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On Dark Pools, Price Discovery, and a Level Playing Field
I heard an incredible thing yesterday. Apparently, mutual funds are being stolen from by algorithmic traders.
Late in the day "The Narrator," one of our dedicated public relations gurus, spoke for almost an hour with a reporter who called in to talk about high frequency trading, dark pools and topics of similar ilk. I talked with The Narrator for a couple of hours after the encounter. I paraphrase: What, the reporter asked, do we make of the argument that "predatory algos" (a brand of algorithmic trading) cost large mutual funds billions a year by sniffing out "iceberging" (the practice of breaking up of large orders into smaller blocks to avoid swinging the price significantly in response to a large block of demand or supply)? What did we make of the TABB Group's estimate that $20+ billion in profits stem from certain algorithmic trading strategies. Are algorithms evil?
In a word: no.
In more detail: the very orientation of the discussion has been shrewdly manipulated by large market players to demonize algorithmic trading. The current discourse on the subject is entirely backwards and while many aspects of what I will broadly call "High Frequency Trading" are disturbing, algorithmic trading, in general, strikes me as fairness-neutral.
Consider the haunting plea of "Mr. Mutual," a poor, starving mutual fund trying desperately to scrape by with assets under management of $10 billion:
I need iceberging. I often need to purchase large blocks of stock and the mere whiff of my interest will send the price up costing me hundreds of thousands of dollars. These predatory algos are killing me by pumping up (pulling down) the price I pay (get) for stock and eating into my profits.
Sounds sympathetic, yes?
It's a lie.
What our mutual fund friend has managed to do with the rhetoric ("predatory algos" for instance) in this woeful tale is hide the fact that what is really going on when he icebergs is that he is enjoying the windfall that results from a myopic market. Unless you believe price discovery an unimportant function of markets, it is easy to see that Mr. Mutual is getting artificially low execution on his stock purchases when he icebergs successfully. True demand (his large order) is hidden from the market by his trading tactics. That's fine. He's entitled to be as coy as he can. That's a given. That's America. But it is quite a leap to say he is entitled to successful coyness. That, however, is the essence of his current claim. By calling the higher price he pays when he fails to conceal his massive hunger for AIG shares "cost" he turns the discussion on its head. (Note, however, that he went ahead and bought the shares at the higher price anyhow- it's not like his demand wasn't real, and price-insensitve... extending up as his volume pressed price northward).
The reality is that the market has gotten sophisticated enough to deploy icebreakers. It is not a simple matter to hide demand from the market any longer. If you were depending on tiny fractions of share price you scraped out with iceberging to make your living, you have been outgunned and its time to move on to another profession- preferably without insulting the rest of us by complaining to your congressmanofleisure that you are being "stolen from." This is what markets are supposed to do: Provide efficient price discovery and execution. The fact that the success or failure of iceberging is typically measured against the issue's VWAP (Volume Weighted Average Price) is a clue that efficient price discovery is the bane of the practice.
When you view the issue in this light, dark pools start to look a little less benign too. Their purpose is, after all, to fool the market and frustrate true price discovery by hiding real demand and supply. That's fine, to a point: Until these pools grow to a substantial portion of market volume. We are way past that threshold. Time to level the playing field and return transparency to the market.
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You spin all night, talk to reporters, pr people and whatever, run the servers, moderate comments and still somehow manage on saturday morning to write brilliant stuff that makes me rethink an issue I was sure I understood after 15 years in the markets. Who the fuck are you, Marla Singer?
i like to picture Marla as 12 blond 6 foot tall d-cups Swedish chicks with 12 Ph.Ds in all sort of fields; and who run ZH servers in their VS lingerie while patting each other on the ass for doing a great job; i mean thats just what i think.
Nice visual, thanks CB!
CB you are wanted man over at the NC blog. It seems you ruffled some feathers. Good on you.
thanks taraxias; i could go to NC and read all the shit they wrote in response to my post; but my head started to hurt the last time i went there ( because of all stupidity of 90% of the commentators )
hey man, i almost got married to a Swedish chick, they will for ever be my favorite women. God ( or whatever ) bless them.
Your comments at NC were printed, my responses to you have been blocked here at ZH.
Maybe the mod will allow this post?
Where were your responses?
if this is directed towards me ( and i think it is ) should i consider the following sentence as a threat " Your comments at NC were printed ". So; they where printed and i have 2 questions; a) is it because you are unable to memorize things or b) as a threat. If it was because the reasons i mentioned under a), then its ok; i get it; BUT if its for the reasons i mentioned under b); i have only one thing to say; you are picking on the wrong guy; im in no mood to receive threats and my comments were not insulting anyone; no ugly words have been said; i have only expressed an opinion based on FACTS. So take your fucking childish behaviour someplace else.
Oh; i forgot; or will you ask Google, or my Internet provider to give you my real name because you do not understand that hermeticism is not a curse; but a branch of philosophy; or will you try to picture me as a misogynist because i called Yves a " cruel bitch "; i called Marla a " a "magnificent bitch" couple of weeks ago; you should really learn the definition of metaphor. And one last thing; if you want to talk moderation of comments; ask Yves something about that; she ought to know; she censors 9 out of 10 comments i try to post; and all of them are extremely balanced and supported whit facts. And log on you pussy, or at least sign yourself with your NC username. I hate fighting ghosts.
