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Senator Edward Kaufman Joins Fight Against Market Opacity
July 31, 2009
A Level Playing Field For Investors
By Sen. Edward Kaufman
Efficient and free capital markets are essential to all that makes America great: investment in private enterprise, the availability of capital to expand and grow our economy through innovation, and the ability to save for retirement in hope our investments will support us in later years.
Regrettably, we now have an unfair playing field for investors. This leaves us with, in effect, two financial markets: one for powerful insiders, who use high-speed computers and privileged access to information to exploit loopholes for profit, and another for the average investor, who must play by the rules and whose orders are filled almost as an afterthought. This situation simply cannot continue. It is the financial equivalent of "separate and unequal."
Every day we learn more about the features of this two-tier system. Dark pools, collocation of high-speed computers at the exchanges, flash orders. Abusive short selling, the loophole of choice in 2008, was only the first sign of how the powerful on Wall Street make profits unhindered by the rules the rest of us must follow.
Here are just four areas where the SEC needs to act urgently to protect investors and restore market integrity.
First, the SEC should restore the substance of the uptick rule. This rule, a mainstay of investor protection for 70 years until it was repealed in June 2007, required investors simply to pause and to wait for an uptick in price before continuing to short sell. Without such a rule in place, investors who own stocks are more vulnerable to organized "bear raids" - abusive short selling combined with coordinated "misinformation" campaigns - which many believe contributed to the demise of Lehman Brothers and Bear Stearns, key elements in the collapse of our financial markets last year.
Second, the SEC should implement tougher rules that will stop naked short selling through an enforceable system. Naked short selling is the practice of selling stocks without first locating or borrowing the actual shares needed for timely delivery at settlement, sometimes in a concerted action to manipulate a stock price downward. This week, the SEC made permanent a temporary rule they had enacted last fall, proposed some new transparency measures, and announced plans for a Roundtable discussion on September 30.
That is some progress, but not enough. Two months from now, the Commission will finally begin to discuss publicly the potential solutions that I and a bipartisan group of Senators have been urging: either a pre-borrow requirement or a centralized "hard locate" system, which would prohibit short selling unless the executing broker first obtains evidence of a unique identifier number associated with specified shares set aside for timely delivery. The Depository Trust & Clearing Corporation tells us that it has the capacity and the willingness to implement that system - but only if the SEC requires it through a rule.
Third, the SEC should ban the use of so-called "flash orders" by high-frequency traders. Flash orders allow exchange members who pay a fee to get a first look at share order flows before the general public. By viewing this buy and sell order information for just milliseconds before it goes to the wider market, these investors gain an unfair advantage over the rest.
As the New York Stock Exchange complained to the SEC on May 28, selling flash orders for a fee provides "non-public order information to a select class of market participants at the expense of a free and open market system." To use a baseball metaphor, flash orders allow some batters to pay to see the catcher's signals to the pitcher, while the rest of us don't see them. Markets that permit a privileged few to have special access to information cannot maintain their credibility.
Amazingly, it is a loophole in current regulations that allows this unfair practice. This can and should be fixed immediately.
Finally, the SEC should establish disclosure and transparency equality: the disclosure requirements that apply to pooled funds worth greater than $100 million should apply uniformly to all, including hedge funds, for both long and short positions. And the level of transparency for order flows should be the same for all.
When millions of Americans have lost so much money in the stock market, how can we expect them to reinvest their savings when Wall Street players continue to make record trading profits by exploiting loopholes using high-speed computers? William Donaldson, former Chairman of the SEC and the New York Stock Exchange, has said "This is where all the money is getting made . . . If an individual investor doesn't have the means to keep up, they're at a huge disadvantage."
America was founded on the principle of equal opportunity. While we should keep encouraging the kind of commercial ingenuity that fuels the prosperity of our financial markets, we must ensure that technology is not employed to advantage one small group over the rest. The SEC must deliver on investor protection to restore the integrity and credibility of America's financial markets.
Mr. Kaufman is a Democratic senator from Delaware.
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Linky please
http://kaufman.senate.gov/press/press_releases/release/?id=2d9be80d-55b2-4d1b-b2c2-aa71b130e1a1
swr..i'm not sure why you would ask a busy guy like TD to supply a link to information provided by a US Senator. It took me 10 seconds to use a search engine to his senate site to pick up the link.
the link includes expanded remarks from the Senate floor.
yeah I found it right after and came back to edit the post and can't edit.
please America realize December 21, 2012 is near Please
realize Bernake is the problem not the solution ask
him where he keeps his money in Canada he does not
care about us
you are in the wrong place with this sort of garbage ... please do not try to taint this holy place with your conspiracy shit ...
They should just eliminate program trading completely, give tax breaks for traders who are the REAL liquidity providers. Of course, that would just make sense.
Literally the dumbest thing I have ever read. Do you think the moron specialist's they interview on CNBC are real liquidity providers? Have you been on the floor in the last 6 years? As soon as the camera turns off, he is back to solitaire on his computer. All of the liquidity you see comes from 10 HFT firms. BAC is 100K X 100K a penny wide. What do you think it would be if the LaBranch specialist was the only one making the market? Let me tell you: 100 shares X 100 shares non-firm and .10 wide. The ignorance of people on this forum is nothing short of amazing. 99.9% don't have any clue what they are talking about and are just jumping on the populist band wagon. Tyler knows that Flash orders do not have anything to do with front running, but it plays well to the populous when you are trying to get people to read your blog. Co-location means fuck all to 99.9% of investors. Its not front running, its simple physics (speed of light). If you ban co-location, whats next?? Trading from one location in the entire world? Otherwise people who live in New York will have a huge latency advantage over those in California and everyone in New York will be front running poor Californian investors. Stop fantasizing that your 100 share order is not finding a fair market and go back to American Idol re-runs.
Amen. This has to be the best thing I've seen written on this website. Please stick around and help me educate these disillusioned souls. For the rest of you: understand that this is the truth and reality of the markets.
Ill take on anyone who wants to go including Tyler. The problem is no one here understands Market Microstructure. The misinformation is amazing.
I know what the arguments are in favor of flash orders, but what is preventing soemone from using the flash to front run or get a better sense of the current order flow? Aside from the issue of flash trading, if there is no front running or misuse of information, how are the HFT firms making so much money. Is the 21 billion figure correct?
Ok,
1) Flash orders have nothing to do with front running. Flash orders allow people to lock (bid the current offer price, offer the current bid price)but not execute against that price. Basically, its all based on the cost structure of order routing. The person is saying, I am willing to pay the spread, but I am not willing to also pay the .003/share for an aggressive order. This is a much better deal for the retail investor. Lets say you own 1000 shares and you were going to sell them at the offer (thru your online broker where you pay 8.95 per trade regardless of whether you execute aggressively (cross the spread) or passively (bid or offer). In the old market, if you wanted to sell at a marketable price you would get the bid, now...if there is a flash order locking the offer, you will be able to sell your shares at the offer price saving you the spread * your 1000 shares. Thats $10 for every .01 in spread you save. Now, your broker has to pay .003/share for that order you executed, but that's ok because he is charging you $8.95 for something that cost him $3.00. This is a popular order among many passive (market making) HFT firms because they rely on a % of the rebate to make money. Many of these firms face MAJOR risks because they are willing to provide such a deep and tight market. Imagine that you are 50,000 bid and 50,000 offered in BAC and suddenly your offer is lifted before you can cancel and the price of the stock moves up $.10. You have just been adversely selected for $.10/share. When your profit margin is approx .0005/share that takes alot of profitable trades just to make up for the adverse selection on that one trade. If these firms were not co-located and receiving rebates, the spreads and depths would be much wider and thinner. The slippage and market impact costs you would be paying as a retail investor would be much larger than they are now.
