3 ms·

There is evidence that this sort of thing is already happening. Google 'quote stuffing'. There are those who say quote stuffing in HFT is a bug; my personal opi

There is evidence that this sort of thing is already happening. Google 'quote stuffing'. There are those who say quote stuffing in HFT is a bug; my personal opinion is that it is done by design....

yummyfajitas 12y ago
Can you explain the design concretely (i.e., the mechanics), or is this just a gut feeling?
- namecast 12y ago
  For now I'm going to offer gut feeling. Take this or leave it - I wrote two paragraphs here that essentially came down to an argument to an authority re: my personal experience and the opinions people who know who trade. That's shitty logic, so let's go with gut feeling for now... I don't believe that the same specific bug has manifested itself across many many different HFT algorithms run by many different actors over a long period of time, in a way that loses money consistently for everyone involved whenever the bug is triggered, without ever being addressed by anyone. To argue otherwise is contrary to my current understanding of software engineering best practices - imagine another industry where every service provider has the same bug manifest in the same way, across all their different software stacks - some running Java, some Python, some even with their own proprietary languages - and no one ever catches it even though it's losing money and it's occurence is easily identifiable on a time-series graph (so very easy to be matched up with all available logging data)? No one has the resources to throw a team of devs at this for 6 months to identify the bug, or they do and they're just willing to lose money and not make every last nickel they can? Not a single person is trying to reach for that lost money with a bug fix or a novel tweak to their own existing algo? For years? I believe it's more likely that either the actors who are quote stuffing believe they are benefiting by tipping their hand early with false information, or they actually are benefiting. It's hard to imagine how these actors could be benefiting; perhaps they believe that someone is watching their quotes in transit or has visibility into their quotes before trades are executed, and the quote-stuffers are trying to fake these malicious actors out? The alternative scenario where quote-stuffers are not benefiting from their actions - or rather, that they aren't even operating under the irrational assumption that they are benefiting (because the quote stuffers could be stuffing intentionally but incorrectly) - seems much more implausible. It seems to involve a whole lot more things going wrong in a very specific very atypical way,from a software development standpoint, with no one every interested in picking up the money they're dropping on the floor due to this bug when things go wrong, over the course of years, even though all the data to pinpoint the source of the bug is public, charted, and discussed openly. The first scenario just requires a quote stuffer to hold a possibly incorrect belief about the other actors in the market. The second requires multiple specific distinct software development failures to line up like dominoes and stay lined up without anyone ever addressing their root causes. But who knows :) <shrug> Trading is chaos, after all.
  - yummyfajitas 12y ago
    The thing is, the bugs manifest in many different ways. Sometimes you get ramp&drop, sometimes you get on-off flicker, there are a wide variety of things that can happen. Take a look at the graphs from Nanex - lots of different things are happening. I realize that to an outsider they may all look like "graphs going wonky", but similarly all computer bugs look like "omfg I just want my email" to a marketer. It's not a programming language issue - it's a math issue that would happen in any programming language. Whether you use Python or Haskell, you'll run into problems if you call SOLVE(A,x) on an ill conditioned matrix A. So you cook up a special routine that works well for most of the inputs you expect to see and it screws up for the tiny fraction of cases where you get a bad matrix. Throwing money and a team of devs won't get around this. Similarly, you can't put together a team of crack devs (each earning $500k/year) and ask them to solve the CAP Theorem in 6 months. All you can do is choose your tradeoffs and hope that most of the time your network puts you on the good side of those tradeoffs.
    - namecast 12y ago
      Chris: you need to identify yourself if you're going to push your viewpoint here. You're the only author of a controversial blog post that's pushing what I'll gently describe as an interesting theory - not a casual HN observer just bringing up some talking points. If I hadn't caught your CAP theorem quote ("solve the CAP theorem", wha?) and the Nanex reference, I would have missed this and not drilled down to your user details. Next time, feel free to add a </disclaimer> of some sort. I'm not an outsider unless you've got one intense No True Scotsmen definition of the word, and I'll leave it at that. Let's just agree to disagree, and I'll say that you are certainly entitled to your opinion. Thank God, it's a free country and a free market :) Good luck.
      - minimax 12y ago
        The problem with every allegation of quote stuffing I have ever seen is that it always looks like this: 1) Blast quotes 2) ??? 3) Profit Same problem in this thread. It would be a much more convincing argument if you could spell out the actual trade.
nanexllc 12y ago
Internalizers (Citadel) are the beneficiaries - as well as those competing for the top of the queue on every price shift. It would disappear quickly if it were just a bug. Then of course, is that phone conversation I had where it was explained to me (see above)

