8 ms·

>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

>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
    Thanks for pointing out the tax idea (a fairly popular one these days). It has some of the same issues as slowing the market down. For example, a transaction tax on one market will push transaction volume to other markets, like squeezing a water balloon. A lot of securities have correlated or even 1:1 equivalents in other jurisdictions (e.g. Europe vs. US), which results in a tricky situation. Basically, whatever market pushes their costs up first risks suffocating itself. I'm not sure what you mean by "one flat rate." Exchanges already charge a flat rate for connectivity (the rate is per month, usually a couple thousand bucks or so).
    - crdoconnor 13y ago
      >For example, a transaction tax on one market will push transaction volume to other markets, like squeezing a water balloon. Actually the exact opposite will happen. Only the HFTs will want to move away, the rest will want to move to such a market. For the rest of them, operating in a market that allows HFT is pretty much the same thing as operating in a market for lemons: https://en.wikipedia.org/wiki/The_Market_for_Lemons https://en.wikipedia.org/wiki/The_Market_for_Lemons Asymmetric information in markets means 'the bad drives out the good'. Just as running an honest used car market will attract buyers and sellers, running an honest stock exchange will attract traders.
      - icebraining 13y ago
        Then why hasn't a stock exchange that imposes a transaction fee appeared and pulled in all traders, leaving the HFTs behind? This is what I can't understand about this stories, and makes me doubt the claims against the HFTs.
        crdoconnor 13y ago
        network effects work heavily against new exchanges. it's not like starting a SaaS to deliver email.
        13y ago
- rschmitty 13y ago
  I forget if it was on The Daily Show or 60 minutes, but the "solution" the new exchange came up with was to actually slow down his trades by fractions of a second such they all arrived at the same time. Once he did that his order fill rate went up and the HFT got cut out. He did this while a 60km fiber optic spool So "super slowly" isnt exactly what he was doing
  - mhurron 13y ago
    It was the Daily Show http://thedailyshow.cc.com/extended-interviews/o7grtj/exclusive-michael-lewis-extended-interview http://thedailyshow.cc.com/extended-interviews/o7grtj/exclus... As I understand it, that link is only good in the US. So for everyone else, that is the extended interview of the April 1 episode. I'm sure it can be found somewhere.
    - runeks 13y ago
      Thanks for the link. It works fine from Denmark. I've never had problems watching it from a non-US country. Also, pro tip if you want to avoid ads between segments: right before the video gets to a horizontal line (ad break) on the seek bar, skip to the part right after the horizontal line. You'll skip the ad. Also: if you work as a web developer at Comedy Central, you never saw this comment.
- BugBrother 13y ago
  GP: >>You cannot pay to gain privileged access. [my emphasis] >>To avoid payment for access, presumably access would need to be free (Also, high frequency trading can't have much to do with finding the price points of stuff.) I don't have a horse in this race (I don't know the subject area), but most of that comment was a straw man argument. I realise that was probably a mistake in reading, but even I can see the implementation ought to be somewhere between simple and possible: Publicise the algorithm for a random delay between a tenth of a second and (more seldom) ten seconds for all buys/sells. Or something similar. Make certain to have good random number generators. Edit: If it is a good thing (or possible) to do this I don't know.
yummyfajitas 13y ago
So everyone needs to pay several thousand/month for direct access? I don't know why it's bad that people who don't need low latency are allowed to not pay for it. "Quote Stuffing" is not the nefarious activity that Nanex portrays it as. It's generally the result of your algorithm screwing up. It provides no benefit to the trader and exposes him to risk - specifically, an HFT who is quote stuffing will always be at the bottom of the book. As a result, he won't get any retail fills, he'll only trade with informed traders who are buying up the whole book. It also lowers your fill rate, which can result in a trading halt or financial penalties. As a result, most HFTs put effort into reducing quotes and making their algorithms more stable. I shouldn't have used the term "conspiracy theorists". I just find this topic frustrating since there are a large number of comments that display a complete misunderstanding of basic market mechanics and a complete unwillingness to be specific. No shortage of moral posturing, however.
- 001sky 13y ago
  I don't know why it's bad that people who don't need low latency are allowed to not pay for it. For years, mil-spec GPS time was masked with randomness and unavail to the public. Why not do this with the markets? The regulators only care about mean prices being unbiased. They should equilibriate just fine with some non-sequential information introduced. Why or why not?
  - cpwright 13y ago
    The regulator cares about more than just the mean price. The idea behind Reg NMS is that anyone who places an order at a protected venue should get the best price available, not just something close. It isn't enough for the differences to just average out, because some people get poor execution in one direction, and others get poor execution in the other.
    - 001sky 13y ago
      Agree but consider this: If the timing is perfectly tractable the system is gamed. A small amount of noise that prevents manipulation is a good thing over time for the market. It means the stock is going to have less vol which increases the value of the market equity given constant cash flows. That's another policy goal more broadly. That is, if it works this way.

