You're now on the archive server. Commenting has been disabled.
2009 Recapitulating Thoughts On HFT From Themis Trading's Joe Saluzzi
Zero Hedge has been a little quiet on the topic of HFT lately, not because we have come to peace with the threat that HFT presents to equity markets (we have not), and if HFT lobbyists are successful, CDS is next, or because we have realized that no matter what, Mary Schapiro will never, ever do the right thing and take a preemptive action instead of always doing damage control after the fact, until such time as the broader population finally realizes just how worthless the organization of the ex-Finra multi-millionairess is and forces its closure (please Judge Rakoff, do anything you can to accelerate this), but because we have been fascinated by the parallel farce that is the financial reform legislation which is nothing but yet another massive form of bailout for the big banks. We recommend our readers read David Reilly's terrific overview of HR 4173: poor David is likely one of the 2 people in the entire world who read the entire 1,279 pages of mostly useless drivel. Some of its key points highlighted by Reilly are the following:
-- For all its heft, the bill doesn’t once mention the
words “too-big-to-fail,” the main issue confronting the
financial system. Admitting you have a problem, as any 12-
stepper knows, is the crucial first step toward recovery.-- Instead, it supports the biggest banks. It authorizes
Federal Reserve banks to provide as much as $4 trillion in
emergency funding the next time Wall Street crashes. So much for
“no-more-bailouts” talk. That is more than twice what the Fed
pumped into markets this time around. The size of the fund makes
the bribes in the Senate’s health-care bill look minuscule.-- Oh, hold on, the Federal Reserve and Treasury Secretary
can’t authorize these funds unless “there is at least a 99
percent likelihood that all funds and interest will be paid
back.” Too bad the same models used to foresee the housing
meltdown probably will be used to predict this likelihood as
well.More Bailouts
-- The bill also allows the government, in a crisis, to
back financial firms’ debts. Bondholders can sleep easy -- there
are more bailouts to come.-- The legislation does create a council of regulators to
spot risks to the financial system and big financial firms.
Unfortunately this group is made up of folks who missed the
problems that led to the current crisis.-- Don’t worry, this time regulators will have better
tools. Six months after being created, the council will report
to Congress on “whether setting up an electronic database”
would be a help. Maybe they’ll even get to use that Internet
thingy.-- This group, among its many powers, can restrict the
ability of a financial firm to trade for its own account.
Perhaps this section should be entitled, “Yes, Goldman Sachs
Group Inc., we’re looking at you.”Managing Bonuses
-- The bill also allows regulators to “prohibit any
incentive-based payment arrangement.” In other words, banker
bonuses are still in play. Maybe Bank of America Corp. and
Citigroup Inc. shouldn’t have rushed to pay back Troubled Asset
Relief Program funds.-- The bill kills the Office of Thrift Supervision, a
toothless watchdog. Well, kill may be too strong a word. That
agency and its employees will be folded into the Office of the
Comptroller of the Currency. Further proof that government never
really disappears.-- Since Congress isn’t cutting jobs, why not add a few
more. The bill calls for more than a dozen agencies to create a
position called “Director of Minority and Women Inclusion.”
People in these new posts will be presidential appointees. I
thought too-big-to-fail banks were the pressing issue. Turns out
it’s diversity, and patronage.-- Not that the House is entirely sure of what the issues
are, at least judging by the two dozen or so studies the bill
authorizes. About a quarter of them relate to credit-rating
companies, an area in which the legislation falls short of
meaningful change. Sadly, these studies don’t tackle tough
questions like whether we should just do away with ratings
altogether. Here’s a tip: Do the studies, then write the
legislation.
So even though the next massive bailout is merely at most months, weeks or days in the future, so is the next HFT-precipitated market crash. The reason for this keeps on being trumpted, as usual, by the sole voice of sanity in the HFT jungle, where any change in the rules is likely going to cost High Frequency Predatory Scalpers billions in lost revenue, which explains their constant whining in conflicted industry publications. Ultimately, HFT lobbyists may have completed their jobs, as Schapiro hopes to take another page out of the Obama playbook and promtply bury all dissent under the rug of collective social amnesia, facilitated by the Fed's prodding of equity markets ever higher. Don't worry Ms. Schapiro, we will constantly be there, reminding the public of your ongoing epic failings, for the duration of your tenure at the SEC. And when we are not there, we are grateful that people like Themis Trading's Joe Saluzzi can carry the torch. Unfortunately, the proof of Saluzzi's hypothesis would require a Black Monday-like event, at which point it will be far too late for meaningful damage control.
