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The New York Times Unleashed On High Frequency Trading

Tyler Durden's picture




 

High frequency trading has official gone mainstream. From the New York Times:

"It is the hot new thing on Wall Street, a way for a handful of traders to master the stock market, peek at investors’ orders and, critics say, even subtly manipulate share prices.

It is called high-frequency trading — and it is suddenly one of the most talked-about and mysterious forces in the markets.

Nearly everyone on Wall Street is wondering how hedge funds and large banks like Goldman Sachs are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer."

(Their activities were described by an investor at a major Wall Street
firm who spoke on the condition of anonymity to protect his job.)

Read the whole thing here.

hat tip Nicholas

 

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Thu, 07/23/2009 - 22:36 | 13608 andy55
andy55's picture

 

 

It would be very interesting to see some analysis on what the Naz and NYSE get, profit wise, from HFT (and what they'd stand to lose from HFT reform). In other words, it'd be useful get a real feel for what the split of profits is for each exhange.

 

Thu, 07/23/2009 - 23:29 | 13649 Anonymous
Anonymous's picture

Hey there Andy255

My guess is that HFT trades are highly profitable for exchanges: on the one hand they would be obliged to give discounts for volume, but on the other hand the actual work exchanges do mostly has a marginal cost as close to zero as makes no odds.

Any reform would reduce HFT volume, and there's no guarantee that there would be an increase in non-HFT volume (at lower discounts) to be revenue neutral.

Frankly I don't give a rat's arse about HFT... although as a 'contrarian' I had been annoyed that the rubber bands had been stretching further than expected (in both directions) - meaning the requirement to ride a painful sphincter for longer than is usually comfortable.

Cheerio

GT

Thu, 07/23/2009 - 22:34 | 13609 Bob Dobbs
Bob Dobbs's picture

Well, that's the price of fame and glory isn't it?  From Zero Intelligence to trusted source in 24 hours!

Thu, 07/23/2009 - 22:34 | 13610 Anonymous
Anonymous's picture

It's the Times. This won't go far with them as long as this administration is in.

Fri, 07/24/2009 - 11:26 | 13999 dnarby
dnarby's picture

BOY, wouldn't it be nice if they were so dissapointed with Obama's 'Nope, no Change' policy that they went ahead with it anyway?

Thu, 07/23/2009 - 22:35 | 13612 EconomicDisconnect
EconomicDisconnect's picture

I think of the scene in "Die Hard" after the first cop is shot on by the robbers:

"Welcome to the party pal!!!"

 

Now open your eyes and see a world of wobders and mystery unveiled.

 

ZH or ZI,

thanks for the busting open of this swollen pimple we call "The Market".  What a sham.

Thu, 07/23/2009 - 22:37 | 13613 FischerBlack
FischerBlack's picture

Tyler, it doesn't matter who got this story out there first, but we all know it was you. Keep turning over stones and stomping the balls out of whatever crawls out.

 

Please, for all our sakes.

Thu, 07/23/2009 - 22:39 | 13615 Anonymous
Anonymous's picture

The Slimes, heh.

Thu, 07/23/2009 - 23:29 | 13645 agrotera
agrotera's picture

The army for righteousness is bigger than even all of the folks who regular ZH.  I think that is why the Federal Reserve hired an x-enron lobbyist.  The only hope the establishment aholes that you refer to have to keep their slimmy operations in place is to do such a great PR job this growing number of people, who care about right and wrong,  go to sleep and forget what is eating at their guy...i don't see that happening.

Yes, as  Bob Dylan said, "... the times they are a changin."

Thu, 07/23/2009 - 22:47 | 13619 Lothar the Rott...
Lothar the Rottweiler's picture

MSM getting pounded.  Truth will out.  Some will win, some will stay duped until the inevitable.

On a long enough timeline...

Thu, 07/23/2009 - 22:48 | 13620 Anonymous
Anonymous's picture

These greedy pigs will self-destruct with this new HFT innovation and unfortunately take down %80 of the unwitting investors with them. This is the beginning of the end.

