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You do not need to sell privileged access to HFTs to your dark pool of institutional investors in order to have liquidity. Barclays were ripping off their clie

You do not need to sell privileged access to HFTs to your dark pool of institutional investors in order to have liquidity. Barclays were ripping off their clients. It wasn't even a complicated scam.

kasey_junk 12y ago
"You do not need to sell privileged access to HFTs to your dark pool of institutional investors in order to have liquidity." Except that is untrue historically. The reason dark pools sell that privileged access is that they can't provide liquidity any other way and their clients find it better to trade in HFT allowed environments than in ones without liquidity. IEX is trying something new, driving liquidity via scare tactics and publicity but we still don't know how that will work out. "Barclays were ripping off their clients. It wasn't even a complicated scam." Barclay's lied about allowing HFT firms into their dark pool. That is fraud but it has nothing to do with bad behavior on the part of the HFT. If you are suggesting that dark pools have inherent conflicts of interest that might be a more valid argument than "HFT IS THE EVILS"
- crdoconnor 12y ago
  >Except that is untrue historically. Historically there was no HFT. Historically we have managed to have liquidity without it. Historically, the thing that brought us the greatest liquidity (something that is useful but vastly overrated) in the equities markets is electronic trading. >The reason dark pools sell that privileged access is that they can't provide liquidity I think it's cute the way that you're pretending that they were doing their investors a favor. They were selling dark pools to investors because investors WANTED to get away from HFT. If they wanted HFT infested waters they could have traded on the public markets! What the fuck do you think they were DOING there in the first place? They happily sacrificed a sliver of extra (and largely unnecessary) liquidity for the chance to not get ripped off.
  - harryh 12y ago
    Historically (in the 1980s) liquidity was 10x-20x more expensive than it is today. No one is willing to pay those sorts of prices anymore.
    - crdoconnor 12y ago
      Nobody is suggesting turning off electronic trading systems and going back to pen, paper and shouting in a pit.
      - harryh 12y ago
        So computers are fine. Faster is fine. Just not too fast? Because once we pass some sort of arbitrary speed barrier then....what happens exactly?
        crdoconnor 12y ago
        The market stops rewarding those who do the best research and make the best value judgments about stocks and simply rewards those with the fastest exchange connections and best hardware (who can parasite upon the research and risklessly make money by covertly front running it). If value investors stop being rewarded for doing good research and correctly assessing the true value of a stock they will usually withdraw from the market (c.f. market for lemons: akerlof). It should be pretty obvious why a stock market whose values are disconnected from reality is a bad thing, and why having a pool of investors who do good real world research and get rewarded for it is a good thing.
  - kasey_junk 12y ago
    They thought they wanted to get away from HFT. But once they were away from HFT they realized that the liquidity wasn't there and started trading on other venues. Barclay's dark pool was failing as it had no participation and like almost all the other dark pools in existence to get around this they started letting HFTs in. The difference is that in Barclay's case they lied about it and thus committed fraud.
    - crdoconnor 12y ago
      >They thought they wanted to get away from HFT. But once they were away from HFT they realized THEY WERE PAYING TO BE IN A DARK POOL IN THE FIRST PLACE BECAUSE THEY WANTED TO BE AWAY FROM HFT. There was no "they realized". Once they got away, Barclays tried to figure out if there was any BARCLAYS could extract more profits from these dark pools than the fees they were already paid. There was: allow HFT sharks to take advantage of their customers and collect fees for letting them do so. If what you said were true (and frankly I cannot possibly see how you could believe it) they would have ZERO reason to commit fraud and lie about selling privileged access to HFT traders.
      - kasey_junk 12y ago
        "Once they got away they did NOT start whinging that there was not enough liquidity." Of course they didn't. Professional market participants don't whinge. They go to venues that provide the services they want, namely cheap liquidity. Those venues were ones that allowed HFT market makers. When you say "they got away", you do know that those market participants moved to open exchanges where HFTs "run rampant" and stopped paying Barclay's for their service. "allow HFT sharks to take advantage of their customers and collect payment for letting them do so." A) what do you mean when you say HFT shark? You keep using that term, in what I assume is a pejorative but it doesn't mean anything. B) If the point was extracting more fees why did Barclay's subsidize HFT trading? They charged HFTs an order of magnitude less than their clients, that was a central part of the complain. If it was an example of allowing advantage taking, wouldn't the fee structure be reversed? That is, if I have a chance to fleece someone, wouldn't I pay up for that instead of require payment for it? "If what you said were true they would have no reason to lie" Of course they had a reason to lie. They claimed that they could provide a high liquidity environment without letting market makers trade in their dark pool, despite the overwhelming historical evidence to the contrary. Admitting that they were wrong brings their whole value proposition to buy side investors into question and delegitimizes their dark pool.