EDIT: and why would you respond to me on ZH when my comments were posted on NC. Do it there.
just curious, long shot, mmm?
anyway, i got so bitch slapped by yves, after my post on NC, in regards to questioning her being stranded and sequestered for 15 hrs a day attending a
g. S O R O s fuck tank meeting of minds. the volcanic ash disruption and all, in U.K. they had to chill for a few days and look around and try to enjoy life, i thought.
she told me, i was ann coulter and should go interview with FOX news.
fuck you, cruel bitch.
ya got a rhythm.
Wow a mutual masterbation site.
Here's a paragraph about Marla from a recent post in the forums by a lurker I would usually never quote, due to his generally questionable character, but in this instance, he is spot-on correct in every detail:
"Marla, on the other hand is, counter-intuitively, quite real. A true image is here; evidently Ingres’ report that he had pierced the veil of the future in a prescient hashish dream was quite correct. As a passing note, it is worth mentioning that we can now understand the origin of his cryptic notes about "confidence interval" and "Ha/H0 tests" that defied analysis by art historians for so many decades."
Sorry CB, not a blond, after all. Ubu
That's absurd, I guarantee that at least one of them is NOT a blond.
I was a concierge in the Back Bay and two Norwegian sisters lived in the building.
Oh my, oh my.
Hi Guys, sorry to disaapoint you: Marla is a man.
is that what we commonly call 'ad hominen'
i smell the stench of chavinistic shit,
'she' is but a woman, with tits for milking,
probably SHE was inadvertently 'educated with 12 PhD's' probably a waste? affirmative action perhaps? -
'what you THINK' or even 'think Cheeky'
your cover, your shield is that of the Comedian sophisticated
and all sort of themed like => 'just joking irony, can't you get it? i mean...shes a genius, and there aren't statistically very many of those in the female version of the human .....i mean everyone KNOWS that 'really' nothing of true male value can come from the brain of a made-for-male-sextoy - is this the Basic Paradigm here? Huh? you irrelevant obsolescence! FOOL is that the malicious 'critique' you therefore are less than zero
ALL THIS IS THE SUBTEXT OF WHAT YOU ARE SAYING, you Cheeky Bastard - speak you to the issue, stop telling dirty jokes to your fellow FOOL asshole buddies, buddy!
I picture Marla as the Borg Queen, ruler of the Collective, she who can control an entire species of cybernetic organisms, give ultimate pleasure, and yes, resistance IS futile.
awwww, jeri ryan. Nicccccce.
Again! Still! you exemplify those who want to know WHO is speaking,
substitution for incomprending Duh regards WHAT is said!
you sire 'of 15 years in the market' learned nothing! you will lose, probably have lost
OR do you 'mean' 15 years in the market 'fee selling' suckers as a 'broker' - YOU sire are 'obsolete' time to know when you should retire, take up gardening with your ill-gains perhaps
+5..Well done...Mutual funds are for suckers! I should know, I lost 38% of 401K. The hidden fees alone will drain your profits and then add the feeder fee's and management fee's from account. Its a loser bet.
Well done, excellent article Marla... I hadn't heard of icebergs and icebreakers... The only question to me at the moment is regarding the dark pools? What sort of information is publicly available? I have heard of Baikal and Turqoise... below is a list of other dark pools.... but what can we infer from the publicly available information?
http://en.wikipedia.org/wiki/Dark_pools_of_liquidity
Titanic nearing Iceberg!!
'Publically available' - that is your meta-communication, that ALL information MUST be public, and i assume, too free of charge, and free to republish, without payment of that information -
as if ALL information was like the GPO publications status, 'free to republish'
it is clear that YOU are NOT a naive member of the Public yourself, no way, so the 'pretense' you take here, of a near outraged member of the Public proletariat is absurd, further ludicrous,
further more - "deceiving, manipulating, bullshit"
WHO ARE YOU is the question WHOSE interest do you, naive-you seeking information you already know well, like a courtroom lawyer in action
WHO ARE YOU! who do you really work for
who are your 'handlers' ?
Please send me whatever drugs you are on they sound like fun .
Oh he's cocktailing drugs. It can't be just one.
thats the best way.
Market depth or liquidity is not real, that's the problem,
http://www.youtube.com/watch?v=V4cRYI2x60Q
E=mc²
lol love it +10 ZPF
Close, but E=mc2 comes from Special not General Relativity.
On the other hand, special only works or applies when no masses are presentç, as soon as you have masses you have general.
Where is Einstein when you need him?
What about the other Einstein equation?
Bad haircut + No conditioner = The Frizzies
Captchas are getting a bit over the top, aren't they?
well, seems so, that you have here the initialization formula, the secret of being itself, the 12-14 dimensional string theory, early version -
whats your point? speak don't wink wink and dont congrat yourself as a 'wise man on the hill Budda, Krishna, Jesus'
you have said HERE exactly nothing
SPEAK, tell your tale
All's fair in love and war and trading is war. If someone wants to incorporate bitching
and whinning into their trading that's fine by me.... They fucked me again, they're
manipulating the market, they ran my stops.... Awwwwww.....
Here's a little piece of news for you..... We are they.....!