Thu, 07/23/2009 - 22:49 | 13622 GoldmanSux
GoldmanSux's picture

CNBC must be red faced. When was the last scandal they broke? They are enablers.

Thu, 07/23/2009 - 22:49 | 13623 deadhead
deadhead's picture

Nice to see the NY Times pick up on your stuff, TD.  Great job by you and ZH. And a special thank you goes out to those good folks who are sending info to TD.  As has been said, the only way to disassemble corruption is for the insiders to come out and be heard.

Thu, 07/23/2009 - 22:52 | 13625 Anonymous
Anonymous's picture

Damn fine job, Mr. Tyler Durden.

Thu, 07/23/2009 - 22:55 | 13627 deadhead
deadhead's picture

Nice explanatory article by the grey lady with a good example on intel/broadcom play of last week.

I note to anyone interested that the article is on the main page of their online site.

Thu, 07/23/2009 - 22:58 | 13628 curbyourrisk
curbyourrisk's picture

Take that Charlie DuecheBag!  ZeroHedge might not get credit for BREAKING this news....as NYT will want that....But someone has to TEACH the reporters what the real stories are....  Tyler Durden and his compadres are doing just that.  Meanwhile.. Charlie and Maria...well they can just continue on air love fest.....

Thu, 07/23/2009 - 23:18 | 13639 Shaza (not verified)
Shaza's picture

I don't think those 2 are NOT in a love fest, Charlie seems to not like women. Didn't say that mayb  TD is a woman as if that were some sort of insult?

I think women the world over should shove that back in his face.

He was extremely insulting to women...his sidekick is not a woman, I think she is more of Priscilla, Queen of the Desert.

Thu, 07/23/2009 - 23:03 | 13630 agrotera
agrotera's picture

Good news Tyler!

With the complex nature of all of this, the only way to make any progress in corrective action, may be for you to take everything on a silver platter to the SEC and Justice department, including what and how to investigate because frankly, the size and scope of this probably exceeds any of our current regulatory body's ability to "cope" with.  If you do all of that, there is no excuse, just like the Madoff screw up by the regulators. 

 

And while you are at it, would you please consider opening another case study with recommendations,  to bring awareness of the abuses that are probably transpiring with the PPT in action? of.

Thu, 07/23/2009 - 23:18 | 13638 Shaza (not verified)
Shaza's picture

I agree wiht Agrotera. And when the movie is made could I come to the premiere. I think what you are digging up is bigger than Madoff. 

Thu, 07/23/2009 - 23:37 | 13653 agrotera
agrotera's picture

I agree Shaza--EXPONENTIALLY bigger than Madoff! 

I think we are all victimized to shell games, fraud and massive crimes by this cozy financial-government superpower that seems to not have any oversight...except for one trump card the US citizens have--when the country realizes that every bill that is passed that perpetuates all of this, and every legal action that is NOT taken to correct matters, they will be able to note that the puppets in Washington (all except for a few in the house of representatives) HAVE to be voted out, and replaced by people who want to dismantle this corrupt machine that has officially turned our country into a banana republic!

Yea, Shaza, i want to go to the premiere too!  I am sure Tyler and Marla will remember all of us!

Thu, 07/23/2009 - 23:58 | 13679 Anonymous
Anonymous's picture

No one is doing anything illegal in HFT. The rules they operate under are already approved by the SEC.

As an aside, take away HFT and enjoy paying $1 a share again, not $9 a trade. They have driven costs down, for everyone.

Fri, 07/24/2009 - 01:17 | 13728 Anonymous
Anonymous's picture

You obviously have no understanding of the history of trade execution or market microstructure.

Fri, 07/24/2009 - 01:24 | 13735 agrotera
agrotera's picture

you mean they have no idea that this has never been identified as a problem before so it shouldn't be examined?