2)The myth that HFT shops can only make money from front running and inside information:
This is a blatant fallacy, sales traders and equity MM desks have made money front running buy side orders for years. HFT shops dont have access to the flow that the sell side trading desks do. HFT shops leverage the smartest PHDs in Math, Physics and Comp Sci to build low latency models that look to exploit all types of market inefficiencies. Some firms specialize in deterministic arbitrage. For example, if you want to trade an FAS call and the bid/ask spread is .40, if you were to enter an order at the midpoint of that spread, you have a good chance of being executed against (saving yourself .20/contract) because there is a low latency HFT shop that has a statistical based reason to think it can make a fraction of a penny on that order. The traditional MMs would never execute that close to theoretical value, because traditional market making is/was an art. Now, thanks to HFT firms, it is a science that can save you money as a retail investor if you understand market microstructure and the way these firms operate. The options example applies across all markets, be it FX, Futures, equities, whatever. The margins HFT shops work on are RAZOR thin (a fraction of the bid-ask spread), and statistically driven.
3) 21 billion is probably a low number. But you have to remember that these firms trade many asset classes outside of US equities. The profits of HFT firms as a % of the notional value that transacts in all asset clases are VERY small. IF YOU LOOK AT WHAT GOLDMAN, MORGAN ETC MAKE TRADING INTEREST RATE SWAPS IN THE OTC MARKET, HFT PALES IN COMPARISON. I BELEIVE GOLDMAN IS GOING TO MAKE APPROX 5B THIS YEAR JUST MAKING IRS (INTEREST RATE SWAP)MARKETS FOR CORPORATE AND MUNICIPAL AMERICA. THE LACK OF TRANSPARENCY AND COMPETITION DRIVES THEIR PROFITS AND COST CORPORATIONS AND MUNICIPALITIES BILLIONS EACH YEAR. IF HFT SHOPS WERE ALLOWED TO TRADE IN THIS SPACE, THE SAVINGS FOR THE NATURAL USERS OF IRS PRODUCTS WOULD BE MASSIVE. WHY DO YOU THINK GOLDMAN ETC ARE HAPPY TO KEEP HF EQUITY TRADING IN THE FOREFRONT? WHAT THEY MAKE ON THEIR HFT DESK IS PISS IN A BUCKET COMPARED TO WHAT THEY MAKE TRADING INTEREST RATE DERIVATIVES. THEY WANT TO KEEP THE ATTENTION AWAY FROM THAT MARKET SO THEY CAN MAINTAIN THE MONOPOLY. THE US IRS MARKET IS ABOUT 2.5 TRILLION A DAY, THE US EQUITY MARKET IS ABOUT 400B. THE SPREADS ARE ABOUT 100X WIDER IN THE IRS MARKET THAN THE EQUITY MARKETS. YOU DO THE MATH.
Hope this helps,
bevo
do you have cites for ANY of that or are you just screaming into the night?
I am just screaming into the night, please return to American Idol...nothing going on here.
Thanks 'bevo' commentary appreciated.
Bevo,
Your post is very much appreciated. I'll use descriptions and data over hysteria and anecdotes any day of the week. I can't pretend understanding every bit of what you worte, but it gives me a starting point to research more.
I have one question. You wrote:
Who's preventing them to do so?
Thanks
Hi NorthernSoul,
There are many reasons for this, but I will outline a couple:
1) OTC IRS requires firms to have a large balance sheet because the notional values are so large. Without central clearing (currently being worked on), most counterparties (corporations & municipalities) don't want the bi-lateral risk of facing a hedge fund with a 100MM or 1B balance sheet. They feel much more comfortable facing a JP or Goldman (obviously they have much bigger balance sheets).
2) The risk managers for the firms that use IRS (Fannie, Freddie, Corp, Muni) have personal relationships with the sales traders at these banks. The traders take them out for steak and tits in their face, and the risk managers throw orders at them regardless of spread costs, without shopping them around to get the best deal.
3) Many IRS products are non-standard (custom) so its hard for HFT and other lower frequency hedge funds to be able to provide "electronic or screen" liquidity in them. This is probably where the banks will always have an advantage, they just need to be held accountable for their spreads...and facing a little competition will do that.
I am not an expert on IRS, so I am probably leaving a few things out. I just wanted to give an example of what HFT has done for transaction costs (spreads and brokerage)and market impact (slippage) in a developed market (equities) vs. an undeveloped and larger market (IRS).
Hope this helps,
Bevo
Bevo,
Your doing these guys a service, but I think your wasting your talents on this crowd.
There is much better, more in depth reporting and commenting at Traders magazine (Nina Mehta) and Matt Goldstein's reporting at Reuters.
True, but in fairness to the general public, what dealers, market makers, hft's do has never been properly articulated. The economic value never explained in a way that can be understood by people who don't know trading jargon.
Yet the general public is running around screaming about things they dont understand. As someone below mentioned..the general public should be concerned with what they pay in fees and commissions. It cost them FAR more money than the slippage they experience on their order executions. Lets be honest, how many orders does the average retail investor enter in a year? Most people allocate to mutual funds thru their 401k and IRA.
They scream precisely because they do not understand...and nobody in the financial press helps them do so. We, humans, are much more afraid of what we don't understand than what we do.
NY does have a latency advantage over CA... we have to get up at 4:00AM to be in the office by 5:00AM (earlier if you live in SoCal and have to deal with the traffic) in order to have enough time to drink coffee and skim through FT and WSJ before the bond futures markets open. Then again, we're trading Asia during dinner, and at midnight we're up for the European markets' opening bell. So who is frontrunning who?
This sounds like progress, I hope these politicians have the balls to make change happen.
Keep hammering away at this ZH, I believe you can effect change.
We all have to be doing something by contacting congress. Look at what happened with the clunker cars. The majority who don't pay taxes screamed blue murder that the free money had run out, and within one day, congress has tripled it. We who pay a large and rising percentage of tax have been screaming amongt ourselves and are getting lipservice. To avoid the tyranny of the majority, we each have to blast our congresspersons. No congressperson every took up a cause because it was the right thing, just as no one has returned a rental car washed and waxed.
well spoken indeed. loved the rental car analogy and will add it to the portfolio of economic lessons that I share with my kids and friends.
Goddamn, well I declare...
...when life looks like easy street there is danger at your door
Well I hate to do this to you deadhead (as I am one as well) but this site is really a Ship of Fools.
Please remember that when you blast "folks who don't pay taxes" as a derogatory you are lumping folks like me into the mix. Folks who went to war and came home 100% disabled and unable to work. Unless of course you are one of those in our society that believe that if someone is stupid enough to stand & defend then they are lower than the convicted market manipulator or pedophile that has made it to parole and now pays taxes.
Thank you for your service and your continued representation of the fine folks who are your comrades in arms and deeds.
As one Vet to another, I think you know he wasn't aiming at you. You can agree with his generalization. This is more bread for the circus. I pray you recover if that is possible.
thank you for your service paul. it saddens me tremendously that folks like you became disabled. I hope your days do nothing but improve as we go forward. good luck to you sir.
God bless you Paul. Thank you endlessly for the sacrifices you have made for us and our country. You are a hero. Best of luck in these hard times. My prayers are with you.
I sincerely apologize for my thoughtless words. My intention was those who "take" as opposed to those who "give", of which you are one. I respect you and thank you.