You do not need to sell privileged access to HFTs to your dark pool of institutional investors in order to have liquidity. Barclays were ripping off their clients. It wasn't even a complicated scam.

kasey_junk 12y ago

"You do not need to sell privileged access to HFTs to your dark pool of institutional investors in order to have liquidity." Except that is untrue historically. The reason dark pools sell that privileged access is that they can't provide liquidity any other way and their clients find it better to trade in HFT allowed environments than in ones without liquidity. IEX is trying something new, driving liquidity via scare tactics and publicity but we still don't know how that will work out. "Barclays were ripping off their clients. It wasn't even a complicated scam." Barclay's lied about allowing HFT firms into their dark pool. That is fraud but it has nothing to do with bad behavior on the part of the HFT. If you are suggesting that dark pools have inherent conflicts of interest that might be a more valid argument than "HFT IS THE EVILS"

crdoconnor 12y ago
>Except that is untrue historically. Historically there was no HFT. Historically we have managed to have liquidity without it. Historically, the thing that brought us the greatest liquidity (something that is useful but vastly overrated) in the equities markets is electronic trading. >The reason dark pools sell that privileged access is that they can't provide liquidity I think it's cute the way that you're pretending that they were doing their investors a favor. They were selling dark pools to investors because investors WANTED to get away from HFT. If they wanted HFT infested waters they could have traded on the public markets! What the fuck do you think they were DOING there in the first place? They happily sacrificed a sliver of extra (and largely unnecessary) liquidity for the chance to not get ripped off.
- harryh 12y ago
  Historically (in the 1980s) liquidity was 10x-20x more expensive than it is today. No one is willing to pay those sorts of prices anymore.
  - crdoconnor 12y ago
    Nobody is suggesting turning off electronic trading systems and going back to pen, paper and shouting in a pit.
    - harryh 12y ago
      So computers are fine. Faster is fine. Just not too fast? Because once we pass some sort of arbitrary speed barrier then....what happens exactly?
      - crdoconnor 12y ago
        The market stops rewarding those who do the best research and make the best value judgments about stocks and simply rewards those with the fastest exchange connections and best hardware (who can parasite upon the research and risklessly make money by covertly front running it). If value investors stop being rewarded for doing good research and correctly assessing the true value of a stock they will usually withdraw from the market (c.f. market for lemons: akerlof). It should be pretty obvious why a stock market whose values are disconnected from reality is a bad thing, and why having a pool of investors who do good real world research and get rewarded for it is a good thing.
- kasey_junk 12y ago
  They thought they wanted to get away from HFT. But once they were away from HFT they realized that the liquidity wasn't there and started trading on other venues. Barclay's dark pool was failing as it had no participation and like almost all the other dark pools in existence to get around this they started letting HFTs in. The difference is that in Barclay's case they lied about it and thus committed fraud.
  - crdoconnor 12y ago
    >They thought they wanted to get away from HFT. But once they were away from HFT they realized THEY WERE PAYING TO BE IN A DARK POOL IN THE FIRST PLACE BECAUSE THEY WANTED TO BE AWAY FROM HFT. There was no "they realized". Once they got away, Barclays tried to figure out if there was any BARCLAYS could extract more profits from these dark pools than the fees they were already paid. There was: allow HFT sharks to take advantage of their customers and collect fees for letting them do so. If what you said were true (and frankly I cannot possibly see how you could believe it) they would have ZERO reason to commit fraud and lie about selling privileged access to HFT traders.
    - kasey_junk 12y ago
      "Once they got away they did NOT start whinging that there was not enough liquidity." Of course they didn't. Professional market participants don't whinge. They go to venues that provide the services they want, namely cheap liquidity. Those venues were ones that allowed HFT market makers. When you say "they got away", you do know that those market participants moved to open exchanges where HFTs "run rampant" and stopped paying Barclay's for their service. "allow HFT sharks to take advantage of their customers and collect payment for letting them do so." A) what do you mean when you say HFT shark? You keep using that term, in what I assume is a pejorative but it doesn't mean anything. B) If the point was extracting more fees why did Barclay's subsidize HFT trading? They charged HFTs an order of magnitude less than their clients, that was a central part of the complain. If it was an example of allowing advantage taking, wouldn't the fee structure be reversed? That is, if I have a chance to fleece someone, wouldn't I pay up for that instead of require payment for it? "If what you said were true they would have no reason to lie" Of course they had a reason to lie. They claimed that they could provide a high liquidity environment without letting market makers trade in their dark pool, despite the overwhelming historical evidence to the contrary. Admitting that they were wrong brings their whole value proposition to buy side investors into question and delegitimizes their dark pool.