Fri, 07/24/2009 - 01:21 | 13731 ghostfaceinvestah
ghostfaceinvestah's picture

Another "Anonymous" supporting HFT. According to you they are providing a public service.

Then why is it so profitable?  Shouldn't competition drive profitability down?

Or maybe it really is a scam.

Fri, 07/24/2009 - 07:47 | 13846 SWRichmond
SWRichmond's picture

Anonymous #13679,

 

I know you don't want to hear this, but if people paid $1 a share, would they take a longer view?  Would the act of buying those shares more likely actually be "investment" that took place in a "capital market" where "investors" lent their "capital" to businesses that actually used the money for plant and equipment (capital stock), made a useful product, and brought it to market at a competitive price?  Would those "investors" do fundamantel analysis of the companies business model?  Would the share price actually reflect something real?

 

Oh the fucking horror.

Thu, 07/23/2009 - 23:04 | 13631 Anonymous
Anonymous's picture

Most of the hot news these days starts at the blog level and then bubbles up - politics, finance, etc. CNBC and Charlie Gasbagorino are just too lazy like the rest of the main stream manipulators. They are dinosaurs in the New World Order!

Thu, 07/23/2009 - 23:12 | 13634 spekulatn
spekulatn's picture

Pimm Fox had the Pipeline guy on his show today after the close. HFT was the topic.

http://www.bloomberg.com/tvradio/tv/tvtoday.html

 

"MARK IT ZERO, DUDE"

Thu, 07/23/2009 - 23:12 | 13635 I need more cowbell
I need more cowbell's picture

My first album, 1967, the Doors ( hmmm, this actually explains a lot )

This is the end
Beautiful friend
This is the end
My only friend, the end

Of our elaborate plans, the end
Of everything that stands, the end
No safety or surprise, the end
Ill never look into your eyes...again

Can you picture what will be
So limitless and free
Desperately in need...of some...strangers hand
In a...desperate land

Lost in a roman...wilderness of pain
And all the children are insane
All the children are insane
Waiting for the summer rain, yeah

Theres danger on the edge of town
Ride the kings highway, baby
Weird scenes inside the gold mine
Ride the highway west, baby

Ride the snake, ride the snake
To the lake, the ancient lake, baby
The snake is long, seven miles
Ride the snake...hes old, and his skin is cold

The west is the best
The west is the best
Get here, and well do the rest

The blue bus is callin us
The blue bus is callin us
Driver, where you taken us

The killer awoke before dawn, he put his boots on
He took a face from the ancient gallery
And he walked on down the hall
He went into the room where his sister lived, and...then he
Paid a visit to his brother, and then he
He walked on down the hall, and
And he came to a door...and he looked inside
Father, yes son, I want to kill you
Mother...i want to...fuck you

Cmon baby, take a chance with us
Cmon baby, take a chance with us
Cmon baby, take a chance with us
And meet me at the back of the blue bus
Doin a blue rock
On a blue bus
Doin a blue rock
Cmon, yeah

Kill, kill, kill, kill, kill, kill

This is the end
Beautiful friend
This is the end
My only friend, the end

It hurts to set you free
But youll never follow me
The end of laughter and soft lies
The end of nights we tried to die

This is the end

 

19 fucking 67- and these modern silly-ass posers think they are the shit ( is that the right vernacular of da youts a taday? ).

Thu, 07/23/2009 - 23:27 | 13644 GoldmanSux
GoldmanSux's picture

Weird scenes inside the gold mine= the Fed.

Thu, 07/23/2009 - 23:42 | 13660 deadhead
deadhead's picture

I'll counter with...."when life looks like easy street there is danger at your door"

 

The Grateful Dead

Fri, 07/24/2009 - 00:38 | 13706 GoldmanSux
GoldmanSux's picture

Goddamn, well I declare, have you seen the like?

Their walls are built of cannonballs, their motto is don't tread on me.

Thu, 07/23/2009 - 23:12 | 13636 Shaza (not verified)
Shaza's picture

Yes indeed, the markets have lost their integrity, it's us and them now! 

