally good job". I don't know why you feel I was "uncivil" - I merely asked a question. However, please accept my apologies. If you want to see assorted defenses of specific aspects of HFT, I have quite a few on my blog. I just posted a new one today. If you look way back, you'll also find a tutorial explaining the basic mechanics of HFT. I'm planning to publish an explanation of "quote stuffing" (aka screwups in your algorithm) shortly, as well as a takedown of Mark Cuban's idiotic article on the topic. http://www.chrisstucchio.com/blog/tags/high%20frequency%20trading.html http://www.chrisstucchio.com/blog/tags/high%20frequency%20tr...

pfortuny 13y ago

As I read the article, what you claim happens "sometimes" is rather "most of the time, let us say 99.999999% of the time", which is not so acceptable because it almost always (i.e. always) benefits HF traders. So, I had rather it would be designed in a different way which does not benefit the people with more money. For example, sacrificing latency so that there is no partition. This way, everybody has the same information at the same time, which is the basic tenet of an equal market. Also, having different routes for different actors (as per the graphs) does not look like a road map to equality. BTW: I do not get why you have been downvoted although in some sense your comment might be seen as a misunderstanding of the text. But I am surprised.

crdoconnor 13y ago

>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"? There is no need to make any complicated tradeoff. For it to count as non-rigged, you simply need a system where: * You cannot pay to gain privileged access. * Abuse of the system (e.g. quote stuffing) gets you punished. I find it amusing that you call us 'conspiracy theorists'. These aren't allegations of a government cover-up of alien UFOs - it's mundane criminal behavior with a very minor twist.

jzwinck 13y ago
To avoid payment for access, presumably access would need to be free. Who would pay for it, then? Should we have state-sponsored exchanges? The networks and rack space required to let people trade in near-time are not cheap (and using the internet doesn't really work because people would go right back to paying for lower latency, higher throughput, and/or better reliability). We could make the markets go super-slowly, but you know what will happen then? Correlated securities in other countries will trade at high frequency and dominate the price discovery process for "our" listings. That won't help our economy, it won't help reliability, and it won't help us assess taxes.
- crdoconnor 13y ago
  >To avoid payment for access, presumably access would need to be free. There is absolutely no reason to presume that. It could be one flat rate. >We could make the markets go super-slowly, but you know what will happen then? Correlated securities in other countries will trade at high frequency and dominate the price discovery process for "our" listings. That won't help our economy, it won't help reliability, and it won't help us assess taxes. If our intention is to kill HFT (and it probably should be), we could simply levy a very tiny transaction tax on trades. It would instantly render the practice unprofitable. Retail and institutional investors wouldn't even notice the tax (although they would probably notice the fact that HFT isn't skimming money from their trades).
  - jzwinck 13y ago