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JP Morgan: "High Frequency Predator Traders Feast Upon The Signals Of Others"

Tyler Durden's picture




 

When JP Morgan discusses high frequency trading, people listen. When the head of JP Morgan's algorithmic product desk Carl Carries says that high frequency trading is merely a form of parastic market making, people should run for the hills (not in the least due to JP Morgan's proficiency in transforming theory to practice especially as it pertains to various daily trading patterns in the SPY).

"The print that a Dark Pool leaves in its wake does not signal an aggressive buyer or seller as would a sweep, so the information leakage is reduced accordingly.  Reduction of information leakage minimizes adverse price movement created by predators like high frequency traders who feast upon the signals of others."

 

And a few more questions to add to the ever increasing roster of queries for the NYSE (Mr. Pellecchia- maybe the time has come to provide at least some answers?): some dark pools have banned use of third party algorithms in accessing them in order to prevent harm to their institutional clients.  Why is this good for dark pools, but not NYSE?
 
Trader Magazine reports Pipeline Trading banned third party algo's from accessing its dark pool.  http://www.securitiesindustry.com/news/-23514-1.html "Algorithm Switching Engine was introduced in October 2007, six months after Pipeline Trading banned third-party algorithms from accessing its own electronic block trading market....  Pipeline claims to be more effective than competitors in finding block matches because of its 50,000-share average execution size; large block orders are executed automatically without the possibility of sniffing out institutional interest with a small probing order." 
 
Trader Magazine reports that ITG has banned third party algo's from accessing its dark pool POSIT. http://www.tradersmagazine.com/issues/20_275/100083-1.html "Investment Technology Group, for the second time, has banned broker-dealers from accessing its POSIT crossing system via algorithms....  ITG chief executive and president Robert Gasser told analysts on the day of the decision that 'third-party dark aggregation has not been beneficial to our institutional POSIT constituency.'...  Heckman told Traders Magazine that some brokers offering customers algorithmic access to POSIT appeared to give preference to their own or other liquidity through the algos. He said that adversely impacted the order flow POSIT received."

hat tip Richard

 

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Sun, 07/12/2009 - 07:11 | 6567 asdf
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hm, I can't click on the first picture and the second picture is quite small. Could you fix that?

Sun, 07/12/2009 - 12:32 | 6623 Tyler Durden
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click on the attachments.

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Sun, 07/12/2009 - 08:44 | 6583 silencedogood
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To Zerohedge:

Allow me to pose a question....why are "dark pools" allowed to exist without extensive oversight as by their names...they appear to pose a threat in some small part to the Market as a whole.

Tue, 07/21/2009 - 23:56 | 11652 jongreen
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Im my humble opinion, I would expect dark pools to be some of the most effective places of trade. It seems the be the presence of regulating overlords which opens the breach, expelling verminous bilk of all kinds, leeches, bottom crawlers, hft algo robots. The problems of the market today are not those resulting from a lack of regulatory power, but are a direct result of it.

 

Maybe         dark pool:galts gutch

Wed, 12/01/2010 - 01:29 | 767073 Karston1234
Sun, 07/12/2009 - 10:25 | 6601 Anonymous
Anonymous's picture

This is the part of the movie when the prey has all been consumed and the predators start eating each other - must have been liking this in the waning years of the dinosaur era!

Sun, 07/12/2009 - 13:10 | 6630 Anonymous
Anonymous's picture

50% of trading is from HFTs. It is the equivalent canibalisation. The mutual funds, 401Ks, Pension Funds, Retals are side dishes.

Sun, 07/12/2009 - 21:27 | 6701 thewordweb (not verified)
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10. California on the rocks which represents a big portion of GDP.
11. Delinquency rates on credit cards and loans accelerating.
12. 47 States cant balance their budget in 2009. goog articles: http://shor7.com/?ZEUCI

Sun, 07/12/2009 - 10:44 | 6604 Anonymous
Anonymous's picture

Carrie left JPMorgan September 2008

Sun, 07/12/2009 - 18:56 | 6677 Anonymous
Anonymous's picture

The 3rd party algos banned by ITG have absolutely nothing to do with high frequency trading. Broker algos consist of things like VWAP, POV, etc... ITG is worried about adverse selection, NOT penny scalping. High frequency traders can easily be avoided in places like POSIT by using a minimum order size.