Ciao,
Econolicious
If you sell x stock. I'll break your legs. Wanna slippery slope with me.
right as rain, but careful, lets not be Darwinian strickly 'red in tooth and claw',
remember also, cooperative behaviour is ALSO part of Natural History -
We ARE THEY, so true so true, so love thy fellow man, love thyself,
when you have accumulated $100,000,000 in liquidity -
spend it, build factories, buy expensive things, too ( luxury goods are 'goods too') and do NOT take yourself to be Master of the Universe,
you who are rich in Earthly Goods, be humble, be kind, be human, lest you lose your soul in the process
remember, too, that you are but human, and will die, soon enough in body -
add something to the sum total of culture and life for the future generations to come, let your spirit carry on, forever
step lightly on the Earth Mother, for you are her progency, and she your mother, honor thy Father and thy mother! for in http://search.yahoo.com/search?p=satan+lucifer&fr=yfp-t-501-s&toggle=1&c...
in your mere individual EGO-death is the greater expanse
of Krishna, God, and a non-place of no-dimensionality at all, not 4, nor 3, 2, nor even a 'point' of ONE dimension, but ZERO dimensionality
of infinity, of the central non-center, timeless 'black hole' attractor of galaxies, holder perceiver, conceiver, and reifier of all Reality, inclusive of that Social Construction of Reality of the moment, the current Paradign, the latest craze
Against the ZEROth dimension, one does not hedge, here on earth, one does not abuse oneself, who is God-participant,
do not be-little ones fellow beings, they are existentially as real as you, yet as unreal, spiritual, 'ideas' souls, as you, too, respect thy fellow, for tommorrow, next incarnation you ARE he, and he you
Blah blah blah blah. For me to expand somebody else has to contract. For me to be great somebody else has to be small or humble or subserviant. Kiss my actual size loving ass.
"This is what markets are supposed to do: Provide efficient price discovery and execution. The fact that the success or failure of iceberging is typically measured against the issue's VWAP (Volume Weighted Average Price) is a clue that efficient price discovery is the bane of the practice."
(I think) we agree; I consider many of the big players' efforts to enhance profits little more than efforts to thwart the market by thwarting price discovery. If this is true, then markets might actually BE efficient, and the efficiencies are actually a problem for large traders who seek to hide their trades in aptly-named "dark pools".
"When you view the issue in this light, dark pools start to look a little less benign too. Their purpose is, after all, to fool the market and frustrate true price discovery by hiding real demand and supply. That's fine, to a point:"
When large players thwart price discovery, what we need is for the financial media to tell us. If you told the typical 401(k) investor that stocks were being traded in dark pools with the objective being that prices didn't affect exchange prices, he'd understand it right away, trust me; everyone knows what cheating is. We can call these dark pools "innovation", "capitalism", etc, but the public is NOT getting the information it needs to deal with this "innovation", and the fact that they're not getting it is no accident. If we revealed the connections between the large houses doing this "innovation" and the media doing the "reporting", J6P is perfectly capable of seeing that he's being assfucked and reacting appropriately.
My point is that, again, we need truth and transparency. Anything named a "dark pool" is the antithesis of transparency, by definition.
Absent this, le deluge.
Of course the SEC...
S ecure
E mployee
C ompensation
could care less....and will enforce nothing....
The SEC will allow nothing to block the
govt./corp. revolving jobs doorway....that has been
in development for years.....ie the police
policing the police....
It will not be until the SEC is replaced that the
idea of a fair "trading highway" can come to the fore....
Otherwise just expect more of the same....
ie Arthur Levitt...
Paid by Bloomberg
Paid by Goldman Sachs
Paid by the SEC
And this is just one of them....
There are hundreds of "attached" SEC employees with
large roladexes...
Much like the GS/politicos....
The SEC is a major part of the problem....
..............................................
The electronic exchange is just an electronic time stamp on label changing numbers of shares.....and must be first come first served....
The larger pools must reduce their size commensuarate with the actual shares demand/supply marketplace.....not try to hold up the marketplace or fix the marketplace to hit THEIR targets....Thus size matters .....as we have found out in commodities as well....
The markets have come a long way....and have a lot further to go in terms of defragmentation and becoming more universal....
And a lot further to go in terms of "fairness"....
I'll put myself up against any computer in the world, any day, because....
"Once a pattern is established, it will change..." That's rule #1.
Best regards,
Econolicious
Dito. Any experienced gamer knows how to cheat and beat the system.
I've created a trading account for my 15 y/o who spends more time now trading than playing WOW. His choice was working $8/hr jobs or making $300 day trading profits while staying home and updating his facebook profile.
This is the new economy and new reality.
Yes, I believe Cramer confirmed this on air a couple of years ago. And if he can do it...
trading is a game that is only justified by how it is useful socially. Companies extracting large rents (20 billion dollars ?!) to perform a price discovery service is clearly a useless friction for the economy.
A daily fixing by double auction would perform the price discovery function just as well.
Same thing for IPO's. A Dutch auction would also do fine.
And a talented spinmeister can easily make front running via flash orders look to be an efficiency mechanism for 'price balancing' - create your own definition for that new term.
Nobody has a problem with fast switches.
Nobody has a problem with prices rising on big buys or falling on big sales.