What makes us here at ZH is our ability to freely engage. Thank you for listening and reflecting and to the folks here at ZH for providing this most excellent forum. You have earned my deepest respect for your demonstrated capacity to reconsider your considered opinion.
We are far stronger when we appreciate the ripples our expressed opinion achieves in educating and yes frustrating those that would rather we would just go away. I appreciate the community in assisting my education in the matters at hand and in accepting the insights I have to offer on related areas in which I do bring a fair understanding.
BTW, I join with DH in getting a good WhoT outta your rental car observation.
Thanks once again.
I think he just meant to say, when the public really speaks, Washington DC gets scared.
Thomas Jefferson said something to the effect that when the public is afraid of the government you have tyranny, but when the government is afraid of the people, you have a democracy.
Look what happened when AIG bonus issue hit the airwaves--the same day, the AIG counterparty list came out with GS way up on top with 13BILLION glaring, but the public didn't understand that, but they sure did understand how 165MILLION in bonuses to a banrupt company that was being kept alive by taxpayer money was wrong.
That is why it is so important for the public to be educated on the complex issues at hand, so that the voice of the people will get loud enough for Washington to hear.
And, i know, some of you will say there is no way to help people understand the issues at hand, but that just isn't so--for example, HFT=frontrunning, how complicated is that. The WSJ had an article, "Is Wallstreet Picking Your Pockets" to describe HFT, and that was a nice little start.
Responsible self government success is predicated upon an educated and engaged electorate. Much of what is transpiring are efforts designed to fragment and distract our society from the activities of those who would desire to operate in the shadow.
Sunlight is indeed what is needed now.
already wrote and faxed letters. They hear from me twice a week at least.
Shocking that you concur with this site's thesis and your congressman hears from you twice a week.
Assuming you are one of the anonys who posted above and are here supporting HFT, here is just one of my concerns.
None of the anonys above (will you folks pick aliases so we can address you individually?) speaks at all about the fundamentals of the underlying companies, the underlying economy, or anything fundamental at all. The talk is ALL about market mechanics. Your advanced theoretical trading strategies rely, first and foremost, on the preexistence of capital markets whose initial purpose was to provide a vehicle for enterpreneurs to raise capital. These entrepreneurs want to actually make a useful product and bring it to market at a competetive price. They want the capital to build plant, buy equipment, hire employees and build wealth. These capital markets pre-existed the quants / bright boys / HFT shops, and they will exist when you are gone.
In other words, let's be clear: we are not the ones fucking up your markets, YOU ARE THE ONES FUCKING UP OUR MARKETS. You produce nothing; you are not investors; your money in the markets is unreliable and cannot be thought of as capital. You come here like goddamned lampreys and attach yourselves to anyplace where money is changing hands and skim off some for yourselves, adding nothing valuable for the effort. I am virtually certain that, at the first sign of trouble, your boxes would cut your losses, liquidate your positions in less than 25 microseconds, and leave me holding a bag of shit. Fuck you very much.
The only thing shocking here is that you can afford to bribe my senators and congressman, and they are therefore much more likely to listen to you than to me.
Let me explain my reasoning. I have an alias, so you can pick on me all you want.
There are 2 types of players taking positions in any market. Investors make trades based on valuations. Dealers make trades based on anticipation of demand (to buy or sell). If the market only contained Investors, there would be many points in time when you simply could not trade because there would not be an investor in the market with an offsetting interest. If the Investor needed to trade urgently, they would have to keep walking thier price up (if buying) or down (if selling) until another Investor would see an opportunity to trade at a huge discount. Hence, a huge increase in volatility, and prices in the market would be less reliable and informative to the capital markets.
Dealers make bets on future demand and position their books accordingly. As a result, they can take positions opposite to Investors whenever Investors want. Dealers have to have a view on demand from Investors. If they are wrong, they suffer losses. When they are right they realize gains. It's no free lunch. The process does not depend on the timescale involved. The economics are the same whether we are talking about microseconds, days or years.
A market containing only Investors would be a huge failure. Both Investors and Dealers are needed, and will always exist, no matter what regulatory changes are made. You can never regulate people's reason's for trading.
Market manipulation was one of many issues for Roosevelt in the 1932 campaign. Emphasis was on stock promotion and full disclosure. For example, in the Columbus Ohio speech in fall 1932: Roosevelt pledged himself to a comprehensive program of securiites law reform. "First... to inspire truth telling, I propose that every effort be made to prevent the issue of manufactured and unnecessary securities of all kinds which are brought out merely for the purpose of enriching those who handled their sale to the public." Second, he proposed federal regulation of securities exchanges and holding companies that sell securities in interstate commerce. Third, he urged the complete divorce of investment and commerical banking. And finally, the candidate recommended prevention of Federal Reserve funds from being used for speculative enterprises.
In 1932 there were 34 stock exchanges, led by the NYSE which accounted for 90 percent of all issued securities transactions. Initial Roosevelt administration drafts of 1934 Act would have provided: (4) floor traders were to be abolished; (5) specialists was to be replaced by exchange personnel who would have no right to trade for own accounts; (6) brokerage houses segregated into (a) brokers and (b) underwriters and dealers.
NYSE effective lobbying response, unified broker-dealers and regional exchanges in opposition and received support from Roosevelt's Treasury and Commerce Departments, Federal Reserve Board, Twentieth Century Fund.
As a result, the 1934 Act was a compromise: (2) broker-dealer segregation transformed to study; (5) floor traders and specialists continued subject to SEC rules.
Source: Joel Seligman, The Transformation of Wall Street: A History of the Securities and Exchange Comission and Modern Corporate Finance (2003); The Obsolescence of Wall Street: A Contextual Approach to the Evolving Structure of Federal Securities Regulation (1995).
My Point: force the segregation (eg, Glass-Steagall) of dealers from brokers, and make firms who act in a agency capacity vs. principal capacity compete in the marketplace. This structural change to the industry would effectively reduce the potential of front-running via HFT (currently the focus of much debate on ZH), thereby reducing if not eliminating suspicions of HFT as a beneficial innovation to industry and customers alike, while at the same time eliminate a myriad of legacy conflicts-of-interests that have exist in the industry and have been debated since FDR campaigned for his first term.
Obviously though, entrenched interests in the industry would fight tooth and nail to prevent such segregation. So sellside_pov, my question to you is whose interests do you have most in mind: the customer or your firm's?
Hmm,
I'm not sure I see how reintroducing Glass-Steagall would have any impact on the HFT market. I do think we have to do something about this notion that a firm can be "too big to fail", and thus has to recieve a bailout if they can't meet their obligations. But don't forget that this problem emerged because of the idiocy going on in the fixed income markets. In a lot of ways a lot of this attention would be better focused on the fixed income business rather than equities. No large firm went under because of problems in their equities business.
Firms that have deposits with govt guarantees should be under more strict risk limits. But at the same time, we need more firms willing to take principal/facilitation risk. GS has that market cornered and they are making a killing at it, not because they are evil. Just because there is a lot of demand for risk bids and not a lot of firms willing to step up.
Thanks for posting your source.
sellside_pov, my raising Glass-Steagall unintentionally became a red herring... (although bringing it up is relevant to other issues).
My point was that the 1934 Act was a compromise. FDR administration at time wanted to segregate brokerage houses into (a) brokers and (b) underwriters and dealers. Industry lobbying at the time prevented that from happening.
