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Joe Saluzzi Discusses HFT On Fox Business
Impressive how much more informative Joe can be when he is not caught avoiding the book pitches of assorted blonde HFT "specialists" on CNBC.
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Saluzzi discredited here: http://fridayinvegas.blogspot.com/2009/07/we-fear-what-we-dont-understan...
While I may be repeating myself, let's recap the situation:
1. On zero hedge and on seeking alpha you have seen:
-"Facts" by self-professed (anonymous) experts on the field in defense of Flash and/or HFT versus,
-"Facts" by non-anonymous field practitioners, a former Chairman of the Nasdaq, executives of ECNs, and even the NYSE in refutation thereof;
2. You say: "Discredited"
I ask you to reread 1. and find the falacy of your statement.
You want to talk about a "falacy" (sic)? Let's talk about the fallacy of "Tyler Durden" opining of the relative worth of anonymous vs non-anonymous opinions. Unreal.
your spell checker is bigger than mine.
alas the point which you missed was that the claims by any of the "non-anonymous" people who have a very high position in this arena are not refuted by any prior arguments, be they presented by anonymous or other wise contrarians.
i would like to refute 3 points Saluzzi made, echoing what i said in the article that was mentioned:
1) HFT was not responsible for CIT's temporary rally to near $1 in order to enable HFT algos to earn rebates. We know this because CIT did not hold the level, which it somehow magically would have according to Saluzzi (since HFT guys love rebates), if Saluzzi had been correct.
2) Saluzzi's example of CIT, C, and BAC trading in tight ranges to demonstrate the ill effects of HFT is absurd - if HFT was responsible for CIT, C and BAC trading in those tight ranges, it's an indication that HFT rebate arb is working for all parties as it were designed in Utopia - maintaining a very tight range and very tight bid ask spread all day long regardless of demand on either side. What a fantastic thing that would be - no sell side trader (or buy side trader, or ANY trader) could complain about the fact that they had ample liquidity with almost no price impact.
3) Saluzzi mentions the old NYSE program trading curbs, which applied only to index arb, and have almost nothing to do with his attack on "frontrunning" HFT applications. There were never curbs preventing program trading, and the curbs would not prevent HFT as we now know it.
i couldn't care less about flash orders one way or another, but if an executor does not want his order flashed, he doesn't have to have it flashed. If a trader's executions are being front-run to the point where it's costing him more than the outbound routing fee he's saving, he'll stop using flash orders.
TD - hopefully you are well aware that it doesn't matter if I write these observations under the name Dick Trickle, Kid Dynamite, Tyler Durden, Warren Buffett, or Dick Grasso, it doesn't make them any more or less true.
p.s.- the NASDAQ's recent attack on flash orders is the ultimate hypocrisy (much like the NYSE's complaining about it was, as they pioneered flash orders many many moons ago in the specialist pit) - NASDAQ campaigns against flash orders so that directedge will get reamed, while at the same time offering flash orders under the justification "we had to because everyone else was." i think you already posted about this NASDAQ crap today.
i, and all readers, welcome all opinions.... Zero Hedge has said many times it is beyond egos. The real question is what is the big picture, and is everyone getting bogged down in details. for better or worse the course against Flash has been set. Who wins? For now it is the NYSE... The NYSE and GS are a duopoly. The question that i had to Pellecchia had this response:
"On the other question: we're not aware of a way to re-route flash data from another market to the NYSE. To the extent that anyone sees flash data it would be in the context of their being a member of another (non-NYSE) market, and any resulting trades would take place there."
That is not a refutation.
KD, and everyone else - something more sinister is going on behind the scenes here. The major exchanges want to kill the ECNs who are going to steal revenue streams (via Flash, whathaveyou). But what the ECNs have done is within the regulatory parameters permitted to all: why did the NYSE, NASDAQ not push for Flash? They implicitly must have had a comparable functionality.
