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Direct Edge CEO Redirects Flash Anger Back To Exchanges

Tyler Durden's picture




 

So let's get this straight: the exchanges (NYSE, NASDAQ) are blaming the Flash guys (Direct Edge, NASDAQ... yeah that last one makes much sense)... and the Flash guys are blaming collocation (Exchanges, HFT)... At least we have full circular blamage. And Schumer and the SEC are somewhere in the middle, trying to figure out this Frankenstein. Good luck.

 

 

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Mon, 08/03/2009 - 21:23 | 23551 hohack
hohack's picture

...different time horizons....  lol..

Mon, 08/03/2009 - 21:27 | 23557 57-71
57-71's picture

So with these running speeds, how does one prevent naked shorts?

Mon, 08/03/2009 - 23:03 | 23621 peterpeter
peterpeter's picture

What does speed have to do with it?

What mechanism is in place for a short sale made with a latency of 1 second to ensure that the shares were available?

Since HF strategies close out their positions quickly in general, naked shorting shouldn't be much of an issue.  If you are going to buy back the shares micro-seconds to minutes later, the purpose of your naked short was not to manipulate the share price down... since your closing transaction (when you buy back) is going to lift the price back up.

Anyway, it's not particularly hard to pre-borrow shares before the trading day so as to avoid a database lookup from slowing you down.

Mon, 08/03/2009 - 23:36 | 23662 Deferred Comp
Deferred Comp's picture

What is your answer ?  Either the stock is located and borrowable or it isn't.  The regulation is blind to the holding period .  The fact is that these strategies create so much message traffic they are near impossible to police.

Mon, 08/03/2009 - 21:39 | 23563 gammaman
gammaman's picture

"Nobody understands quantum theory." Richard Feynman

Mon, 08/03/2009 - 23:00 | 23616 Anal_yst
Anal_yst's picture

Great, and very applicable quote (esp with respect to any regulators, politicians, most media, and myself)!

Mon, 08/03/2009 - 23:09 | 23624 peterpeter
peterpeter's picture

While I am not going to defend the SEC on most fronts (Madoff, today's craziness with BofA, Mark Cuban, Martha....), I do think that the SEC does understand most of the issues that people seem to be getting all heated up about w/r/t HFT and flashes.

The SEC did a pretty good job working through a lot of really thorny issues with market micro-structure when they rolled out Reg NMS (over 1K pages), and they have been on top of looking at flash to see if they want to change the regulations.

Politicians, media and blog readers in general are not going to understand this stuff... but the SEC for all of its warts does seem to get it.  As with Reg-SHO however, my fear is that politicians and the masses led by Cramer will convince the SEC to do something that it knows to be wrong.

Tue, 08/04/2009 - 09:30 | 23852 peterpeter
peterpeter's picture

http://search.sec.gov/secgov/index.jsp#queryResultsTop

Type in "flash" in the search box.

They have not be asleep at the wheel here... they just seem to disagree with the public sentiment about this issue (and it is an odd feeling for me to align myself with the SEC).

Tyler, I'm sure you'll enjoy reading http://www.sec.gov/rules/sro/cboe/2009/34-59359.pdf

 

Mon, 08/03/2009 - 21:45 | 23569 Anonymous
Anonymous's picture

sue hererrreeerrrreeerrrerrra really gets on my nerves.

Mon, 08/03/2009 - 21:47 | 23572 Miles Kendig
Miles Kendig's picture

And this is the thinking that is leading our financial centers?  What a friggin' joke.

Mon, 08/03/2009 - 21:50 | 23573 Anonymous
Anonymous's picture

NEW YORK, Aug 3 (Reuters) - U.S. Treasury Secretary Timothy Geithner blasted top U.S. regulators in an expletive-laden tirade amid frustration over President Barack Obama's faltering plan to overhaul financial regulation, the Wall Street Journal said on Monday, citing people familiar with the meeting. Geithner told regulators that "enough is enough," the newspaper said, citing one person familiar with the meeting last Friday with Federal Reserve Chairman Ben Bernanke, Securities and Exchange Commission Chairman Mary Schapiro and Federal Deposit Insurance Corp Chairman Sheila Bair.
http://tinyurl.com/mlq8vy

Trouble in Paradise?

Mon, 08/03/2009 - 22:03 | 23581 Anonymous
Mon, 08/03/2009 - 22:32 | 23589 aldousd
aldousd's picture

Wow, nice find ! Wonder what that's all about. 

Tue, 08/04/2009 - 00:47 | 23709 Wilderman
Wilderman's picture

Sheila has to get her budget requests in soon; I doubt she wants to come back two months into the cycle (at Christmas) to request more funding.

