4 ms·
Until an order goes to the exchanges, only the customer and broker know about it. The order is material non-public information. The problem with your argument
by 300bps 13y ago
Until an order goes to the exchanges, only the customer and broker know about it. The order is material non-public information.
The problem with your argument is that it doesn't address that certain companies have paid money to co-locate their servers in the same datacenter as the exchanges. This is unethical because:
T + 0.000 seconds order is sent to an exchange
T + 0.001 seconds order is received by colocated companies
T + 0.090 seconds order is received by non-colocated companies
For the first 90 milliseconds, the exchange has engaged in "selective disclosure" which means the order is still material non-public information after it has arrived at an Exchange. For colocated firms to then act on that material non-public information is unethical at best.
Citation on "selective disclosure":
http://www.investopedia.com/exam-guide/cfa-level-1/ethics-standards/standard-nonpublic-information.asp http://www.investopedia.com/exam-guide/cfa-level-1/ethics-st...
Selective disclosure? When information is disclosed selectively, i.e. just to a handful of investment analysts, or perhaps on a conference call, or in an email, the information may still be regarded as nonpublic. Companies are bound by specific procedures designed to make the information truly public and to ensure a system of fairness in which all market participants are given a chance to act on the information.
- deleted 13y ago[deleted]
- 300bps 13y agoJumpCrisscross said (and then deleted his comment)... Ceteris paribus the client should prefer execution in 1 millisecond over 90 milliseconds. Yes, but we both know that all things are not equal. In fact, the whole raison d'etre of HFT is to ensure that all things are not equal. They are only trading when there is profit between trades that would've occurred between entities A and B. When HFT steps in, either one or both of entities A and B suffer. Your and my bid-ask spreads used to pay for those. Now those extra pennies of compressed spread are going to the market participants instead of the house. That is more efficient. If HFT firms want to be considered the new market makers, then they should be held to the rules of the original market makers. A market maker's job is to provide liquidity continuously; not just when it is profitable for the HFT firm. http://www.sec.gov/answers/mktmaker.htm http://www.sec.gov/answers/mktmaker.htm
- dllthomas 13y agoI think it's poor form to name names from deleted comments.
- harryh 13y agoIf people couldn't pay to co-locate with the exchanges they would still compete for latency reductions. They would try to get in the building across the street. Or the one two blocks away. Or the one with a direct fiber connection. Being able to pay to co-locate with the exchange actually serves to democratize things because it puts everyone on a level playing field where they pay the exact same cost for the exact same access.