I am slowly coming to the conclusion that the innovation of HFT in itself may not necessarily be a bad thing although some legitimate concerns have been raised by Themis, Lime and others which I would like to see addressed (including 90 second latency between execution and dissemination of info to consolidated tape). It seems, however, issues are mitigated if firms who operate dark pools such as GS's SIGMA X should do so only (or primarily) in an agency or riskless principal capacity. Note: NYSE PTR consistently shows GS's program trading is approx 5% customer facilitation, 10% agency and 85% principal. Now if 90% of the GS 85% principal trading is riskless principal trades (NYSE report doesn't reflect riskless principal), great! But if the 85% is proprietary trading, then GS is effectively running a hedge fund as a bank holding company with the FRB as its prime broker, while having "material, non-public market information concerning an imminent block transaction". Given that, the concern is that HFT obfuscates members' conduct with respect to just and equitable principles of trade.
Don't forget that speculators are a necessary part of the market. I won't assume if or how you trade, but I think it is fair to say that plenty of retail people (including those on this site) are trading for 1 to 5 points several times a day. There is no difference between scalping for a tick and scalping for a couple of points (except monetarily).
Keep in mind that Fibonacci, Elliot Wave, Stochastics etc. are also not based on "the fundamentals of the underlying companies, the underlying economy, or anything fundamental at all" as you are concerned about. You are condemning a huge portion of traders with that assertion.
Be careful what you wish for.
Yes. But.
The whole point of HFT is to generate risk free trades using speed as an advantage, analogous to a tax on those who don't have the infrastructure and shady deals to have the speed.
Traders taking risks provide real liquidity, the optional nature of HFT is why it's 'fake' liquidity.
...ie, no service or benefit to the functioning of the market is provided for this 'tax', unlike the real liquidity service provided be the speculators.
There is no such thing as a "risk free trade" and that most certainly is not the "point" of HFT. There are hundreds of different HFT strategies across many asset classes at dozens of banks, hedge funds, and prop firms that take real risk and provide real liquidity.
You know what I'm saying, don't pretend. If you have a method of discovering what trades will be ocurring, by frontrunning with flash or probing for limits with subsecond IOCs, you have a risk free trade.
You're generalizing. Weak.
It is you who make a generalized and weak argument when you say "the whole point of HFT is to generate risk free trade". Go ahead, take away Flash orders and IOC orders and you will see that HFT will remain. The HFT business model is not predicated around these types of orders and their absence will only slightly (if at all) affect their sustainability. Flash orders represent about 4% of market volume. These order types are offered by four exchanges and if you have a problem with them direct you criticism towards the exchanges, instead of lumping all HFT together and blaming them. There are plenty of HFT strategies trading commodities, currencies and fixed income that have absolutely no involvement in anything you are talking about and to include them by a weak generalization is misleading. If you want to go after those who are profiting from Flash or IOC orders then fine, but at least know who your enemy is.
Great points Hank,
I think the problem is Tyler (while an expert on many things) does not understand market microstructure amd has gotten the masses in an uproar here. This idea that there are penny arbs just laying around all over the market is comical. There is no risk free money, there is no "tax on the retail trader". Spreads are the tightest they have EVER been and the market depth is the deepest its ever been, EVER. The only people who will tell you its not are the old specialist and sales traders who used to make millions on wide spreads and FRONT RUNNING buy side orders. They are just pissed off because they are out of a "job".
A risk free trade is as real as the Unicorn or the Tooth Fairy.
SWRICHMOND:
Cheif,
If your fortunes change in 25 microseconds and you are left holding the "bag of shit" then you are not the noble investor that you claim to be. Did your "investment" move a penny against you? Maybe ten cents? Really sounds like you are investing for the cash flows and dividends of the company? No one forces you to trade, no one forces you to pay anything more or sell for anything less than you want. USE LIMIT ORDERS and no on is fucking you. Stop being a bitter moron and think about what you are saying. Holding the "bag of shit" after 25 microseconds, but I am an investor providing capital for plants, property, equipment, employees and materials and other noble causes.
WHICH IS IT???
Thank you all for the comment stream above. I am not a trader. I'd like to be an investor. I earn a living the old fashioned way: I bring a useful product to market at a competetive price, and actually deliver it in quality and in a timely manner.
Baseline: I have completely lost faith in the markets, and HFT is merely one symptom. This loss of faith is cumulative: naked shorting, fails, goverment intervention, manipulation, $147 oil, 50% of equity volume attributable to program trading (of which, HFT is a chunk). I can't even get a goddamned stock certificate anymore; I am merely a "beneficial owner" of some DTCC entry, as an "investor" I don't really own anything. I can't tell what's real anymore, and in the face of substantial evidence I will accept that the possibility exists NONE of it is real. Skepticism has become cynicism. Bite me.
Here's what I do know, Hank: speculation adds liquidity and aids price discovery. But no one will be able to convince me that a computer buying and selling anything millions of times a day is making those trades after analysis of anything or any information related to the underlying company.
At this moment when the trading activity becomes completely divorced from the company, the company's stock is no longer an "investment", it is merely a convenient vehicle for gambling. The company and its stock are not even relevant, are they? And in fact, any item could be used in this manner, any item at all. The equity markets merely provide an active marketplace with plenty of participants and concurrent opportunuties to buy and sell. In other words, the buying and selling itself is the principal activity; the actual stocks or prices don't matter at all. That is, unless someone in the HFT community would like to assert that they've created AI that evaluates companies in microseconds? I didn't think so.
None of you IMO have begun to address my concern that your money is "unreliable" because it is fleeting. Without getting into a bidding war related to percentages, consider this: suppose 100% of market volume was directly related to just HFT itself; would that be acceptable? Would that constitute a healthy market? How about 99%, with as the other 1% of volume us regular joes trying to "invest" our 401(k) money so that we could retire someday? Would it be smart for us to trust such a market with our long-term money? Would you? How much is too much? How much constitutes an unreliable market? Does it even matter to HFT strategies or to you, HFT's proponents? I don't think it does.
The markets grew substantially on the backs of 401(k) money; 401(k) savers were never told, by anyone, that they were providing a playground for scalpers.
So true.
"But no one will be able to convince me that a computer buying and selling anything millions of times a day is making those trades after analysis of anything or any information related to the underlying company."
You have to understand that a good portion of what is considered HFT is really an execution technique and that the reasons for the trade can be and are related to fundamental analysis. If a big mutual fund wants to unwind or shave their positions based on fundamental factors, they are going to use algorithms and techniques to slice their orders into smaller tranches with the goal of minimizing market impact, ie VWAP. They can do this through their own trading desks or through agency or principal desks at another firm.
Many big funds choose to devote their attention to their fundamental/technical/quantitative analysis by outsourcing the execution to a principal program trading desk. If a multi billion dollar mutual fund wants to rebalance their portfolio they will "sell" that portfolio (usually a long/short portfolio) to a program desk for a fee to achieve their rebalancing needs. This is done through what is called a blind bidding process where the program desk is unable to see what they are actually buying. It will be provided with only some very general characterisics of the portolfio, like $ amount of longs, $ amount of shorts, total number of stocks, # of NYSE vs Nasdaq stocks, big/mid/small cap breakdown etc. That program desk then assumes the risk, which is generally adverse as this is substantially informed flow. The program trading desk then uses a HFT approach to work out of the positions. Additionally, program trading figures published by NYSE are inflated due to the double counting of this flow. Usually if a portfolio is "sold" to a program desk they will cross the portfolio at the closing prices in an after hours crossing session and this volume is included in the NYSE program trading figures. Then as the program desk works out of its newly acquired positions over the next day or two through the use of HFT techniques such as basket trading, that volume is counted again.
While the program desks at some firms may be making a mint right now, it is necessary to look at some of the reasons why. Many banks have scaled back their operations due to balance sheet issues and the higher levels of volatility experienced over the last year. This has made the bidding process less competitive and the desks that have decided to accept the risks are getting paid a higher fee than normal to do so.