Mon, 08/03/2009 - 21:52 | 23574 Anonymous
Anonymous's picture

Hey Tyker he said that we "had liquidity" and now they are exposing the general market to liquidiyt? Then why the fuck did we need an SLP?

Mon, 08/03/2009 - 21:58 | 23577 Anonymous
Anonymous's picture

The key is to bury the technology in mystery and confusion that is too complicated for the regulators to understand, that no one even bothers to understand what harm it can do. Only a select few will know and one find day, just like the subprime crisis, this too will implode.

Mon, 08/03/2009 - 22:38 | 23596 gammaman
gammaman's picture

"But how is one to make a scientist understand that there is something unalterably deranged about differential calculus, quantum theory, or the obscene and so inanely liturgical ordeals of the precession of the equinoxes.” Antonin Artaud

Tue, 08/04/2009 - 00:49 | 23710 Wilderman
Wilderman's picture

there is nothing deranged about the precession of the equinoxes.  Don't know about quantum theory, but diffeq isn't really deranged, it's just not as pretty as calculus.

Mon, 08/03/2009 - 22:29 | 23587 Anonymous
Anonymous's picture

He's got nothing to worry about.
If these CNBC geniuses can't figure it out, none of their viewers will either Whew!

Mon, 08/03/2009 - 22:56 | 23609 peterpeter
peterpeter's picture

Probably true.  I would guess most of the people who understand market micro-structure are watching Bloomberg.

 

Mon, 08/03/2009 - 23:12 | 23628 Anal_yst
Anal_yst's picture

I'd guess most people who understand (nay, work on/in/with) such things probably don't spend much time really watching any TV period.

Mon, 08/03/2009 - 22:39 | 23597 EconomicDisconnect
EconomicDisconnect's picture

I keep having this picture in my mind of a guy wearing a T-shirt that says:

"I trade the HFT desk at Goldman Sachs.  I'm kinda a big deal"

 

Nice.

Mon, 08/03/2009 - 23:14 | 23633 Deferred Comp
Deferred Comp's picture

When Duncan Neidemeyer joined the NYSE from Goldman there was a very famous story about his opinion of the floor in which he was quoted as saying " I don't want five guys from Brooklyn named Vinnie cutting up my orders "...   Imagine that.. a bigshot at Goldman worried about the riff raff shooting against him... So who's cutting up the orders nowadays ....?

Mon, 08/03/2009 - 23:18 | 23638 kote
kote's picture

So, I'm confused.  Is CNBC a legitimate source for ZH now?  Aren't CNBC clips only for bashing?

Mon, 08/03/2009 - 23:23 | 23645 Deferred Comp
Deferred Comp's picture

Sorry about that...Who's creating the child orders for our co-located servers where we can message in submicrosecond timeframe and create the liquidity that's worthy of the maker fees we generate using the fantastic undisplayed  dark interest of competing liquidity pools ?  We all know that the best liquidity is the liquidity that lasts at least .000000001seconds.  

Mon, 08/03/2009 - 23:46 | 23673 Anonymous
Anonymous's picture

He is speaking "obfuscation"

The new WallStreet language to confuse, hide, misdirect the uninformed.

Tue, 08/04/2009 - 08:35 | 23820 D.O.D.
D.O.D.'s picture

Which happens to be a tried and true military strategy as well, financial warfare? financial terrorism?  I think a real argument can be made for either..

Tue, 08/04/2009 - 00:38 | 23703 Milton
Milton's picture

NYSE is in Manhattan. NYSE = no flash trades.

BATS is in Kansas City. BATS = yes to flash trades.

Enter Schumer. This is a no brainer.

 

Tue, 08/04/2009 - 00:54 | 23714 Wilderman
Wilderman's picture

Now I get why my entries have been at or below BATS quotes.  I thought my broker just liked me :>

Tue, 08/04/2009 - 07:44 | 23797 Gabriel Gray
Gabriel Gray's picture

I think this guy just made the case against flash.

2 points they claim

a) "DE offers p&q improvement est 10% of the time."

This doesn't make a case for flash, an improvement 10% of the time. What about the other 90%? Could a good pottion of that be frontrunning which they keep saying is illegal yet never say it doesnt happen.

b) Flash is available on an opt in basis.

I been actively trading for almost 15 yrs and have NEVER seen an opt in form.

I can personaly attest that flashing my orders has effectively caused me to not get fills and get fills at lower prices on market sales and higher prices on market buys. This happens far to often.

 

 

Tue, 08/04/2009 - 08:14 | 23812 Anonymous
Anonymous's picture

Question: which platforms should i direct orders to so as to avoid being flashed?

Tue, 08/04/2009 - 10:09 | 23887 Veteran
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