There are big problems when you combine front running, by any name you chose, with high volumes and a multitude small orders that can rocket prices up or down in minutes. Especially if you own the computers that 'know' one big order is being broken into a multitude of smaller ones and you can, within milliseconds, profitably take the other side and buy low/sell high or vice versa.
Pity the poor spinmeister who can make dirt look clean or theft look like a liquidity service.
Interesting point in this piece. OTOH, I wouldn't mind "winning" the war for the "wrong" reason.
An argument such as the Mutual Fund makes might be simple enough that politicians can understand & stand behind it. If so, we would seem to have a better chance of achieving the desired end result of a level playing field for all investors.
Eliminating HFT front-running and dark pools designed to hide information from average investors is a "good" thing, even if implemented for other than exactly the "right" reason.
Thanks for the analysis Marla, especially the explainations of "iceberging, etc". An aside, yesterday I looked in on the stock market summary page of MSN to see the volume report at the 10 AM ramp and observed a large advancing volume figure, a very small declining volume figure and a 365 million share unchanged volume. For the rest of the day that total only increased by roughly 4 million more shares. I thought it was a misprint but I occurred to me it might have been HFT action to support the ramp. Am I hot or cold?
marla, ZH continues to shock me. first ZH complains about HFT guys getting an edge up on everyone by being faster and more technologically advanced, and then when dark pools attempt to level the playing field by disguising demand, you say that's "inefficient" and that we need to "level the playing field" !?!?!?
you can't have it both ways: if you want to argue that prices be determined by supply and demand and by everyone's net perception of supply and demand, then you have to call off the war on HFT - they are the essence of that. I'd be surprised if anyone argued that the market needs all participants to show their full supply and demand at all times to be efficient - that would only work in Utopia. If you want to argue that prices be determined by the actual value of the stock (rather than by other market players trying to profit based on their perception of YOUR supply and demand), then you should be in favor of dark pools. It's very difficult to be logically consistent and rage against both HFT and dark pools.
I don't think I've been clear enough then.
We have no problem, in general, with algorithmic trading. We have a problem with any given market participant, by whatever means, dominating a substantial fraction of volume.
Go crazy iceberging.
Go crazy icebreaking.
Don't start trying to hide supply and demand to the tune of 50%+ of daily volume and expect us to smile though.
fair enough. i have a real problem though, with your concept of "hiding" supply and demand... as i commented on Tyler's post regarding Moody's thoughts on HFT - I think the ideal market would be one central market where everything was dark - we'd either see just a "last" price, or an inside market with no size - price only. The question a portfolio manager should be asking himself is "do i want to execute at this price?" not "how can i best execute my order at this price?"
i think you're off base when you suggest that because dark pools enable executors to disguise their supply or demand that this somehow makes the market less efficient. On the contrary - many of your readers seem to have voiced a view that stock prices have gotten away from fundamentals, since high speed computers are "front running" the supply and demand of everyone else - the "darker" the marketplace is, the MORE stock prices reflect true valuation, as opposed to the expectation of what other market participants want to buy or sell. Said differently, if all order books were open, you'd see domination by HFT guys who could best evaluate supply and demand. If all order books were closed (dark), this "predatory" trading would be rendered moot - each trader would just have to decide if at a current time a stock was over or underpriced
I'm not clear how you are decoupling the connection between fundamentals and price and the role of ACTUAL (rather than visible) supply and demand.
i'm saying that markets reacting to visible supply and demand (like HFT colocated guys) seem to be what everyone is up in arms about. Dark pools prevent this.
Dark pools do not alter actual supply and demand. You don't need visible supply and demand to have legitimate or efficient markets. you just need ACTUAL supply and demand (which is presumably a direct reflection of fundamentals and price). thanks for bringing up the point of actual vs. visual - it's a very important one that I didn't properly elucidate
Kid,
Enjoy your insights. I would rewrite your second paragraph this way, and then perhaps tweak it a little.
"I think you're off base when you suggest that because dark pools enable executors to disguise their supply or demand that this somehow makes the market less efficient. If all order books were open, you'd see domination by HFT guys who could best evaluate supply and demand. If all order books were closed (dark), this "predatory" trading would be rendered moot - each trader would just have to decide if at a current time a stock was over or underpriced."
1000% Correct....
First create a nongameable securities highway....
Then it is first come , first served by time stamp....
No internal pools....
No black pools....
One highway.....total defragmentation....
No creating "private" products from what is a "public" product....
Then let everybody try to kill each other....
Now THAT's proper price discovery....
SS's are tagged first come first served determined by supply only....when there is no more, there is no more....
And the freight should be no more than 20 cents per 100....no matter what the category....Why ?....because the technology is more like a utility....
I like your comments, nice insight.
I would also like the ownership of shares and derivative (calls/puts) positions to be made transparent/available on a daily close by parent company. This would outline who is buying and selling and could be compared to market guidance (i.e. pump & dump schemes), and show who is buying - government, foreign governments, hedge funds, pension/401K managers, individual investors.
Algorithms aren't evil, but they ARE constructivist math. So the accurate thing to say about them is that they lack logical content.
Start to unpack this monster by understanding the history of set theory. Read a GREAT classic, Alejandro Garciadiego, BERTRAND RUSSELL AND THE ORIGINS OF THE SET-THEORETIC 'PARADOXES.'