Now, there are other HFT trading strategies that are dedicated to modelling the supply/demand function of a particular instrument. These look at many order book factors and short term behavioral characteristics and work to provide liquidity in the same manner as a market maker or specialist. Only, they can do it faster and more efficiently, and the result is much tighter spreads than ever seen.
I can't wait for the response from all the "anonymous" HFT traders defending their practices.
Casinos have better security measures in place than the markets. HFT traders and their practices would be banned outright.
Background: I have no co-located servers, nor do I see flash trades (but I do place them on purpose), but my software (all written by me) does execute trades in approximately 125ms (round trip time from a quote being placed on an ECN to confirmation of execution).
Eliminate dark pools and you make it easier for traders (high and low frequency/speed) to pick off institutions making big moves. Why anyone is against dark pools is beyond me... they are an avenue for your crap mutual funds to transact without showing their hand.
Eliminate flash trades and you slightly increase the average trading cost for retail investors. Flash trades exist not so that dumb mutual funds can show their hands to GS - but so that someone adding liquidity on an order can get a fill on the local ECN without having their order route out (turning a rebate into a fee). It seems to not matter to anyone that any institution that doesn't want their orders flashed can trivially make it so that they are not.... It is about as hard as replacing "EDGA" in their order with "ISLD".
As for the uptick rule, see my comment below, and read the very well written piece by Lime Brokerage on why this is a disaster in the waiting:
http://www.limebrokerage.com/files/news/2009-06-19.pdf
It sure would be nice if people would get upset about things they understood. If only there were better branding, none of this would be an issue.
Dark pools should be named: Trading venues to protect mutual fund investors
Flash should be named: Increase liquidity rebates to retail investors
Well said peter^2. People are afraid of what they don't understand. That's really the crux of all this fuss. Unfortunately I have little doubt that they will be able to convince a Senator or Congressman to take up their cause as we all know that they are even more clueless.
peter^2, dark pools would be less of an issue if I knew that my broker-dealer was acting purely in an agency capacity (see my posting above).
Following up on our discussion from another thread... while everyone here (TD/ZH in particular) is debating HFT millisecond flash orders as means to frontrun the market, perhaps we're missing the bigger picture/issue here.
If NBBO subsecond HFT routing/execution is raising hackles about frontrunning concerns, what about the 90 second delay in reporting to the consolidated tape?
From the Consolidated Tap Association (CTA) Plan: The reporting party shall agree to its contract with Processor to report last sale price information relating to Eligible Securities to the Processor as promptly after the time of execution as practical and in accordance with Sections VIII and X hereof.
From CTA Plan Exhibits, Forms of Processor Contracts: PARTICIPANT agrees that it will report all subject prices to SIAC as promptly as possible; will establish and maintain collection and reporting procedures and facilities such as to assure that under normal conditions not les than 90% of all subject prices will be reported to SIAC within that period of time (not in excess of 1 1/2 minutes after the time of execution) as may be determned from time to time by CTA; and will designate as "late" any subject price reported by it which is not collected and reported in accordance with the above-mentioned collection and reporting procedures or as to which PARTICIPANT has knowledge that the time interval after the time of execution is significantly greater than the period of time referred to above as from time to time determined by CTA.
The following lists Exchange Participant's subject to the "CTA Plan" with respect to transactions in Eligible Securities taking place on its floor: AMEX, BATS, BSE, CBOE, CHX, ISE Nasdaq, NSX, NYSE, NYSE Arca and PHLX.
In addiition, FINRA shall collect from its members all last sale price information to be included in the consolidated tape relating to transactions in Eligible Securities not taking place on the floor of an exchange and shall report all such last sale price information to the processor in accordance with the provisions of Section VIII(b) hereof.
Section VIII(b): FINRA responsibility. The FINRA shall develop and adopt rules governing the reporting of last sale price information to be reported by its members to the Processor for inclusion on the consolidated tape. Such rules shall (i) specify FINRA member having responsibility for reporting each particular transaction, (ii) be designed to avoid duplicate reporting of transactions on the consolidated tape, and (iii) specify procedures for determining the price to be reported with respect to each particular transaction.
Source: CTA Plan, Composite as of July 1, 2009 http://www.nyxdata.com/cta
Moving on to FINRA's Order Audit Trail System (OATS)... FINRA Rules 7400 through 7470 (OATS Rules), require member firms to develop a means for electornically capturing and reporting to OATS order data on specified events in the life cycle of each order for OATS reportable securities, including convertible bonds, and to record the times of these events to the second. On September 28, 2005, the SEC approved rule filing SRNASD-00-23 relating to the OATS rules. As approved, the amendments (1) implement the OATS requirements for manual orders (OATS Phase III)... (4) permit NASD to grant exemptive relief from the OATS reporting requirements in certain circumstances to members that meet specified criteria.
Technical Requirements: reportable Order Events must be packaged into one or more Firm Order Report files (FOREs) and submitted to OATS on a daily basis... FOREs do not [note: bolded in source doc] need to be transmitted to OATS on a real-time basis.
Order Reporting Scenarios: OATS is not a real-time system. Some order information, such as timestamps, must be recorded real-time, but order events occuring during one OATS Business Day are only required to be submitted to OATS by 05:00:00 Eastern Time the next calendar day or be considered late.
What is interesting to note in the OATS Reporting Technical Specifications is FINRA Rule 7430 - Synchronization of Member Business Clocks. Rule7430 requires any FINRA member firm that records order, transaction or related data to synchronize all business clocks used to record the date and time of any market event. Clocks, including computer system clocks and manual time stamp machines, must record time in hours, minutes and seconds with to-the-seocnd granularity and must be synchronized to a source that is synchronized to wihtin three seconds of the Nationa Institute of Standards' (NIST) atomic clock.
[Comment: So while everyone is freaking out about subsecond flash orders, the above rasies the whole question as to a 3 second latency around synchronization of clocks!]
No doubt, HFT firms co-locating with an exchange or routing flash orders have an upper hand "observing" a constant stream of real-time (subsecond) NBBO quotes. As for "analog traders" reading the tape the old fashion way, think about the latency between trade execution, and 90 second consolidated tape reporting before you even see the quotes on your terminal. By the time the market is being bid-up or down in fast market conditions, you are potentially seeing quotes 1-1/2 minutes after they occurred before you even start typing a electronic trade into your computer.
The moral to the story is that any short-term/day-trading strategy employed by humans is now at a severe disadvantage to HFT prop shops. However, theoretically, the edge remains for "humans" trading longer term time horizons.
Final points: The industry for the most part is operated by honest individuals doing best effort work. However, the inner workings of the industry is complicated and no doubt competitive agendas do lead to issues and conflicts-of-interest. Debate as to the pros/cons of HFT is a healthy debate, but don't get too caught up in conspiracy ideas--the truth is likely more to do with systemic issues (often unintentional or as result of legacy or technological constraints) that are revealed when doing primary source research. The industry often provides a forum for public comments prior to implementation of rules... if you are concerned about front running, this and other similar documents may be of interest to you:
http://www.finra.org/web/groups/industry/
@ip/@reg/@notice/documents/notices/p117629.pdf
Guys, once an order goes to out to a public market center, and other people see that order and make some trade based on the fact of the order, that is not front-running. At that point is called "technical analysis". It's only front-running when an order is entrusted to a broker and that broker uses that information to trade for another account in front of the customer.