Thu, 07/23/2009 - 23:22 | 13642 Anonymous
Anonymous's picture

Please explain how this is a scandal. There are 2 algo's in the market trading BRCM. One is demanding liquidity. The other is providing it. The "taker" pays the "maker" 56 basis points which is pretty expensive but this is a situation where the stock is rocketing up. This is not a new or interesting phenomenon. It is the way all trading markets have worked for hundreds (thousands?) of years.

Thu, 07/23/2009 - 23:39 | 13654 Anonymous
Anonymous's picture

It is a scandal because it removes all of the "free" market tendencies. The market is not "free" to trade on valuation, trend, analysis, price, etc. The bots have taken away investing, in the normal sense, and changed it all to algo. Hell, I can't, nor can any of my associates, honestly tell clients wtf to do in this "market/casino" with any confidence at this juncture.

Thu, 07/23/2009 - 23:49 | 13669 Anonymous
Anonymous's picture

Good think all those specialists that used work at the NYSE traded on "valuation, trend, analysis, price, etc. "

Thu, 07/23/2009 - 23:49 | 13670 KidDynamite
KidDynamite's picture

that's a total falsehood.  If 'bots or anyone else are buying or selling stocks at insane levels, it should make your job easier to do.

Thu, 07/23/2009 - 23:55 | 13676 Anonymous
Anonymous's picture

The very same buy side traders (including the one quoted from T Rowe, most likely) moved much of their flow over to dark pools (Liquidnet and POSIT being the largest) years ago to move large blocks of stock off exchange. They are now upset because someone has made it "so hard" to trade. These are the same buy side firms that demand sell side firms "keep them informed on the flows on the street" as part of the services they provide. Give me a computer that works off of mathematical logic any day over the "good old boy" network that continues to thrive on traditional Wall St.

Fri, 07/24/2009 - 00:10 | 13689 Anonymous
Anonymous's picture

You guys, give it up. You're cheating, you know you're cheating, and all you got are lame defenses (those other guys are worse!), and obfuscation. You're not traders, you're little scammers. Admit it.

Fri, 07/24/2009 - 00:20 | 13697 Anonymous
Anonymous's picture

I don't believe a word you say.

Fri, 07/24/2009 - 00:06 | 13685 Anonymous
Anonymous's picture

The first missing point in the article is that the investor in question needed to buy the stock *NOW*. This is because it was trading up on news. If they did not need to trade now, they could have entered their order with a lower urgency, could have used less aggressive limit orders to buy the stock over a longer period of time and they would not have paid for the liquidity provided by HFT's. However if they had done so, other investors wanting to trade on the same news would have bid ahead of them and their order would not have been filled at all. They would have lost out on the buying opportunity.

The second point missed in the article is that it does not explain how it is that the HFT's bought stock ahead of client order. In order to accumulate a position to sell back to the client they had to bid a higher price than other participants at the time, thereby tightening the current spread, and making a better market for everyone involved. The basic mechanism's at work here have not changed at all. The only thing that is changing is the timescale. But the timescale at which trades happen has been getting shorter for hundreds of years. Orders used to be carried by horseback, then by telegraph, then by phone, now the internet.

It's true that trading on fundamental valuation is hard these days. But that's because the future of the economy is anyone's guess. In 10 years we may look back and remember these as the day's of innocence before the real crash. Or we could be wishing we bought before the economy started growing at a 4% clip and the sp went to 15000, thinking about how foolishly pessimistic we were. Everyone thinks they know, but no one does.

But that's not anyone's fault in the equity market. Not hedge funds, not banks, not goldman. It's just tough times.

Fri, 07/24/2009 - 00:13 | 13690 Anonymous
Anonymous's picture

Sophistry.

Fri, 07/24/2009 - 00:23 | 13699 Anonymous
Anonymous's picture

Ok,

Let me simplify matters. There is a bodega right across the street from my apt that sells my beer for 2 bucks. There is a grocery store 10 blocks away that sells it for 1.50. If I want it NOW, i go to the bodega. If I want it cheap, I hike to the store (and back). That's called paying for liquidity, no pun intended. Make sense?