Bogus "math" will kill us all.
well- the problem to me is that the small fry (like me) gets screwed by the titans and by a computer no less, in a milisecond! got to be the fastest fu&k in history!
why not force all the computers to go thur the SEC- albiet corrupt- entity and at least then - MAYBE the Trades will be executed fairly and squrely for all. The FREE market is such a lie....
Can anyone help me make this my pic to go with my name? http://www.flickr.com/photos/greypoint/2058951667/
I love this shot - reminds me of my little boy I had to put down a couple of years ago... cancer.
not that ZH is in need of defense - this was just posted as a comment over at NakedCapitalism
http://www.nakedcapitalism.com/2009/08/who-is-tyler-durden.html
MarcoPolo said..."IMO Yves, your reputation is more jeopardized by appearing along side those at MSM than your association with ZH."
I note with interest that you are a reader of Roubini's RGE. A question Marco Polo: Do you think Roubini's reputation is tainted by his less than arms length association with Larry Summers? (who up until last December was on Roubini's payroll and a part owner of RGEmonitior)
For me when I learned of that - I all but stopped reading Roubini. So I guess you are correct - but in the end Roubini likley commands top dollar on the economic speaking circuit and is a regular on CNBC - e.g. there is money to be made on the dark side even if your credibility is tainted. Zerohedge has taken on the establishment and in short order developed a large following - the fact that Zerohedge may have a checkered past is nothing compared to sleeping with the enemy as Nouriel continues to do. But if you want to be part of the establishment you need to choose your associations carefully. Zerohedge is anti-establishment and therefore a dangerous association to have if you make your $$ on the conference circuit.
Executive Branch Personnel Public Financial Disclosure - Larry Summers (see page 3 on this PDF)
A scant 18 months ago I considered the phrase "controlled opposition" to be raging tinfoil. No longer.
Thanks Marla, great article, again! Really like 44694's comment. Regarding the anxt over zh @ nc,"don't mess with my Tyler!" How many msm article's don't reveal their source "because, person not authorized" to speak? There's a leak department at the white house, source's never disclosed, "deep throat", and nobody ever doubts the accuracy, or even asks who said that? Tyler is really hitting some nerves. America, so needs a champion. Tyler, any predictions on how this is going to work out? The sovereignty thing, freedom,or really how screwed are us j6p's, I deperately need SS to continue with some value to the dollar.Tyler Durden for President, that would be so much better than having to see their lying faces every time you turn on the tv! Frank
http://www.youtube.com/watch?v=pcUMFvR-QS0
This article is nonsense. Basically it can be summarized as "Tapeworms are a good thing."
Sorry, Marla, tray again. Adding colocated middlemen who hold stock for 15 milliseconds does not add value to the economic system.
Maybe you'd like to elaborate on your comments with some specifics?
but, tapeworms ARE a good thing, at that the species level, you all EGO consumed FOOL you think merely that this momentary flash of light you have been given, personally is ALL, and that you are all, you are in but a dream, grow up child, grow out of you belief,even, that you exist, YOU don't, you are just another piece of more or less DNA hardware implementation, a 'motherboard' male/female (this m/f thing is big - goes right down back 2 billion years, not a matter of wearing drag, but HARD coded) for THE PROGRAM, and that Program, "operating system" itself is just another Standard Issue, O/S 2009 acculturalization, doled out on a linguistic/socio-cultural basis - you 'think, therefore, you exist' -
get over it, you are a mere wind-up toy,
UNLESS you have grown up, evolved spiritually, have got beyond EGO, beyond the Archetypes, beyond your-self, transcendent and ready....
'listen' 'listen' 'listen'
do NOT deny when you see, hear, things 'you do not like'
Acknowledge that 'other people' really DO exist, and do NOT crucify them on the Cross,
do NOT be one of that jeering crowd of know-nothings, who know not what they do, but yet SHALL BE HELD TO ACCOUNT
You are new here, and clearly part of the establishment (perhaps a Goldman employee) looking to discredit this blog.
Your attempt to make the posts on this blog look "crazy" only succeed in making the poster of this comment crazy.
Marla - highly suggest you moderate this individuals comments, he's stinking up the place.
It’s not price discovery, more like stop-out “uncovering”. Lately, I have found that the any small attempt at “price discovery” takes place during the first twenty-five minutes of the trading day, when the robots are testing everyone’s stops. (btw, they are training the humans to use looser and looser stops). One must be quick to take advantage (and gutsy). The rest of the day it is a game of keep away from the retail day-traders (human-cookies that convert easily to robot fuel).
During AH's traffic the “price discovery” suddenly spikes and then back in place, as though nothing ever happened (like a thief in the night).
Great strategy.
Fcuk the robots. Human ingenuity, resilience and motivation wins all the time.
Screw the fcukers who rely on robots for their profits.
We might have to work together and combine the resources to fcuk the Borgs.
Ok, good, you've got, the knowledge,
What, really are you gonna do about it? throw a five year old's tantrum and then cry about 'unfair'
THIS is what you are up against, KNOW THAT!