You are assuming that the order is being executed in "public". For example, GS transacts riskless principal "parent" orders sliced into "child" orders on Sigma X (GS' "internal pool of non-displayed liquidity"), but as per CTA Plan is not required to disseminate trade to consolidated tape for 90 seconds. Hypothetically (not saying that this is happening as it is "considered conduct inconsistent with just and equitable principles of trade"), GS's prop desk can perform "technical analysis" of this data prior to public knowledge.
Accordingly, as was once sought by FDR when pushing through the 1934 Act, brokerage houses should be segregated into (a) brokers and (b) underwriters and dealers. Lobbying at the time resulted in a compromise, that broker-dealer segregation should be studied. Time to bring back that study.
Note: per FINRA Manual, "Information as to a block transaction shall be considered to be publicly available when it has been disseminated via the tape..." Also, "The general prohibitions stated above [ref: IM-2110-3 Front Running Policy] shall not apply to transactions executed by member participants in automatic execution systems in those instances where participants must accept automatic executions."
Source: http://www.sifma.org/regulatory/private/
pdf/012609/Agenda_Item_07.pdf
As has been alluded to by others, market makers have always had an "unfair" competitive advantage as to knowing order flow, bid-ask spread, etc. HFT techniques such as flash orders provide a computerized method to continuously "sense" real-time where the best bid and offer is (in public and dark markets alike). The public, in the meantime, must rely on delayed reporting to the consolidated tape of executed block transactions (10,000 shares) based on legacy 90 second parameters.
The idea that GS operates a dark pool, and dissemenates information going in or out of the pool to its own prop desk prior to publishing to the public is just silly. Apart from being flagrantly illegal, if Goldman's client base thought that was happening they would simply not do business there. You should not underestimate the sophistication of the clientbase, many of whom are Goldman alumni or are from other sell side firms. In other words, they have been around the block a few times and are always suspicious of their brokers, more so than the regulators.
Conflicts of interests between brokers and dealers are worth considering, I agree. Although I don't think I would advocate for a blanket separation.
Regarding the point about the 90 second time limit to disseminate trades to the tape; I believe it exists to give a human time to report the trade after it happens, for large block trades where humans intervene. In general the consolidated tape has a much lower latency and is used by many automated trading applications. Of course you can use a direct exchange feed which I would assume has a little bit less latency, but the feed is no less available to the public than the consolidated tape.
Loser, everyone on here is anonymous, including and especially your fearless leader.
Scratch that. It should read "fearful leader"
Ghostfaceinvestah is not anonymous? Go back to watching MTV "Made" and STFU.
Once the cat is out of the bag... and the emperor exposed to have no clothes at all... individual investors will pull their money out altogether. Banks and their high speed trading arms can create the next bubble with their own profits but even the banks cannot afford to be the last to hold the bag. Long term buy & hold has proven deadly. A bear raid is coming. Only question is when.
"Of course, that would just make sense."
Take anything that makes sense, put it on it's head and expect the Government to do exactly that.
So to all of you who complain everyday and think your voice can't be heard I submit the following information.
IF YOU DON'T DO ANYTHING YOU ARE PART OF THE PROBLEM. Here is the site to his email:
http://kaufman.senate.gov/services/contact/
Here is his phone number
(302) 573-6345 or (302) 424-8090
Call me crazy let's see if our politicians really represent us. Also we will watch those officials closely who care to step in front of this train. (IE OPPOSE IT) WE WILL BE WATCHING YOU....Time for the people to speak and TRY and take back our markets..
I called to thank him.
One second rule. But it won't happen.
You should hope it does not...
At one second, a material portion of todays liquidity would go away.
For those who do not understand what that means in practice, the spread between the bid and ask for equities would be larger, as people and institutions alike would be less willing to place orders to the book, wanting to give themselves a degree of margin in their pricing to compensate for the 1 second.
Bottom line - the retail investor will pay a larger bid/ask spread then they currently enjoy, and the losses that mutual funds and other institutions too dumb to route their orders away from market places that are poor choices for their orders (i.e. flashing an iceberged order), will end up losing even more money.
It's worth it.
what a load of crap
Perhaps you'd like to go back to trading in fractions while we are at it. Maybe you should be forced to call in your orders too...
1 second is an eternity. If it were to happen, many derivative products (ETFs for instance) would end up getting listed on non US markets.
Big deal.
True genius. $5,000 account & an expert on market structure.
Couldn't agree more. Where was the outcry when specialists on the floor of NYSE could see ALL order flow AND trade for their own account? People have completely forgotten how bad it was when there was 1/4, 1/8, or even 1/16 bid/ask spreads. Folks, 1/16 is 6.25 cents look at the liquid stocks and you will see how much better it is today then it was even 10 years ago, and you have High Frequency liquidity providers to thank for that.
We'll call it the "Anonymous Themis Rule" or my personal favorite "Randolph and Mortimer's Way."
If we look at history, our market for many decades had a much larger bid/ask spread.
There is a price to pay for transparency.
Right now, we are being fed a myth that we cannot afford to pay a larger spread for transparency.
This argument will work until we can actually quantify the hidden fees being charged by the gaming of the market under the guise of liquidity.
Well stated.
Flash Orders = BRIBE ME (Exchange) with Volume & you get the DEAL
There is nothing wrong with High Frequency Trading, as long as Goldman Sachs et al apply their brains to predict direction. Then they would have a normal trading book with plenty of $100 million profit days but with plenty of $100 million losses days too
Doing HFT just by looking at other people's orders is an illegal EDGE
It's like tell me beforehand that Steelers are going to score a touchdown in last few seconds, and I will bet millions on them in Vegas
These assholes would see a customer wanting to buy a million shares for $20 and they would run up the price forcing the customer to pay higher and higher
What is the customer to do?
Actually, it's more like "tell me beforehand when every high school team in the country is going to score a touchdown, and I will bet $100 dollars on each." The genius of HFT is that it is a nearly imperceptible, risk-free tax on hundreds of millions of transactions. No one would ever notice.
Do you have any proof of this said "front running"? Just because someone says so in some blog doesn't make it true. Get some facts before you spout off.
Are you serious???? A customer wants to buy 1MM shares and the market moves the quote? Do you even think before you write things like this?
1) Any customer moving more than the displayed size on the inside market should think about how they execute their order and not just bid (per your example) 1MM @ offer. There are lots of people who specialize in reducing market impact. You are just a dumb ass throwing out a ridiculous example without any understanding of the business.
2)What the fuck do you think used to happen to block order back in the good 'ole days before HFT. If you wanted to move 1MM shares, you call the Goldman sales desk and they gave you a market DOLLARS (FUCKING DOLLARS) away from the current inside bid/ask mean. Do you think the NYSE specialist put up their capital to LOSE money to you so you can get a good fill??? Hysterical.
Disgruntled Cardinals fan. Get over it.
If the flop and drop many expect becomes a reality before the next election cycle there will be careers, political and otherwise made and broken over these developing issues. Unfortunately, I fail to discern the institutional willpower to accomplish what must be accomplished without the pain being inflicted. And more is the pity. Our institutions, public & private and many of those entrusted to lead and staff them have forgotten their duty.
There is no political will to reform the markets; everyone knows the reforms will reveal truths which the markets will not withstand. No politician is willing to be the one who "caused the markets to crash". No politician is willing to be the one who "threw us into a depression." No politician is willing to rock the boat. These are just more reasons why printing leading to hyperinflation is all but assured. The U.S.'s most recent historical financial calamity is a depression, so socially and politically we fear it more than we fear hyperinflation, which we've not endured for generations. We are biased to inflation; the hyper part will be an accident.
That's a weak argument. Just look at what Elliot Spitzer did.