Joe Saluzzi discusses HFT on Bloomberg TV earlier: key point - HFT has helped tighten spreads in large cap names, but in the small to mid-cap stocks, a NYSE study demonstrates that liquidity has decreased and volatility has increased. As more and more HFT cannibalization occurs, expect this trends to impair large-cap names next.
»
- 4886 reads
- Printer-friendly version
- Send to friend
Similar Articles You Might Enjoy:
- Is GS Tempting The Interest Rate Black Swan With 1,056% Risk Exposure?
- Is GS Tempting The Interest Rate Black Swan With 1,056% Risk Exposure?
- Observations On High Frequency Trading
- Bachus Hensarling (aka HFT Lobby) Letter to Schapiro, and Themis Trading's Comments
- Whitney Tilson Probes Deeper Into High Frequency Trading
No worries.
Citibank remains a "stalwart" among the Hi-Fi gamers.
Just buy and sell within a 3 cent trading range all day long..
By the end of 2010, it will be trading 5 billion shares a day, going nowhere.
LOL....
Robo, look at the 4 ~1% moves intraday on the IWM, and the steepness of the 11:45 and 14:45 moves. Amazing.
"A penny saved is a penny earned."
-- Benjamin Franklin
"A penny scalped is a penny earned."
-- Ben Bernanke
hahahah LOVE it!
disclaimer: im wasted.
Yawn. More buy side firms view HFT as beneficial than harmful.
No one is on the level in this debate re HFT and actually the entire market structure "debate"in general. Schumer hates "flash" trading but Loves HFT--so does the NYSE the other exchanges (== a mere coincidence??).
And Themis hates HFT because they are agency brokers. Lets just say that HFT is outlawed tomorrow at noon and spreads widen due to less liquidity. Who benefits? Why folks like Themis--wider spreads, better commissions more reliance on agency brokers. Call me cynical but there are a lot of rats in the woodpile.
Yes, Themis and other brokers hate HFT b/c they need wider spreads and larger commissions - they try to say they're unbiased, but it's totally ridiculous. Listening to Themis is kind of listening to kid screaming about how he's right - he has no idea what he's talking about, but he's loud, so you listen. I've read all of their white papers, and these guys are a total joke.
our current administration and government makes me f*ckin sick...can't wait until we read why America failed
I think a lot of us have those books half written already...
That guy is so full of shit it's not funny. I would expect that anyone pitching their firm in such an ugly manner would be looked down upon at ZH community.
If HFTers can be preditors in small cap, they can be preditors in large caps as well - even more so.
Here's a real explanation why large caps benefited. DEBT. Balance sheet of large-cap companies is far more certain than that of small-cap. This is clearly reflected in credit spreads. If a company can't service it's debt, common stock gets affected huge right away. The market is simply pricing that reasonable risk in.
What's a "preditor"? Is that sort of like a "predator"?
Thanks, they should automate you in the textbox. Standard firefox textbox does spell check for me, but the widget at ZH for some reason skips out on that.
I believe you are talking the wrong kind of spread.
Steel tariffs? Oh thats why Buffet bought rail. That and the upcoming War.
What is the "beta wave"?
many letters away from the K wave
LOL, Tyler you've go to dig a little deeper into your lexicon. Derivatives of 'recapitulate' can only be used so often...
first off, get over the "lol" in your own thread. you are posting to other folks, not yourself. keep it up and hair will grow on your palms.
second, be done with the "recapitulating" bullshit. i am still trying to figure out what that means and recently it keeps popping up.
tyler, please proof your titles and cover text. this shit is becoming ridiculous. i pine for the tyler posts 9mos ago.
http://www.merriam-webster.com/dictionary/recapitulating
pwned
Yea I dont try to correct TD anymore either. The day i drunkenly posted about the turtle racing bar next to my house in Marina Del Ray, CA and he responded "Dont point at the turtles" I just gave up right then and there, and now assume that he knows more than me, about everything, like really everything. And im a drunkass, I thought I could have at least owned him on local bars trivia where I live. But no, I cant even have that. =\
-bd
hmm...Merriam is a trip with her purple hair.
hmm...Merriam is a trip with her purple hair.