Something is being missed here while everyone is arguing semantics... Let's not forget Houdini's MO.
the entire market evolution over the last several years is especially ironic. We have seen a number of competing market centers which have fragmented order flow and dispersed liquidity. Competition, perhaps, has done more harm than good.
TD - you KNOW why NASDAQ did not push for flash - it's the key piece of DirectEdge - if it's banned, DirectEdge suffers, NASDAQ wins.
Dennis, or is that you Charlie, please GTFO GE bitchwhore
I think the article (http://fridayinvegas.blogspot.com/2009/07/we-fear-what-we-dont-understan...) makes a lot of sense. It's true that the brokers routing to a venue can dictate if their orders are 'flashed' or not. Which means clients who feel flash orders are disadvantaging them can tag their orders so that they are not flashed.
Anon #17729
WRT tagging so that orders are not flashed. What would you prefer - to opt in to an affiliate marketing program or to opt out of an affiliate marketing program. The former means that you have to actively want to participate in that madness, the latter cedes your rights and it becomes your responsbility to withdraw. Give them an inch, and they'll take it a mile...
Also, why is Kid Dynomite more of an authority on HFT and flash/bold orders than Joe Saluzzi? Kid Dynomite says he used to be a trader, we know that Joe Saluzzi has a history as a trader and is currently working as a trader at Themis. Not saying that Kid Dynomite has nothing to offer, but Saluzzi has more credibility at the moment.
i don't care either way about flash orders. If they are being used to front run orders instead of offer price improvement, that should be cracked down on. All I did was explain that there is logic behind offering flash orders, and explain why some people want to use flash orders. Credibility is not an issue - i didn't offer opinions. I offered facts, and explained how they are not much different at all from the way the NYSE has always done business - but people slap the millisecond description on them and make them seem all scary and unfair.
I agree that they should not be used to front run orders when they are supposed to be used to offer price improvement.
i keep saying it over and over and over again ... nothing is wrong with HFT ( speed improvement based on technology + 1 ) , co-location ( based on the fee payed to the exchange ), but EVERYTHING IS WRONG WITH THE OPTION TO USE FLASH, BOLT ETC TO HAVE An ADVANTAGE OVER THE RETAIL INVESTOR AND LITTLE GUYS .. that is the problem, not the HFT, or any other variables ... JUST THE OPTION TO USE FLASH ... and this issue needs to be addressed in this manner, not by attacking HFT or co-location .... and i believe if the commentators who go on TV and talk about HFT, start talking about flashes, bolts etc, this whole issue would gain more traction among " average joes " who would understand, if explained in layman's terms, that this is like cheating at a poker game .. than, and only then will we see some populist backlash, until then ... nothing ..
cheeky - again, my point is only that flash orders are a faster version of how the specialist used to quote markets verbally before execution in order to allow those standing in the crowd the opportunity to improve the price. The little guy/retail investor has NEVER had equal access..
i am fully aware of that and am not retarded and you do not have to explain the history of trading to me ... i know this shit has passed different forms with the same outcome, and is not the issue of " it is done for decades so it must be ok " but, rather, its the issue of " who the fuck allowed this shit to happen in the first place " ... i say ban flashing, bolting and other shit for good .... if they could have done it with naked shorting, they can do it with flashing ... leave HFTs and co-location, but ban the outright option to frontrun global equities and have a virtual monopoly on global markets ... if this crisis did not show you all the flaws and irregularities of the system, and that we either have to change the system or die like some fucking dinosaur, i express heavy doubt in the power of your cognitive abilities
So when your incorrect use of terms such as HFT, Flash, and Program Trading are called out it is "pointless' to have the FACT that each term is different and has its own meaning. To paraphrase you, it is about the "spirit" of what they represent. But oh, Tyler, it hurts to have "The End Of The End Of The Recession (which for some odd reason has been lumped into the category of a "housing analysis")" lumped in with "housing market analysis" or other nonesuch. Tell me, which internet-based church can grant others your magical divining rod or relevance determination?
I don't understand your argument. Most of what Saluzzi is saying is fact based, not one man's opinion on the subject.