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
  Thanks for pointing out the tax idea (a fairly popular one these days). It has some of the same issues as slowing the market down. For example, a transaction tax on one market will push transaction volume to other markets, like squeezing a water balloon. A lot of securities have correlated or even 1:1 equivalents in other jurisdictions (e.g. Europe vs. US), which results in a tricky situation. Basically, whatever market pushes their costs up first risks suffocating itself. I'm not sure what you mean by "one flat rate." Exchanges already charge a flat rate for connectivity (the rate is per month, usually a couple thousand bucks or so).
  - crdoconnor 13y ago
    >For example, a transaction tax on one market will push transaction volume to other markets, like squeezing a water balloon. Actually the exact opposite will happen. Only the HFTs will want to move away, the rest will want to move to such a market. For the rest of them, operating in a market that allows HFT is pretty much the same thing as operating in a market for lemons: https://en.wikipedia.org/wiki/The_Market_for_Lemons https://en.wikipedia.org/wiki/The_Market_for_Lemons Asymmetric information in markets means 'the bad drives out the good'. Just as running an honest used car market will attract buyers and sellers, running an honest stock exchange will attract traders.
    - icebraining 13y ago
      Then why hasn't a stock exchange that imposes a transaction fee appeared and pulled in all traders, leaving the HFTs behind? This is what I can't understand about this stories, and makes me doubt the claims against the HFTs.
      - crdoconnor 13y ago
        network effects work heavily against new exchanges. it's not like starting a SaaS to deliver email.
        13y ago
rschmitty 13y ago
I forget if it was on The Daily Show or 60 minutes, but the "solution" the new exchange came up with was to actually slow down his trades by fractions of a second such they all arrived at the same time. Once he did that his order fill rate went up and the HFT got cut out. He did this while a 60km fiber optic spool So "super slowly" isnt exactly what he was doing
- mhurron 13y ago
  It was the Daily Show http://thedailyshow.cc.com/extended-interviews/o7grtj/exclusive-michael-lewis-extended-interview http://thedailyshow.cc.com/extended-interviews/o7grtj/exclus... As I understand it, that link is only good in the US. So for everyone else, that is the extended interview of the April 1 episode. I'm sure it can be found somewhere.
  - runeks 13y ago
    Thanks for the link. It works fine from Denmark. I've never had problems watching it from a non-US country. Also, pro tip if you want to avoid ads between segments: right before the video gets to a horizontal line (ad break) on the seek bar, skip to the part right after the horizontal line. You'll skip the ad. Also: if you work as a web developer at Comedy Central, you never saw this comment.
BugBrother 13y ago
GP: >>You cannot pay to gain privileged access. [my emphasis] >>To avoid payment for access, presumably access would need to be free (Also, high frequency trading can't have much to do with finding the price points of stuff.) I don't have a horse in this race (I don't know the subject area), but most of that comment was a straw man argument. I realise that was probably a mistake in reading, but even I can see the implementation ought to be somewhere between simple and possible: Publicise the algorithm for a random delay between a tenth of a second and (more seldom) ten seconds for all buys/sells. Or something similar. Make certain to have good random number generators. Edit: If it is a good thing (or possible) to do this I don't know.

yummyfajitas 13y ago

So everyone needs to pay several thousand/month for direct access? I don't know why it's bad that people who don't need low latency are allowed to not pay for it. "Quote Stuffing" is not the nefarious activity that Nanex portrays it as. It's generally the result of your algorithm screwing up. It provides no benefit to the trader and exposes him to risk - specifically, an HFT who is quote stuffing will always be at the bottom of the book. As a result, he won't get any retail fills, he'll only trade with informed traders who are buying up the whole book. It also lowers your fill rate, which can result in a trading halt or financial penalties. As a result, most HFTs put effort into reducing quotes and making their algorithms more stable. I shouldn't have used the term "conspiracy theorists". I just find this topic frustrating since there are a large number of comments that display a complete misunderstanding of basic market mechanics and a complete unwillingness to be specific. No shortage of moral posturing, however.

001sky 13y ago
I don't know why it's bad that people who don't need low latency are allowed to not pay for it. For years, mil-spec GPS time was masked with randomness and unavail to the public. Why not do this with the markets? The regulators only care about mean prices being unbiased. They should equilibriate just fine with some non-sequential information introduced. Why or why not?
- cpwright 13y ago
  The regulator cares about more than just the mean price. The idea behind Reg NMS is that anyone who places an order at a protected venue should get the best price available, not just something close. It isn't enough for the differences to just average out, because some people get poor execution in one direction, and others get poor execution in the other.
  - 001sky 13y ago
    Agree but consider this: If the timing is perfectly tractable the system is gamed. A small amount of noise that prevents manipulation is a good thing over time for the market. It means the stock is going to have less vol which increases the value of the market equity given constant cash flows. That's another policy goal more broadly. That is, if it works this way.