Yes, but this is national level politics we're talking about. We must work towards achieving it, but it requires constant effort on a much larger scale than just a lone crusader. Ron Paul had been a lone crusader for decades. We don't have decades.
I will send Kaufman a message with my opinion, however he is unlikely to pay any attention to a foreigner.
Peace
I just pulled most of my 401k money out because of HFT. Most of my family members are doing the same thing.
You can only take so much of the BS, from the printing press moving full steam, the criminal media pumping of this bloated pig of a so called 'free market' I have a feeling things are going to snap into in the near future. You can feel it in the air. The clearest way to find the truth is to note what you’re not being told. And how the media bullies and cuts off anyone who expresses caution to the latest moves of the markets. From 'Green Shoots' to 'better than expected earnings’’, In all my years of following the markets, I have NEVER, NEVER seen such manipulation and desperation in pumping up stocks!
Did that a while back..Most of whom I know are not in the crooked casino.
I know of a good "flash" signal that would send a message.
Let us "conspire" to place $10 bets for 1000 shares at 0.01 for GS every day by the thousands, maybe millions.
The "flash" will get noticed and it will tell what most of think GS is really worth.
Imagine there's one billion times 1000 shares for bid at 0.01 on GS. That's worth 10 billion dollars.
Will GS bite? Will they be greedy enough to fill those orders and bank 10 billion dollars?
Not to say that GS is playing fair with all their $100mm trading days,
BUT, for the average retail investor with their money in mutual funds / 401k, the biggest tax on them is likely to be hidden fees, not disclosed, which is the true scandal of 401ks.
> First, the SEC should restore the substance of the uptick rule.
Anyone who wants to put the uptick rule back in place in any form other than a circuit breaker is ignoring the technical impossibility of putting the geany back in the bottle. With multiple market centers, trade reports delayed (up to 90 seconds!) and the inherent latency of the speed of light - it is not possible to have a unified view of a best bid or even a last trade price... and therefore it is not possible to have a fair (and certainly not a sensible) rule.
A very well written comment to the SEC outlining the technical issues was written by Lime Brokerage: http://www.limebrokerage.com/files/news/2009-06-19.pdf
Sorry to say but I'm not holding my breath on this change.. nor any of the other macro changes that need to be made.
Nothing will be done, and I mean NOTHING.. until the noise that the constituents make to their elected representatives is louder than the constant stream of coins being deposited into these politician's political campaigns.
While you and I are informed and upset - and motivated to act, the majority isn't. Sure they may bitch and moan about things, but the truth is.. they are far too busy crunching away on spray cheese and crackers and waiting for American Idol to start.
I hope they wake up soon.
Well, I'm willing to take some bad with the good. I'm still wondering, though, where the clamor is for the downtick rule? You know, in conjunction with the organized "bull runs" - abusive large block futures buying combined with coordinated "misinformation" campaigns (CNBC, etc.). All that naked buying using my tax payments washed through the Fed, AIG and the like, is pissing off this shorty, Senator Kaufman.
People don't invest they speculate
It's not a market it's a casino
Buy, Hold & Prosper never existed
Government has nothing to do with the governed
Since this post is on opacity, I am curious, when will you dissolve the opacity of the revenues Zero Hedge received from the AdSense placed adds for Orc Software for High Frequency Traders? I note after my post last week you stopped having such adds show up.
Tyler, the particpants of this site DEMAND to know how much money Zero Hedge made from said ad and DEMAND to see proof that all such revenues, no matter how trivial, were disgorged.
lol, nice segue.
@anon 21554,
You're talking pennies of revenue. Seriously.
Adsense varies and is hard to estimate but here is from Google's adsense help
"Effective CPMEffective cost-per-thousand impressions (eCPM) is a useful way to compare revenue across different channels and advertising programs. Essentially, effective CPM represents your estimated earnings for every 1000 impressions you receive.
Effective CPM doesn't represent how much you have actually earned -- rather, it's calculated by dividing your earnings by number of page impressions, then multiplying by 1000. For example, if you earned $0.15 from 25 page impressions, then your eCPM would equal ($0.15/25)*1000, or $6.00. If you earned $180 from 45,000 impressions, your effective CPM would equal ($180/45,000)*1000, or $4.00."
So even if tens of thousands of impressions were made of the page when the ad was displayed, you are likely talking about revenue that is less than $100.00
Since the ads change regularly, the actual revenue generated from the Orc ad would be very small.
Your note that the revenues may be trivial tells me that maybe you understand exactly how trivial they likely were.
IMO, you are still allowing some noise to affect the signal.
Maybe ZH should make nice with the HF guys and get them to build a high frequency page impression algorithm to game Adsense.
RFP for Supplemental AdSensity Provider has been percolating
Mumble havoc, and let slip the chihuahuas of wrath!
To all of the geniuses that continue to want the fastest/greatest/nonthinking robot in the universe to continue to trade 500 gajillion shares in every asset class every single day. What started back in 2000 when I went to lift some genius ecn that was flashing 10,20,50,100k shares every second on the offer and couldn't get filled on a single share (whether I lifted for partial or whole amount being flashed), has turned into this beautiful game of make approx. 4/5 people very,very,very,very rich in the whole trading universe. I remember calling the ecn and telling them that I wanted to pay the offer that continues to flash for some size, and they aren't filling me, guy tells me that's because he is only there for 1/100th of a second. So, I tell him, what the hell are you doing letting this happen, this is ruining your markets. I received silence with no answer. So, all the politicians wanted to get rid of the trading floors with traders making a couple hundred grand scalping teenies and eighths all day off the flow, so they went to pennies. That eliminated most all trading shops profitability and got rid of all the market makers. Which has led to this distinguished robot market in which every somewhat liquid name is 100k up both sides from 6 market makers. People claim this is fantastic, which sure its good for Joe Q buying a couple hundred shares of whatever, on a spread less than a penny. BUT, in the long run, this game becomes the ultimate game of who has the most money. I trade prop fx now and while I receive the same 10 different 4 letter codes for JPM, Barclays, and RBS, all day every day, I wonder to myself how in the world people have let this happen. As someone who makes his living watching the robots, and fighting them on a daily basis for the last decade, the only thing that I really can think of is how can I go get a different job, because this manipulated game of robot scalper is not only horrible, but is going to end oh so badly. Also, the real people on real trading floors are still not trading, and real liquidity is absolutely zero. When I watch 1 month peso swaps for 10 USD not get filled every single day of the week, I just laugh at what this market thinks it is doing. You want the robot markets, that are there for a million shares both sides, you are voting for a system that will make 5 people so rich they can't see straight, and you will have eliminated an unbelievable amount of perfectly good jobs. Cheers
Spoken like a true dinosaur voice broker. The good 'ole days of ripping off the buy side are gone. No one is picking up the phone to buy a half a yard 10 pips off the inside market? That's not trading, that's stealing. Do you think someone who is smarter and faster than you is going to let you lift them when its profitable for you and when they don't, they are running a scam, not a good honest business like when you used to give the buy side a size fill all at one price (never mind that it was 10 pips off market)?
BTW,
The reason for shrinking liquidity in FX has nothing to do with HFT. All the banks have pulled or reduced their quotes do to market risk and bilateral credit issues.
I love that squeal of desperation in your voice, you really thought you'd be able to trade better than a real trader, didn't you? No guts little wanker, all you got is a nice little scam and none of the respect you thought you'd get.
Funny.
