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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 | Link to Comment 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 | Link to Comment Tyler Durden
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Sun, 07/12/2009 - 08:44 | Link to Comment 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 | Link to Comment 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 | Link to Comment Karston1234
Sun, 07/12/2009 - 10:25 | Link to Comment Anonymous
Sun, 07/12/2009 - 13:10 | Link to Comment Anonymous
Sun, 07/12/2009 - 21:27 | Link to Comment thewordweb (not verified)
Sun, 07/12/2009 - 10:44 | Link to Comment Anonymous
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Sun, 07/12/2009 - 21:00 | Link to Comment Anonymous
Sun, 07/12/2009 - 21:01 | Link to Comment Anonymous
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Sun, 07/12/2009 - 21:49 | Link to Comment Anonymous
Sun, 07/12/2009 - 22:20 | Link to Comment Anonymous
Sun, 07/11/2010 - 14:27 | Link to Comment Vandy123
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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 | Link to Comment 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 | Link to Comment glucomt
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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 | Link to Comment glucomt
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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???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 | Link to Comment glucomt
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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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