41 ms·

If the information that enables "front-running" is available from public exchanges through standard channels, it's still public information, so the "front-runni

by ArchD 12y ago

If the information that enables "front-running" is available from public exchanges through standard channels, it's still public information, so the "front-running" isn't really front-running. Besides, those big orders could be sent as multiple IOC orders in order to not reveal one's hand, or executed as multiple small orders. However, I'm not saying "spoofers" should be punished either. The SEC construing (divining?) the "intent" of a soulless automaton to me falls in the realm of not-even-wrong.

Retric 12y ago
Most of this gets really technical, however the idea that you can see an order and get a ahead of it is clearly front running even if it's legal. The issue is exchanges have an incentive to sell "early" access to information so generally people do X for a while, that becomes illegal or the people being taken advantage of swap to another approach.
- kasey_junk 12y ago
  >however the idea that you can see an order and get a ahead of it is clearly front running even if it's legal No one gets to see an order and get ahead of it. > The issue is exchanges have an incentive to sell "early" access to information All exchange access is "early" access. There is no way to stop latency advantages.
  - Retric 12y ago
    No one gets to see an order and get ahead of it. I just described one approach where than can happen. All exchange access is "early" access. There is no way to stop latency advantages. There is no need to publish pending transactions in such a way that you can get your executed on a different exchange before that one propagates. Anyway, exchanges are an incredibly complex problem with a lot of perverse incentives. However (ed: IMO) any trading strategy based on implementation details is counter productive to a free and open market and thus it harms the U.S. economy.
    - kasey_junk 12y ago
      > I just described one approach where than can happen. And I'm telling you what you described can't happen. So either you don't understand what is happening or are not describing it well. >There is no need to publish pending transactions in such a way that you can get your executed on a different exchange before that one propagates. Luckily that does not happen. > However any trading strategy based on implementation details is counter productive to a free and open market and thus it harms the U.S. economy. This is demonstrably not true. If a trading strategy brings the prices between exchanges into rationality faster or cheaper than it could be done by a single exchange or by coordination between existing exchanges is very productive and useful to all market participants.
    - evanpw 12y ago
      Pending transactions are never public. Everyone sees the execution on that exchange, but they don't know whether or not some additional portion is being routed to another exchange. One situation that people often _mistake_ for this type of prior knowledge is the following: You are a market-maker, and at the current price, you want to buy X shares (you're also willing to sell at some slightly higher price, and willing to buy more at some lower price, but at the current bid, your appetite is X). Since the US equity market is very fragmented, the best way to make that happen is to place an order for X shares on all of the dozens of different venues, and hope one of them gets executed. When your order on one venue gets executed, you want to cancel your orders on all of the other venues quickly so that you don't get overfilled and accidently buy more than X. If you're a person who's trying to sell 2 * X or 3 * X shares, and the price moves down after you sell the first X, it may look like someone knew about the rest of your order and sold ahead of you, but it's actually just the market-maker trying to control their inventory.
      - Retric 12y ago
        "Pending transactions are never public." Pending transactions are should never be public. (Bad actor 1): Gee, but if they where I could get 1 billion dollars. (Bad actor 2): no, We could get 1 billion dollars. (Bad actor 1): I like 1 billion dollars. The point being it's often hard to steal 100's of Millions of dollars without someone noticing. But, front running like insider trading is one of the ways to do so.

by ArchD 12y ago

Retric 12y ago

Most of this gets really technical, however the idea that you can see an order and get a ahead of it is clearly front running even if it's legal. The issue is exchanges have an incentive to sell "early" access to information so generally people do X for a while, that becomes illegal or the people being taken advantage of swap to another approach.

kasey_junk 12y ago
>however the idea that you can see an order and get a ahead of it is clearly front running even if it's legal No one gets to see an order and get ahead of it. > The issue is exchanges have an incentive to sell "early" access to information All exchange access is "early" access. There is no way to stop latency advantages.
- Retric 12y ago
  No one gets to see an order and get ahead of it. I just described one approach where than can happen. All exchange access is "early" access. There is no way to stop latency advantages. There is no need to publish pending transactions in such a way that you can get your executed on a different exchange before that one propagates. Anyway, exchanges are an incredibly complex problem with a lot of perverse incentives. However (ed: IMO) any trading strategy based on implementation details is counter productive to a free and open market and thus it harms the U.S. economy.
  - kasey_junk 12y ago
    > I just described one approach where than can happen. And I'm telling you what you described can't happen. So either you don't understand what is happening or are not describing it well. >There is no need to publish pending transactions in such a way that you can get your executed on a different exchange before that one propagates. Luckily that does not happen. > However any trading strategy based on implementation details is counter productive to a free and open market and thus it harms the U.S. economy. This is demonstrably not true. If a trading strategy brings the prices between exchanges into rationality faster or cheaper than it could be done by a single exchange or by coordination between existing exchanges is very productive and useful to all market participants.
  - evanpw 12y ago
    Pending transactions are never public. Everyone sees the execution on that exchange, but they don't know whether or not some additional portion is being routed to another exchange. One situation that people often _mistake_ for this type of prior knowledge is the following: You are a market-maker, and at the current price, you want to buy X shares (you're also willing to sell at some slightly higher price, and willing to buy more at some lower price, but at the current bid, your appetite is X). Since the US equity market is very fragmented, the best way to make that happen is to place an order for X shares on all of the dozens of different venues, and hope one of them gets executed. When your order on one venue gets executed, you want to cancel your orders on all of the other venues quickly so that you don't get overfilled and accidently buy more than X. If you're a person who's trying to sell 2 * X or 3 * X shares, and the price moves down after you sell the first X, it may look like someone knew about the rest of your order and sold ahead of you, but it's actually just the market-maker trying to control their inventory.
    - Retric 12y ago
      "Pending transactions are never public." Pending transactions are should never be public. (Bad actor 1): Gee, but if they where I could get 1 billion dollars. (Bad actor 2): no, We could get 1 billion dollars. (Bad actor 1): I like 1 billion dollars. The point being it's often hard to steal 100's of Millions of dollars without someone noticing. But, front running like insider trading is one of the ways to do so.