Ya know, I am forced to think about what safeguards are built into these HFT boxes to keep them from selling the family jewels. Having your hardware (co-lo) on someone else's property means remote access.
I am reminded of the old days, when "intrusion response" meant running to the wiring closet and pulling the T-1. How do these guys in NYC control their co-lo trading boxes? Private fiber, below grade. It's just a guess.
The only alternative would be for the co-lo host to allow outsiders in the data center, even if only on an emergency basis. What would their response be to a runaway box? Did we see some of that in the recent trading anomalies (late close, etc)?
there are many other alternatives.
for one, most co-lo facilities have "remote hands" arrangements where on-site operators can do simple stuff (typically power-cycling hardware) based on appropriately authenticated telephone or email requests. if you want to do something more sophisticated physically to the hardware you generally have to send in your own engineer.
Yet another banner day for the quick and nimble daytraders at the big firms. As predicted yesterday, the government needs to raise a gargantuan amount of debt, so commodities were smoked, gold was killed, and the vaunted U.S. Dollar was saved from oblivion.
At the same time, investors once again were fleeing to the safety of U.S. Bonds, as the slightest whiff of a correction or selloff sends the herd scurrying back to the gilt-edged, AAA-rated confetti.
A brilliant move, as usual by Goldman. Gold bugs were caught offsides, and those short the HMO's and banks were clotheslined. Another massive rotation away from "growth" and "inflation" and back into health care and consumer staples.
Money never leaves the casino, there is always something to play.
More junk was run today, like Textron, another firm on the verge of Chapter 11, yet fund managers caught behind on the year underinvested piled in to jam that stock up 18% on the day.
Meanwhile, major integrated oils which are still reporting outsized profits with 4 p/e ratios were ditched over the side.
Nobody is going to "catch up" buying XOM, COP, OXY, etc.
The only way to win is to find the worst of the worst junk and short-squeeze it.
Really had to expect this, the chinese were in town with Timmy G and they said what they said and he said how high, and there you have it!
Tyler, is there a way to have a RobotTrader Update Sidebar on your website? You can post his daily evening updates, and I think it will be enjoyed by many many people. He does add a uniquely entertaining perspective on the market action. Please, please please?!
Loving Robot Trader's commentary too....tripps
Robo....wondering if you have thoughts on Citi action of late.....that would fit the worst of the worst it seems to me, particularly with the new owners.
Robo... thanks for the updates.
Searching for your daily post is like a mini 'hide and seek' game for me.
TD and Marla, I second the previous post about putting your update in the banner. It would definitely save me time!
I emailed Saluzzi and posed this question, as I will posit an equivalent here:
Say Firm X is in a PT program, and say Firm X is privy to data more quickly than others. And say the algo 'anticipates' order flow, question: should that order flow come from Firm X's clients, and rather than Firm X acting as agent but as principle, especially for its own book, is that not inherrently front running?
Second question:
If an algo 'anticipates' order flow and acts upon it, is that not momentum investing? And if if it is momentum-type trades, question: is it possible that the recent stock run-up was exacerbated by such trades, and that possibly stocks have run higher than solely based on 'true' demand?
Keep pressing,
Chris Monoki
Monoki,
I see your question as a matter of ethics. Isn't there an inherent conflict if your broker, who acts are your agent, also has its own proprietary trading desk? We do not know that there is rampant front-running at these investment banks, but the opportunity certainly exists. At the very least, it is highly probable that the same investment bank that acts as a broker to some has its proprietary trading desk taking positions that compete against the brokerage clientele. It's a huge conflict of interest.
Saluzzi is refining his story to the point of excellent clarity. You don't have to be a wonk or even close to understand him. At some point his ideas will become everyday convention. Is the first day that happens going to be the first day of the next great unwind?
This is all going nowhere. I predict some panem et circenses to distract the populace while allowing the fleecing to continue.