Take up automechanics, the stock market is not for you to be 'trading',
you WILL of course lose, and you, in Denial, seem hard driven to do that losing, you therefore 'have it coming' sucker
keep playing THIS GAME to prove you are 'right' when you really are wrong, and you are MY next trade,
me winning perhaps ALL your sheer luck GAINS this year, riding high 40% in these last 6 months, having no grasp, whatsoever of what, how, this happened, and yes 'happened' as in the passive mode verb
Check patient for increase of dopamine activity in the mesolimbic system.
Mutual funds trade way too much anyway. How many mutual funds beat the Vanguard funds? By overtrading, Mr. Mutual Fund Manager is just generating commissions for market makers, and all those commissions come right out of the pockets of his clients.
icebreakers + computers,
reminds me of The Sprawl trilogy
"Sprawl trilogy" said with a knowing wink wink - AND so, just WHAT do you really 'mean' pray tell me, are you able to speak in more than near mono-syllabic sentences, perhaps paragraphs - that is called communication with 'content',
not the knowing 'wink' of the conspirator - what is it that you and your presumed fully understanding peer group have to SAY? Secret?,
or is THIS a mere Heil Hitler salute to empty slogans, incipient dangerous undercurrents of the masses -
tell us, all,
don't just tease, please!
that you have something BIG to sell, an idea, that 'No one is to know about'
reminds me of the South Pacific Scheme Days of old - so, what are you selling here, idea-wise
consider it a tangential salute to the prescience of certain writers of fiction. No hyperboles or conspiracy here, sorry if I disappoint.
This reminds me of the time I started trading. I was recording mt purchases to the pennies,only to wake up two weks later down 25%. Considering that I thought what I bought was aready the bottom of the market,it was quite a shock to me. I think it is futile to argue about few cents here and there(with complete appreciation still to presenting all kind of market manipulation),when actually the main issue is that retirees saw in less than a decade,the biggest transfer of their wealth to others. And we are talking of trillions here. To add insult to injury,they are given some of their money back,with biggest tax supported market ramp up.
No. The point of markets is not efficient price discovery. First of all, Finance has hijacked the word "efficient" in order to legitimize itself. Efficient in this context only means reflecting all relevant information, including what the morons on CNBC think. Efficient does not mean what the rest of society uses the term for, which is to say "doing more with less", or maximizing the ratio of output to overhead. In this sense, this (HFT) and all other areas of Finance are bloated and inefficient, orders of magnitude beyond the point of morbid obesity.
Price discovery is also a bogus myth designed to support the illusion that fast money is providing a service. You people are not scientists. You're not making a high-precision MEASUREMENT of a physical quantity. There is no true price to be discovered. The price is a dynamic, changing quantity, and if HFT is helping better "measure" it, then they are affecting it at the same time. In real sciences, we call this a bad measurement. Even quant guru Paul Wilmott concedes on this point.
http://www.nytimes.com/2009/07/29/opinion/29wilmott.html?_r=1&ref=opinion
As far as execution, algos are not improving execution. Neither the buyer, nor seller is made better off by the adjustment algos affect in the market price, within fractions of a second. The algo is merely benefitting itself from a small arbitrage opportunity. I'm not necessarily saying that should be illegal, but don't try to tell us that it makes the market work better for anyone else.
Markets exist to provide a liquid exchange of assets, not to provide price discovery. Optimal liquidity may require the existence of external players balancing the organic supply of buyers and sellers. But, millisecond HFT is in no way a fundamental part of that, when the other buyers and sellers need only obtain execution within seconds, or minutes.
You either have small arb opportunities, or large ones. I'm quite happy to have small ones, with arbitrage situations squeezed out so that it takes massive CapEx investment and high rents next to the exchange to profit at all from it. I'm less comfortable when only a few firms are dominating most volume that way.
As to what a "true price" is, you've erected a straw man not of my making. It's not germaine to the discussion in any event, which is, instead, about the role of visible demand and supply in what you term "a liquid exchange of assets."
I'm pretty sure that while you try to duck it, price discovery (and efficient price discovery) are an essential part of that process- liquid exchange. Care to argue here?
Assuming that is so, you make my point for me, and then you just introduce "millisecond HFT" with the unsupported statement that this is not a fundamental part of "a liquid exchange of assets." I think this poor reasoning. Here's why:
You have to incentivze players to provide liquidity. Fine. Used to be by letting specialists hack odd-eighths and just nodding and winking. Today, it is a bit narrower. Your objection to millisecond HFT breaks down when one realizes the connection that exists between providing that kind of fluid liquidity and "a liquid exchange of assets." The only solution you seem to offer is some artificial latency limit. Milisecond HFT offensive? What about Multisecond HFT? Dozensecond HFT? When is it kosher? Where's the arbitrary bar and who decides? I'm content to let the market decide that. Let it get so efficient (that is lacking in arbitrage opportunity- if you must have a non-hijacked definition) that it takes that kind of low latency to compete. Just keep volume from being dominated by a handful of players- that's what I'm looking for. And don't use "dark pools" as a disguise to cheat price discovery and execute large orders at small order prices, whining all the while if you get caught at it.
I'm tempted at this point to point out that arbitrary HFT latency limits, if they aren't based on volume domination, can only be about some issue the critic has with the particular players of today. Let's grow beyond this and admit that the latency arms race is just fine when monopoly is not an issue. Either that or go back to the chalkboard or trading under the tree and see what kind of spreads you get- your argument is exactly this, the distinction is merely a matter of degree. And I think that's weak.