Sun, 07/12/2009 - 19:45 | 6685 Anonymous
Anonymous's picture

If anyone from the NYSE/regulatory realm reads this blog they should know this sort of talk and ongoing conspiracy theory(S) will only serve to push individual investors OUT of the market. We got screwed once, why twice and gosh-oh-gee in a new atenuated way by the secretive entities (gee only paying preferential tax rates)that dominate and manipulate the equity markets.

Sun, 07/12/2009 - 21:00 | 6693 Anonymous
Anonymous's picture

Actually the reason ITG banned 3rd party algos was because some of the brokers were offering dark pool aggregation algos at prices lower than ITG offered Posit - and then putting posit at the bottom of the routing table. As a result clients thought they were getting similar access to posit at a lower rate, and posit's matching stats took a hit as they only saw the drew orders. It is interesting to note however that Posit has started allowing what they refer to as 'spread' traders into the match...these are nothing but High Frequency Scalpers disquised under a different name. They all do it now...liquidnet, siqma, crossfinder...

Sun, 07/12/2009 - 21:01 | 6694 Anonymous
Anonymous's picture

drew = dreg

Sun, 07/12/2009 - 21:12 | 6696 Anonymous
Sun, 07/12/2009 - 21:49 | 6707 Anonymous
Anonymous's picture

Brokers have a duty to treat every order on a best execution basis, so using dark pool liquidity may fulfill the letter of the law but not the spirit of the law. why, because the liquidity in the hands on the pool operator and therefore that liquidity provider( market maker) knows the make up of the whole market within the pool and therefore has an edge unavailable to any one else. In this post Madoff era how can regulators and compliance /due diligence executives allow participation in these pools especially when the broker and pool operator are the same or parts of the parent entity???
Global financial crisis, Madoff et al.....are regulators still so removed from reality that they don't get it?

Sun, 07/12/2009 - 22:20 | 6708 Anonymous
Anonymous's picture

The references to ITG POSIT and Pipeline banning third party algos was purely a commercial decision by both entities. Cloaking those decisions in words regarding "predatory algorithms" was simply a convenient excuse.

Watching these discussions regarding program trading, the NYSE, and algorithms on zerohedge and other boards is great comedy. Learn what you are talking about before writing about it much less accusing others of misdeeds.

Is accuracy anywhere in the manifesto...

Sun, 07/11/2010 - 14:27 | 463261 Vandy123
Vandy123's picture

Actually the reason ITG banned 3rd party algos was because some of the brokers were offering dark pool aggregation algos at prices lower than ITG offered Posit - and then putting posit at the bottom of the routing table. As a result clients thought they were getting similar access to posit at a lower http://inspiredink.mublogs.org rate, and posit's matching stats took a hit as they only saw the drew orders. It is interesting to note however that Posit has started allowing what they refer to as 'spread' traders into the match...these are nothing but High Frequency Scalpers disquised under a different name. They all do it now...liquidnet, siqma, crossfinder...

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Thu, 12/30/2010 - 06:01 | 837347 kobirana
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In this post Madoff era how can regulators and compliance /due diligence executives allow participation in these pools especially when the broker and pool operator are the same or parts of the parent entity? www.checkpneumoniasymptoms.com

Wed, 02/09/2011 - 07:18 | 945842 glucomt
glucomt's picture

posit's matching stats took a hit as they only saw the drew orders. It is interesting to note however that Posit has started allowing what they refer to as 'spread' traders into the match...these are nothing but High Frequency Scalpers disquised under a different name. They all do it now...liquidnet, siqma, crossfinder.
http://www.checkmonosymptoms.com

Fri, 02/11/2011 - 08:01 | 952323 glucomt
glucomt's picture

In this post Madoff era how can regulators and compliance /due diligence executives allow participation in these pools especially when the broker and pool operator are the same or parts of the parent entity???Global financial crisis, Madoff et al.....are regulators still so removed from reality that they don't get it? http://www.automobileupdates.com

Sun, 02/13/2011 - 10:19 | 957468 glucomt
glucomt's picture

posit's matching stats took a hit as they only saw the drew orders. It is interesting to note however that Posit has started allowing what they refer to as 'spread' traders into the match...these are nothing but High Frequency Scalpers disquised under a different name. They all do it now...liquidnet, siqma, crossfinder. http://www.jobsnresults.com/atos-origin-placement-papers-interview-papers/

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