I feel bad for the machines that are just working so hard to prop this market. Man, no vacation for them I guess. Just wondering who makes these type of machines, any idea? Just checked out Cisco and its close to Pre-September price. Probably just a coincidence...
I'm disappointed the Fax didn't have a "Bubbles" or "GeeGee" in a counterpoint square to add entertainment value.
While we look for solutions for the latest Ponzi (HFT) trying to ban (Schumer) or any other solution, the Masters are evaluating and already probably have in mind the new type of scam called "noone will ever find" or whatever.
The point is we keep removing their "toys" while they find new and more sophisticated toys. We need to remove them permanently and let it be known that noone else can play a similar game or is out.
If we don't clean the system we will be presented with new 'garbage' all the time (maybe different shape or smell) but nevertheless we still have to clean the masters' sh*t.
Come on, someone please talk about the real problems and stop looking at the symptoms.
Maybe re-regulate? Reinstate Glass-Stegall? Yes, people will always lie, steal and cheat, but we could take a harder look and take steps to minimize the amount of graft and corruption.
Nice job Joe Saluzzi!
Keep on telling the story!! Americans are OUTRAGED by this ponzi scheme of all ponzi schemes and OUTRAGED by the fact our elected leaders and government have done NOTHING ABOUT IT!!
WHERE are the investigations and prosecutions??!!
We are all being robbed blind.
MARY SHAPIRO!! Time to cut your 3 Martini lunch short, get back and hire someone who has the intellect to investigate this properly. The SEC is ball-less right now!!
"Everyone likes a market that is going up and they just turn their heads" - enough said right there. without this inflated BS market we would all be in the streets already. They are just delaying the inevitable. The inflated market is the only thing keeping the sheeple in their pens.
TD - will you please add "sheeple" to the spell check database.
I appreciate that he is biased, but did anyone happen to catch the Q&A from the Interactive Brokers call? I found it very instructive and included the relevant portion below.
Nearly all of the "facts" presented by TD and those against HFT have been proven false - like high frequency trading generating $21 billion. That is false according to the Tabb Group - $21 billion is how much is earned from all arb strategies, not just HFT. That makes the suggestion that GS earns $1 billion from HFT ridiculous.
From Peterffy (who probably knows more about the subject than all others combined)
Robert Niewijk – Katana Capital
Hi, guys. More on the high frequency trading, even before the Goldman guy got arrested for stealing their code, the commentary on high-frequency trading had absolutely exploded in the last couple of months. And they're talking not only about people trying to get the rebates, but by putting their servers located on the exchanges and using probing orders and whatever else, that they are actually basically front-running everybody and siphoning billions away from real investors. So that -- I don’t know how that affects you. How does that relate to the options market? How does that affect your Market Making, if it does at all, beyond what you’ve already said?
Thomas Peterffy
I don’t think it’s true.
Robert Niewijk – Katana Capital
Why not?
Thomas Peterffy
It’s just talk. Nobody is making billions.
Robert Niewijk – Katana Capital
Okay. We’ve been not only shareholders since your IPO, we’ve been customers since your IPO. I can watch the guys try to front-run me on my trade.
Thomas Peterffy
Are you making billions?
Robert Niewijk – Katana Capital
No, I’m not doing the front-running.
Thomas Peterffy
Believe me, neither are they.
Good God I have traded more with Timber than I care to think about. TH is not GS. Jesus save me from the damn experts, what a joke.
It's hard to argue with logic like that.
To the anonymous ass that thinks that Tyler is off base because he is anonymous. From ground level your logic is that of a child, from 10,000 feet the same, from 30,000 feet where the air is thin and I'm about to be dead, you are still a jackass. Go back to GS and collect your ill gotten gains, just pray there is no retribution in this life, or if you choose, the next.
can someone explain saluzzi's implication about what happens when 70% of the volume disappears and a major event rips the market down?
if HFTs are not providing liquidity (just non-price-discovering volume) then why does their presence or absence change how prices react to news?
or is it because HFTs can "calm" investors because they see volume and don't panic about illiquidity?
not a trader, so not sure i fully understand some points of this debate.