Marla,
I find your comments here refreshing, yet seemingly at odds with past zero hedge posts. ZH has done a very good job of whipping its readers into a frenzy over just about every aspect of electronic trading. Something that has bothered me and to which I've commented on in the past. Most of your readers know very little about the space and take ZH at its word on complicated issues where they lack the understanding to really form an educated opinion.
Now it seems you're backing off of the previous sensationalist tone thats been a hallmark of ZH posts. It sounds like your issue with electronic trading is really one of a possible anti-trust situation. If that's the case, why not make that the focus of the argument?
You are treating Zero Hedge like a Political Action Committee. What in the world makes you think we speak with one voice?
I have serious issues with certain segments of HFT. I don't think anyone at Zero Hedge has issues with ALL of HFT.
So you have no interest in representing a coherent point of view, even if just from one pseudonym to the next? I have no problem with a desire for anonymity, but when you take license to change opinions whenever its convenient under the guise of "that's just a different author posting under the same pseudonym" it feels sloppy. Its an elaborate obstacle to ever having to admit you're wrong, or that you've changed your mind.
HFT has been accused of everything under the sun on ZH. Maybe no single author has a problem with every facet of the field, but when taken together (under the same one or two pseudonyms) it sure seems that way.
We are not a political action committee. We are a group of professionals presently or formerly in the field of finance. If you think you can put two of us together and get a consensus then you haven't been paying attention. Zero Hedge is not a advocacy forum. It is a discussion forum. Thinking there is some common Zero Hedge position on anything from arbitrage to abortion is to misunderstand Zero Hedge.
Read.
Learn.
Discuss.
In the end we are all Zero.
Do you really mean to use the word "we" to mean Zero Hedge? Or you don't like to use the pronoun "I"?
So you guys are not really advocating for the passing of the HR 1207 that you have discussed in so many occasions? That's just one example. Link: http://www.zerohedge.com/article/time-make-federal-reserve-accountable-i...
Right now I'm not even sure that whoever is writing these comments as "Marla Singer" is really the same "Marla Singer" who wrote the original post.
It's apparent that ZH has been advocating certain things already, even if you are not a PAC yet. And who says you have to be a PAC to advocate something? If you don't want to do advocacy, then adopt an editorial policy that makes it clear what ZH believes vis a vis what the individuals in the ZH cadre actually think. Start by not using the word "we" when it just leads to more confusion. The rest you can figure out.
ZH has been arguing exactly the opposite of this post. I made comments to TD posts earlier this summer saying, basically what Marla says here. I think they might have had someone explain to them that they had no idea what they were talking about and they also might have realized how irresponsible they were being.
I like Marla's new sober tone but it sounds like it has been coached. ZH has posted too much ignorant noise to get any credibility this late.
This is what someone speaking for Zero Hedge said back in July:
"This argument goes to the real heart of the problem with HFT - the monopolization of liquidity provisioning, and the complicit nature of both exchanges and specific broker/dealers who are willing to usurp this "liquidity=volume" fallacy in exchange for perpetuating the $20+ billion revenue stream spread among a minute number of market participants. As such, Zero Hedge increasingly believes that what Goldman does on the NYSE (for example) is not so much an SEC issue (ignore the fact that the SEC is about 10 years behind the curve on this topic) but is in actuality an anti-trust concern."
So is that the voice of Zero Hedge?
Link: http://www.zerohedge.com/article/paul-wilmott-high-frequency-trading-may...
The phrase "Zero Hedge Believes" or "We at Zero Hedge feel" can only ever be a general consensus statement. The Zero Hedge cadres communicate daily, discuss, evaluate and argue over these issues. We aren't a political party. We are a discussion collective.
Brilliant, of course, hence rejected - the technology, Information Technology, in all its forms HAS been here from since when IBM popularized 'computing' as a normal continuation of business, not just 'by other means' (as in the term, War = policy implementation 'by other means'), but the STANDARD METHOD,
so lets not be Luddites hidding our head in the sand on the one hand, and/or threatening to 'do something to stop this creeping invasion of privacy, and/or 'unfair advantage' -
lets DO understand 'what we are 'up against', as if listening to the Doctor pronounce the word 'cancer' one can deny, one can accept costly, worthless treatment (by THAT time it is usually terminal since Unconscious Denial had delayed that visit to the doctor, too long - typical presenting symptoms having been there for quite some time..), or one can 'accept' death as a normal part of life, -
this is also called 'obsolescence', and the reason why life is doled out in finite dimensionality, excepting if you are a virus, then and only then is Life Eternal possible.
this is TOO why 'artificial persona' called Corporations MUST NOT be put on artificial life support, using extra-ordinary measures to keep alive.
Many Corporations should be 'junked-out' entirely Chapter 7 liquidated, all management DENIED any and all compensation, and the physical plant sold off, piece wise to surplus stores, or just plain trashed out, compressed into blocks for rending, as old automobiles are treated, or Ocean Going ships to the de-construction yards of India, for final melt down, and rendering
Excuse me, but is there any point in time or percentage that theives stacking the deck (total trading volume) doesn't bother you or is their method's eventual obsolescence your only way rationalize have the nation's collective pocket being pick again and again?
In any event, sleep well.