Fri, 07/24/2009 - 00:31 | 13703 Anonymous
Anonymous's picture

The purpose of a market is to define a fair price, not overcharge the thirsty customer.

Fri, 07/24/2009 - 04:03 | 13805 Anonymous
Anonymous's picture

Except GS and the HFT's do not own the bodega or even the beer for that matter.

The appropriate example would be more like getting into the bodega but having to buy the beer through an intermediary even though the cash register is only 3 feet away.

HFT is selling what it does not own, and only weakly provides low quality liquidity (liquidity is only a problem on the downside, when the HFT's would likely just be turned off - God forbid they take one for the market). Furthermore, HFT undermines the confidence in the market on price discovery because it essentially creates an artificially high price. By now everybody knows this market is gamed, and only fools or severely mandated funds are playing

Fri, 07/24/2009 - 01:27 | 13738 ghostfaceinvestah
ghostfaceinvestah's picture

and yet another "anonymous" poster supporting HFT.

Fri, 07/24/2009 - 00:08 | 13686 Anonymous
Anonymous's picture

Its not a scandal. It's bad business. Let's look at it in simpler terms. Eventually, when the biggest kid on the block kicks everybodys arse and there isn't any more fight left to be had, the bully usually self destructs; drugs, booze, petty crimes and the sort. Before you know it, he gets all hopped up on goof balls, wacks some 7-11 clerk and gets life with no parole. Moral of the story. The intrinsic lack of normal, moral values, coupled with the wanton desire to be the fastest and most efficient always leads to failure. Let's all sit back and watch the freak show unwind.The pattern repeats, Asian Contagion, Nasdaq 5000, Dow 14000, Crude $150, MBS, CDS, HFT?????? If you really want to make money, just find the next life boat.

Fri, 07/24/2009 - 01:24 | 13736 ghostfaceinvestah
ghostfaceinvestah's picture

Aaaaaannnnnndddd.

Yet another "Anonymous" supporting HFT.

Thu, 07/23/2009 - 23:28 | 13648 Anonymous
Anonymous's picture

ZH
Quit letting the cat out of the bag.
Gall Darn It!

Thu, 07/23/2009 - 23:53 | 13673 Anonymous
Anonymous's picture

Pretty amazing. Generally topics and stories developed on web sites that are critical or questioning of our elites, and are not some variant of the political right, take anywhere from 3 months to infinity to reach the MSM.

While ZH has treated this story as almost certainly a free market negative phenomenon that has been the key to bringing attention to it. That is without doubt a positive. It's the sunlight itself which is needed. If the practice is all sweetness and light for everyone then it will continue to grow one can suppose. More likely it is more in the nature of a fad and I'd guess that it's profit potential will soon melt away.

Fri, 07/24/2009 - 00:13 | 13691 Zro
Zro's picture

Access to Goldman's algo would prove to be very interesting at this point. A complete understanding of it could entirely invalidate their arbritrage strategy

Fri, 07/24/2009 - 00:15 | 13695 Dr Hackenbush
Dr Hackenbush's picture

US –vs- China (the manipulation Olympics) 