I heard in one of the interviews that flash orders were voluntary (ie. the instituion giving the order consents to have it flashed). Is this the case (and do the institutions understand that they are consenting and what they are consenting to), or does an institition give the order to a broker like GS who then flashes the order?
Flash orders are voluntary in the sense that if you choose a sophisticated brokerage you can specify they use some order re-routing to avoid having your particular order flashed.
This is not something that the average mutual fund manager is aware of or concerned about so overall the scam goes on.
Whether you as a single individual hide your flash orders or not, the overall market is still gamed when there is no volume except for computers trying to front run each other in the battle to get ahead of the mutual fund orders being flashed in.
And to the poster with the liquidity question: The problem is that the HTF programs will stand back and let the market crash like a motherfucker and they will not provide a single stock purchase of last resort. In fact they will try to front run the collapse just as mindlessly as they front run the short squeeze bear market rally we have witnessed since May.
I love the Robot Trader Update, and I love that it's always buried in some random comments. I find it, hidden, like a delicious morsel of dessert at the end of each day. Thanks!
This does work, but you still have to wade thru the entire post to find Robot but it will be there: cut and paste into your browser and 'track'
http://www.zerohedge.com/user/971/track
HFT "Flash" Orders: Nasdaq Admission?
http://market-ticker.denninger.net/archives/1266-HFT-Flash-Orders-Nasdaq...
Doesn't the 18:02 comment above that "real" participants can choose not to have their orders "flashed" miss the point?
I thought the problem was that HFT peeps use flash orders to get "real" participants to show their cards, only to find that the price they were intending to agree to has since been moved up (on the buy) or down (on the sell) by the HFT. Like something akin to a face-to-face negotiation where as soon as one person starts to open their mouth to say "I'll take it," the other, much faster person withdraws the offer and raises or lowers the price.
Am I wrong?
Joe still sounds like a fool who has no idea what he is talking about and has a major ax to grind. Zero hedge- you lose a ton of credibility by continuing to post anything from him. Cluster Stock has some intelligent posts on HFT. I recommend reading their take on HFT.
Who is a big opponent of Flash trades? NYSE/Euronext. Where did the current and former CEOs of the NYSE used to work? GS. Who has boxes co-located at the exchange to aide latency advantage? GS. Ergo....
Everyone should read KidDynamite's post http://fridayinvegas.blogspot.com/2009/07/we-fear-what-we-dont-understan...
It is a very useful counterpoint to Saluzzi's arguments and is based on verifiable facts.
Saluzzi's arguments rest on 2 falsehoods:
1. Saluzzi repeatedly implies that the HFT traders can peek at all client orders and front-run them. He intentionally glosses over the fact that it is only some institutional orders that are designated flash orders that can be peeked at and that the institutional traders *wanted* to allow them to be seen. He wants you to believe normal client orders are treated this way but it is not true.
2. Saluzzi implies that the HFT traders are creating fake volume that might disappear in a crisis and cause the market to plunge further. But we just experienced the biggest crisis in 70 years and the HFT algos never stopped providing liquidity. I think his theory doesn't work in real life.
Saluzzi would make more money if HFT liquidity dried up and we went back to 25 cent spreads and high volatility. Should we also go back to $100 comissions?
"There's no "there" there. nothing will be done. why are these things being called "orders"? they're not orders, they're upskirt panty shots of unsuspecting market participants. and what's with "flash"? sure, nasdicks are "flashing" everyone else's orders to paying insiders, but that's called INSIDE INFOR-FUCKING-MATION in the real world.
this spin is created to confuse the population, slap minor fines on the participants and avoid shutting down the cheats."
whenever i hear or read Mr. Saluzzi, try as i might i always end up with the same conclusion. he's selling a service to institutional clients that he's not competent to provide. and so he squawk's and cries about how he's not able to participate in the market on his own terms.
i feel sorry for any clients that he may have.