There is evidence that this sort of thing is already happening. Google 'quote stuffing'. There are those who say quote stuffing in HFT is a bug; my personal opinion is that it is done by design....

yummyfajitas 12y ago

Can you explain the design concretely (i.e., the mechanics), or is this just a gut feeling?

namecast 12y ago
For now I'm going to offer gut feeling. Take this or leave it - I wrote two paragraphs here that essentially came down to an argument to an authority re: my personal experience and the opinions people who know who trade. That's shitty logic, so let's go with gut feeling for now... I don't believe that the same specific bug has manifested itself across many many different HFT algorithms run by many different actors over a long period of time, in a way that loses money consistently for everyone involved whenever the bug is triggered, without ever being addressed by anyone. To argue otherwise is contrary to my current understanding of software engineering best practices - imagine another industry where every service provider has the same bug manifest in the same way, across all their different software stacks - some running Java, some Python, some even with their own proprietary languages - and no one ever catches it even though it's losing money and it's occurence is easily identifiable on a time-series graph (so very easy to be matched up with all available logging data)? No one has the resources to throw a team of devs at this for 6 months to identify the bug, or they do and they're just willing to lose money and not make every last nickel they can? Not a single person is trying to reach for that lost money with a bug fix or a novel tweak to their own existing algo? For years? I believe it's more likely that either the actors who are quote stuffing believe they are benefiting by tipping their hand early with false information, or they actually are benefiting. It's hard to imagine how these actors could be benefiting; perhaps they believe that someone is watching their quotes in transit or has visibility into their quotes before trades are executed, and the quote-stuffers are trying to fake these malicious actors out? The alternative scenario where quote-stuffers are not benefiting from their actions - or rather, that they aren't even operating under the irrational assumption that they are benefiting (because the quote stuffers could be stuffing intentionally but incorrectly) - seems much more implausible. It seems to involve a whole lot more things going wrong in a very specific very atypical way,from a software development standpoint, with no one every interested in picking up the money they're dropping on the floor due to this bug when things go wrong, over the course of years, even though all the data to pinpoint the source of the bug is public, charted, and discussed openly. The first scenario just requires a quote stuffer to hold a possibly incorrect belief about the other actors in the market. The second requires multiple specific distinct software development failures to line up like dominoes and stay lined up without anyone ever addressing their root causes. But who knows :) <shrug> Trading is chaos, after all.
- yummyfajitas 12y ago
  The thing is, the bugs manifest in many different ways. Sometimes you get ramp&drop, sometimes you get on-off flicker, there are a wide variety of things that can happen. Take a look at the graphs from Nanex - lots of different things are happening. I realize that to an outsider they may all look like "graphs going wonky", but similarly all computer bugs look like "omfg I just want my email" to a marketer. It's not a programming language issue - it's a math issue that would happen in any programming language. Whether you use Python or Haskell, you'll run into problems if you call SOLVE(A,x) on an ill conditioned matrix A. So you cook up a special routine that works well for most of the inputs you expect to see and it screws up for the tiny fraction of cases where you get a bad matrix. Throwing money and a team of devs won't get around this. Similarly, you can't put together a team of crack devs (each earning $500k/year) and ask them to solve the CAP Theorem in 6 months. All you can do is choose your tradeoffs and hope that most of the time your network puts you on the good side of those tradeoffs.
  - namecast 12y ago
    Chris: you need to identify yourself if you're going to push your viewpoint here. You're the only author of a controversial blog post that's pushing what I'll gently describe as an interesting theory - not a casual HN observer just bringing up some talking points. If I hadn't caught your CAP theorem quote ("solve the CAP theorem", wha?) and the Nanex reference, I would have missed this and not drilled down to your user details. Next time, feel free to add a </disclaimer> of some sort. I'm not an outsider unless you've got one intense No True Scotsmen definition of the word, and I'll leave it at that. Let's just agree to disagree, and I'll say that you are certainly entitled to your opinion. Thank God, it's a free country and a free market :) Good luck.
    - minimax 12y ago
      The problem with every allegation of quote stuffing I have ever seen is that it always looks like this: 1) Blast quotes 2) ??? 3) Profit Same problem in this thread. It would be a much more convincing argument if you could spell out the actual trade.

nanexllc 12y ago

Internalizers (Citadel) are the beneficiaries - as well as those competing for the top of the queue on every price shift. It would disappear quickly if it were just a bug. Then of course, is that phone conversation I had where it was explained to me (see above)