Fri, 07/24/2009 - 01:13 | 13726 Anonymous
Anonymous's picture

The idiot masses really have no idea (Tyler included on this one). Anyone who thinks the old manual NYSE specialist made a better market than the HFT community is an idiot. Fills used to take minutes and slip DOLLARS away from the displayed non firm 100 share quote. The idea that the specialist firms used their firm capital to step up and buy stocks going down or "dampen" volatility was uninformed and frankly a scam, great marketing by the NYSE to make CEOs happy to list their company on the NYSE. After all the exchanges make dick on transactions, the real money is in listings. I love how the buy side thinks they should be able to come in and move a block of stock without any market impact all while some magic liquidity provider stands there making them a market, not moving the quote and not allowing anyone else to trade until the buy side trader is done. If everyone on the buyside is so convinced that their orders are being gamed, why not throw a head fake at the HFT shops and come back over the top of them with the real size you want to do. If all they are doing is front running, then all it takes is a little gamesmanship to get a better price and inflict a little pain. Also,to state that HFT is a binomial world that is either rebate driven or predatory shows how little one knows about the space. Not everyone is arbing dark pools or front running internalized orders. Yes Simons can generate higher returns than Buffet, he just doesnt have a strategy thats a scalable as WB. Its like comparing Saks to Wal-Mart and then saying no one can have a higher profit margin than Wal-Mart cause they are the best retailer ever. The populist bandwagoning and complete lack of understanding relating to the scope of strategies and the general effect of HFT on market microstructure is comical. DOES ANYONE HERE REMEMBER THE LIQUIDITY ON THE OLD NYSE DOT OR NASDAQ SELECTNET OR SOES SYSTEMS? Far fewer firms making far higher margins per trade, the scams that were perpetrated on ANY order back then were far more egregious than any HF shop arbing dark pools or rebate trading today.

Fri, 07/24/2009 - 01:29 | 13739 Anonymous
Anonymous's picture

Lol, it is a cut and paste.

Fri, 07/24/2009 - 01:52 | 13761 GoldmanSux
GoldmanSux's picture

Dude, you are already out of date. Refresh or go the home page. Surely you can't be opposed to bringing some light to the darkness. Thru the pool, darkly.

Fri, 07/24/2009 - 09:44 | 13913 Anonymous
Anonymous's picture

The True Believers are out in force today. Welcome to Fight Club. It's your turn to fight.

Fri, 07/24/2009 - 02:09 | 13774 Anonymous
Anonymous's picture

This site is addictive - more addictive than CNBC. It is the new paradigm - I decree!

Fri, 07/24/2009 - 03:09 | 13796 Miles Kendig
Miles Kendig's picture

And the hits just keep on rolling...... On WZIR.....

 

Fri, 07/24/2009 - 07:10 | 13826 Bruce Krasting
Bruce Krasting's picture

TD et al: The times quoted a source saying that the HFT is worth 21 bil a year to the players. We know that GS is half the flow so maybe they are half that gain too??? That can't be right. GS does not make 10 b in total?? So what is a good number for the returns on this Biz???

Fri, 07/24/2009 - 07:13 | 13828 Anonymous
Anonymous's picture

the tax laws need to support capitalism.

penalize trading profits. the pendulum has swung too far.

Fri, 07/24/2009 - 07:31 | 13832 erich
erich's picture

Great story.  Wonder why the NYT can write coherent stories while this blog takes up so much more space without actually explaining things?

Fri, 07/24/2009 - 09:38 | 13904 Anonymous
Anonymous's picture

Must be nice to own the toll booths on the highway

Fri, 07/24/2009 - 09:43 | 13911 Anonymous
Anonymous's picture

Nice job TD.

A massive conspiracy to defraud millions of Americans, just following the collapse of everything due to a massive conspiracy to defraud millions of Americans. These crooks never quit, do they? (Why should they, when they basically own the political system...)

Fri, 07/24/2009 - 11:07 | 13984 Anonymous
Anonymous's picture

the HF trade is off by fifty percent this year in terms of total P&L. Once the media reports it as news, it's six to twelve months old

Fri, 07/24/2009 - 13:09 | 14130 PrDtR
PrDtR's picture

Trying to find my mojo regardless of what the big guys do.. playing w/my algorithms to game theirs.. doesn't work as consistently as I'd like, but.. it is working!

 

Sun, 07/26/2009 - 06:35 | 15431 PrDtR
PrDtR's picture

..and here is a critical view from a Forbes.com contributor..

 http://www.forbes.com/2009/07/24/goldman-sachs-high-frequency-intelligen...

Do NOT follow this link or you will be banned from the site!