"SEC regulations
SEC regulation FD ("Full Disclosure") requires that if a company intentionally discloses material non-public information to one person, it must simultaneously disclose that information to the public at large. In the case of an unintentional disclosure of material non-public information to one person, the company must make a public disclosure "promptly."[12]
Insider trading, or similar practices, are also regulated by the SEC under its rules on takeovers and tender offers under the Williams Act."
isn't this specialist old tricks, e.g. go along, clean cross, freezing the book, etc..., recreated electronically and more accurately?
"Flash orders started several years ago when ATS's became popular and people started paying for order flow (BTW, TY Bernie & Co.--that is how his BD made it's money). Every time i entered an order (a 'flash' order) i got paid a rebate. I didn't want to get executed against, so i only left it up there for a fraction of a second, collected my rebate for enetering the order, and was on my way. I could make a living entering orders all day, and never actually trade.
Then along comes internalization, dark pools, HFT (which relies on the development of order communication speed), and a host of other things, plus the elimination of the specialist or traditional market market who 'worked' your order. When i get an order, i want to capture as much of the vig as i can...that means rebates from the exchanges/ATS's etc., as well as TWO commissions from my customers...so i flash that order to 'select' traders (my own HFT desk included) to see if there is an in-system match. If not, i go to the market place and show the order to the world--which is what reg nms requires, and which is why Goldman's practice is not legal.
What happens in a shop like Goldman, where in a variety of ways they see these flash orders, is that they run ahead knowing there is a buyer or seller getting ready to show up in the market place. They take the stock two or three spreads (pennies) and then offer it back to the buyer when he shows up in the market place. It all happens in a matter of a second...or less.
That is the 'legitimate' process behind flash orders. Really, they are an outgrowth of changes in market structure and electronic communication. I equate the process to the old days of 'SOES Bandits' which, it retrospect, almost appear tanme by comparison.
And without getting into it, it is one of the major issues which the SEC has to wrestle with in developing a new short sales rule. What is a 'plus tick?' The flash order? The actual order in the full marketplace? And when does it count--as in what happens if the plus tick order is executed against before i even see it (because my systems are .10 seconds slower than the next guys? Does that make it a plus tick at the time i enetered my order, but then a half second later i sell stock on a minus tick, which was a plus tick?"
Those in quotes above are from posters at Karl's market ticker forum. I thought they kicked ass.
Isn't HFT simply 'Insider Trading'. You and I would be prosecuted for such an act!
No it is not insider trading. (to learn more about insider trading feel free to use google) HFT, flash orders, and crossing order flow in house before going to market, are not illegal.
Little doubt ZeroHedge and Mr. Saluzzi have elevated the debate and focus on HFPT. I will interview Mr. Saluzzi this coming Sunday evening.
http://www.senseoncents.com/2009/07/sense-on-cents-interviews-joe-saluzzi-regarding-high-frequency-program-trading/
I love Sense on Cents- you do a great job... but why bother to interview this luddite? We already know what he is going to argue. Interview someone who has some knowledge in this field. Interview someone new.
LSE stops paying rebates to HFTs -that's a step in the right direction
http://www.ft.com/cms/s/0/039fc8f6-7a11-11de-b86f-00144feabdc0.html?ncli...
I haven't got the time to read KDs post, but I find it strange that someone who is not affected by HFTs, because he trades so infrequently, would take so much time defending them.
HFTs / Algos have been dominating the european futures exchanges for years. Perhaps they were a testing ground or an environment where these program systems evolved.
The hedgefund RSJ recently boasted that they are 70% of the volume of one LIFFE contract, and if you trade at LIFFE there is an 80% chance that they are the counterparty. They swiftly retracted their claims when they got some publicity.
The CME group is now dominated by algos.
How can one class of customer so heavily dominating the action be good or healthy for the market?
As a futures trader it couldn't be more apparent that these HFTs destroy liquidity. Try hitting one of their 1000 lot bids -sell 20 and the whole bid has disappeared.