"method's eventual obsolescence" well, true, and false,
information TECHNOLOGY is here, will continue, and so will the concept of 'privately brokered information for pay'
NOW, however, in the case of those Particular Big Time mis-appliers of IT, where REALITY is created 'momentarily incarnated, by the SAME company, that is to profit by the ultimate 'inside knowledge' THEIR OWN CREATION, -
well THAT is pure robbery, and will, in the natural course of outrage, law/rule making/regulation,
indeed such criminal practice SHALL stop, i hope before Christmas 2009 - yes Goldman Sachs in their application of technology as Weapons of Warfare Against the People - that SHALL STOP -it works against de-risking, against the orderly process of enabling the Common Good, and creates a potentially lethal dynamic instability into the markets de-risking that in normal functioning benefits all -
the lives of 6 billion people are in the balance here, the very foundations of that interdependent beneficial activities, known as Business Activities, that allow the 6 billion to have food at the table, and a moderately decent quality of life, expanding up lands wise to the very 'margins' of tribal peoples, even so, yet in the 'un-controlled areas, tribal areas' of upper Pakistan/Afghanistan
Business Technology that for the 210 years since Maltus has held off his dire, but quite correct perception of the true foundations of Political Economy - namely that life extends to the 'margin' til ALL the nutrient = all the eaters,
including, unfortunately the parasitic 'kept class' of 'useless eater' such as the essentially high school drop outs mentality of those who have run our banking system into bankrupcy (which they 'really' are, but 'really are, also, Too Big to Fail, not yet, not NOW)
those 'bankers' 'financial types' who STILL TO THIS DAY are in total DENIAL who just days, weeks before all hell broke out, 1 year ago, near exactly...'useless eaters'
but the 'Peacetime' applications SHALL continue, KNOW THAT!
this kind of reminds me of marshall mcluhan's tetrad concerning media
It's not that we don't love you, but you are really spewing a lot of off-topic stuff. Can I ask you to moderate it please, or stay on topic? Either that or we have to do that for you. We hate that.
If you haven't noticed, we have been joined by many establishment trolls trying to discredit the blog. This is clearly one of them - in the future, a Dennis Kneale or some other max headroom highlights the crazy posts to discredit the blog.
Just when you start making a little sense you jump the rails and start sounding like Prof. Irwin Corey on 'shrooms.
Just My Opinion
xoxo
How do you block users. I don't have time for this magnitude of crazy.
The OTC market in options for both futures and stocks has always had more volume than the exchange markets just so that the trade houses can hide what they are doing and they don't have the same margin and size restrictions that the exchanges would force them to have. Is this market finally going to have some transparency as well.
Just a suggestion of maybe something else ZH could look into. Keep up the great work Marla, Tyler, and the rest of the ZHers.
A newb question for the group about Mutual Funds since this article is discussing them. If a MF has a core holding in a companies stock and they are adding to it. Don’t they want to over pay and walk up the price of said stock given that the larger holding will benefit from the new price discovery. The idea that they don’t want the market to price up the stock unless its literally a new holding seems backwards to what is beneficial to them. If I am misunderstanding I apologize in advance.
Sorry Miss M not you and it's dropped.
A newb question for the group about Mutual Funds since this article is discussing them. If a MF has a core holding in a companies stock and they are adding to it. Don’t they want to over pay and walk up the price of said stock given that the larger holding will benefit from the new price discovery. The idea that they don’t want the market to price up the stock unless its literally a new holding seems backwards to what is beneficial to them. If I am misunderstanding I apologize in advance.
I do not feel any rational problem with dark pools and innovation in the free market. If when, or how it spews public money through it I do. We are reminded that topical point of reference that reality spins to camps of thought apolitical. My view includes all banks should be held in downright suspicion or contempt always if I remember Uncle Ludwig correctly since when it your money it is your duty also. I feel you convey the accurate context of the - this berg matter - but on my part a taxpayer we paid for it anyway way back when on the legacy networks. I think it would suffice to say on my part it is not pandora's box but since it is the mind eye to market - treasury - national security issues adaptation I do have a view what other central bank on the planet injects or deflates on this platform. Some of older folks that started ISP sites like me worked as gatekeepers snipping bin files we knew as are duty is silence, so life was still good and sun will come up. It is really not that different today but given the scale to platforms today data strip pumpers feeding Mr. Fund it has no avenue for complicity to omissions either. A open forum of data is a fundamental right just as debate was in Athens in the market square to query's of public trust. Make it so, and if your not in the forum you have not citizenship to query your peers on footing and not darkpools to divide Mr. Market from its own citizens. Dark pool is fee as privledge. That is A.Taxpayer divedend never received either just another mirror to deflect and detect nowadays. If the gatekeepers where of integrity the lockbox would be secure thus they are not stewards but vandals and debased in character of public "monetary" trust.
I am not saying two standards but they are. Are dark pools measured? That is a question to myself but I can assume the volume we see as ratio to the problem to transparentcy of what is posted at the end of the day. As always will try to read up on the topic. And i enjoyed the information posted
IMO
All of this sounds nice, but bottom line, the financial structure collapses before any hope of transparency.
on Sat, 08/22/2009 - 23:22
#45160
All of this sounds nice, but bottom line, the financial structure collapses before any hope of transparency
Yes we assume that also.