At 1:45 into the clip, Joe talks about HFT pushing the markets all in the same direction and declares "since now, they're all buyers but tomorrow they could be sellers"
Alas, that would be the momentum of fund managers and traditional hedge funds (the kind Joe himself gets paid commissions to trade for) - since pretty much by definition, HF trading strategies close their books neutral at the end of each trading day, and therefore must provide even amounts of supply and demand throughout the course of a day.
That Joe is the go-to guy for anti-HFT rhetoric on Bloomberg and CNBC amazes me.
Looks like alot of HFT supporters like to read ZH and anytime Tyler posts something about Themis , they attack quickly. Maybe if Chris (with cannons) can post with his real name , he might have more credibility.
> and anytime Tyler posts something about Themis , they attack
Because Joe and Sal come across to those who really do understand HFT (i.e. practitioners) about as knowledgeable as Dennis Kneale talking about macro-economic issues.
I have much more respect for outfits like Pipeline which address the implementation shortfall that results from naive trading by large funds in front of sophisticated HFT by deploying equally sophisticated technology, then I do for Themis which wants to just ban technology that is closing the doors on their industry (the high commission human brokerage business that is going to the dust-bin of history - thankfully).
The notion that HFT is driving the current market rally is totally ridiculous - how can people who start flat and go home flat every day drive the market... add that to the fact that ZH had an article that the market has been flat during the trading day and has been rallying after hours when HFT doesn't even trade. I also like how he says HFT "plays in" large cap stocks, but the real problem is in small and mid cap stocks, where HFT is "not playing".
Is there a good article that explains what HFT is to the uninitiated?
This wannabe Joe has no idea what he's talking about. You're giving this guy press just because he happens to support your point of view. He owns a shitty brokerage firm that is getting left behind, and he is pissed because he can't adapt. Maybe the Dubai news didnt drive the market down because large participants think it's not a big deal.
oh quanttrader, what is it - pwned or owned? meathead. learn to type.
and tyler - which of the two or three is it in your silly little link? don't hide. just tell us.
you're a fucking slacker. this is not the tyler who posted 9mos ago.
yeah vegasbd - fantastic! i loved your bit then about how you gamed the zerohedge comment system. i almost rolled out of my chair laughing when i read that series. whatever, so far "zerohedge" has blocked one comment of mine subsequent to quanttrader at 1844. it seems this particular tyler is not so enthralled with my comments.
I don't recall the time when you were forced to read ZH, if you consider the content substandard...simply don't log in , instead of whimpering like a puppy.
whimpering in hopes my third post makes it on after my initial post at 1734 - after the other two were censored. this particular tyler needs to be fired.
I seriously doubt your accusations. Considering the positive or negative comments that have been posted .
The people complaining about content being sub par or correcting other peoples typing errors should realize most of us don't care about the typos and as for the articles some are better than others, but to say that the market can't be manipulated by HFT in combination with providing liquidity while recieving billions of interest free money with no risk( taxpayer money) shows a lack of understanding. GS has a deal with NYSE to provide liquidity to the exchange and with their computers inside the exchange have a distinct advantage of executing orders or ghost orders at the fastest speeds. GS recieves fees for providing the liquidity so whether they make anything on a trade or not they still make money from the fees. With these kind of advantages who couldn't manipulate the market while burning the shorts. Joe probably does have his own agenda but that doesn't mean everything he says is wrong. After HRS. manipulation has occurred lately and it makes sense that they can manipulate the market easier with less capital because there is a lot less volume on top of that QE 1 is coming to a close. Some of the petty complaints make me realize that the articles are not subpar, but that maybe there are more subpar bloggers than before.
Those Themis guys never said they have all the answers; they just knew something smelled rotten in Denmark, and thanks to them, others have started peeling back layers and quantifying the damage. Kudos to them who spoke out knowing that the first whale out of the water gets the harpoon...
Let's see ...
Flash
Actionable IOI's
Dark pool silliness
Leverage
Naked access
Seems they shots are pretty close.
The venom in these comments on this posting say much more about how right those guys are, rather than convince me that they are wrong.