I'm getting sick and tired of the "it's very complicated" and the "you don't understand" comments from people on this blog as well as Bernie, Paulson, and Gutner. They fully understand the system, the oh so complicated yet bull shit phony cds at aig with the aaa rating, the sub-primes, the flash orders, the dark pools, and so on. It's all done for the benefit of the little guy, the pension funds, widows, orphans, charities, and so on. Bitch pleeaase. GS made 3 Bazillion last quarter -- doing what? Putting together some mergers&acquisitions--no, bringing some legit companies public --no, loaning money to businesses --no, venture capital --no, selling some bullshit cali bonds --i dont think so. So what goods or service did they produce for 3 billion in profit? Ohhhh, they provided liquidity to the marketplace. peterpeter and the rest of you can keep singing "money for nothing" (and the chicks are free) but that song is coming to an end.
Do you trade the markets? What service do you provide?
He or she accepts risk. Real liquidity.
Do YOU trade the markets? What service do YOU provide?
Funny how you assume to know what someone else does. Much like most posts here, baseless. My question still stands to #21598. And to #21722, don't attempt to answer a question posed to someone else.
As for me, since you ask, I have accepted more risk and provided more real liquidity than you could ever dream of.
I do as I please, thanks. So, you're saying that you actually trade, or do you do that HFT scam?
You do know the difference, I take it?
I do trade and I certainly know the difference and it is painfully obvious that you don't.
I don't believe you. All you got are snotty comments. Wasted my time. Bye.
So.. distinguish yourself!
Would love to have more than "anonymous" to follow here..
This Hft shit is awful. I watch as goldman runs up in the morning you buy in thinking you have a nice rising market day, then they sell out from under you, so If you are slower with your finger you hold the loss. They also run up so they can sell the stuff they bought the other day (earlier) at a profit. You are almost certain to make a profit if they have spend a lot of maony near the close the day before and this day is a drop. they drive it up the next day to ensure they don't take the loss. of course that isn't manipulation in a traders eyes, but it is in ever sane persons eyes the world over.
I can bet enough with my unlimited tax payer funded money from the discount window, newly given by uncle sam for me to play with, to ensure the market does what I want. I trade double the next largest player. You going to tell me the market doesn't do what I want. Give me a break. By the way that money you give me for free (almost) has to be paid back by you at 4% (treasury rates). I am a systemic too big to fail corp, using your money to gamble and take on bigger risks, controlling the market, making billions, and causing massive macro side effects as a consequence. Influencing fuel and food prices, the value of your dollar, and future inflation. You fools are giving me the power to do this, taking all the risk, and have to pay back the money I have used to make myself rich. This is what is fu...ing happening!!!
Meanwhile so I can make even more profits the interest rate you get on your saving account is nothing, and you'll have future inflation. I am goldman Sachs and the rest of you americans are suckers. Enjoy yourself while I fu.. you up the ass.
Is HFT's advantage ,in essence ,much different than a trader / broker firm in the 1920's having a direct phone line to say the NYSE floor , or a branch of same . Jesse Livermore history comes to mind .
Same or different ? Phone line to floor cost some bucks , gave an edge for more efficient buying/selling , the average Joe could never afford it , but it was never outlawed. I am beginning to see the fallacy of being anti HFT , its a distraction .
Bill
Please explain how you "watch as Goldman runs up in the morning". Are you talking about the S&P pit? Or is this a scenario of the market going up and it must be Goldman doing it?
By the way, nothing you mention in your post has anything to do with HFT.
HFT Anthem - How to Skin a Cat - Husker Du
We are starting a cat ranch and taking one hundred thousand
cats
Each cat will have twelve kittens a year
The catskins will sell for thirty cents each
One hundred men could skin five thousand cats a day
We could be dealing a profit of over ten thousand dollars
But what should we feed the cats?
We will start a rat ranch next door with a million rats
The rats will be twelve times faster than the cats
So we can have more rats to feed each day for each cat
But what should we feed the rats?
We will feed the rats the carcases of the cats
After they have been skinned
Now get this!
We feed the rats to the cats and the cats to the rats
And get the catskins for nothing
We feed the rats to the cats and the cats to the rats
And get the catskins for nothing
We feed the rats to the cats and the cats to the rats
And get the catskins for nothing
We feed the rats the carcases of the cats
After they have been skinned
We feed the rats to the cats and the cats to the rats
And get the catskins for nothing
Rats to the cats and the cats to the rats
And get the catskins for nothing
http://www.youtube.com/watch?v=qWqTHYBqPgs
From the comments it would appear that actual "Masters of the Universe"...er "market liquidity providers" are in our midst.
Get your Louisville Slugger quick, before they get away :)
I got Seven Mac 11's
About Eight .38's
Nine 9's
Ten Mack 10's
The List Never Ends
Fat Joe was the shizzle back in the day.
This is good.
"nnovation. It is a lovely word that teases the mind with the notion of expansive possibilities... A win-win game. Just as Americans once expanded westward to relieve social tensions, we are now exhorted to have a rather imprecise faith in the notion of technological change to deliver us from our current troubles. Embracing that starship to unlimited possibility and deliverance requires a faith that cannot be easily refuted: Who, after all, is against progress?
David Noble, who has written so powerfully about this in his series of books including America by Design, Religion of Technology and Beyond the Promised Land, has explored this mythology of redemption and salvation through changes in technique and deference to undefined dreams of “possibility.” It is time to apply his perspective to the religion of financial innovation.
We have seen the financial sector, with its massive resources and access to the best minds of public relations, work to create what Stuart Ewen calls “spin.” ....we have been ever-so-persistently encouraged to draw the comparison between developments in financial products and the great leap forward in social uses of computers and the Internet, or advances in biomedical research. Former mathematicians, physicists, and computer scientists redirected their energies and Ph.D. tenacity to the domain of finance. Financial innovation was presented to us in a way that suggested that great things were happening for mankind. The presentations were usually vague. To understand them, we had only the power of our own imaginations, or perhaps, failing that, our awe in the face of this powerful expertise, confidently propelling us to a greater future.
Skeptical questioning–”Where are the benefits to be found?”–was frowned upon or ignored. ”Just doesn’t get it,” the whisperers would say. The skeptic was discredited with the insinuation that he or she was either 1) jealous of those who were making money and progress at the same time, or 2) had fallen down like a tired horse and just could not keep up with the new breed of thoroughbreds on Wall Street. After all, what kind of human spirit would get in the way of progress?
The reason I bring forward the notion of “spin” is that I sense that the great benefits of financial innovation were not self-evident, and that some form of intimidation or coercion was needed to keep the genie of doubt in its bottle. If a great Wall Street luminary were actually forcefully questioned, could he really convince grandma and you and me that he was making the world a better place? The point of the exercise, the spin, was to create deference to this process, to deter questioning and create social license, to make what those rocket scientists were doing appear as though their work was not merely profitable but something that would benefit us all. It was presented like a free option to the public: Wall Street pays these guys and “shazam!” They do things that make us all better off. No reason to get in the way of that, or even suggest that your Congressman or friendly bank regulator keep an eye on the proceedings. The subtle message was, “Get out of the way.” Such was the Kool-Aid poured into our glass by the financial press and pundits. That capital avoidance and tax avoidance and regulatory evasion were involved in offshore and off- balance-sheet methods was rarely emphasized, as the notion of innovation was paraded like a badge of valor.
Then we had the crisis. The side effects and spillovers and bailouts reminded us that what we had allowed to unfold was not a free option on progress but something that had a downside, too. It’s funny how a crisis changes your perceptions....
Despite these recent protestations, I am witnessing the lingering hangover of deference to so-called “innovation.” It permeates the debate on regulation. We hear that getting in the way of new technique may cause more problems than it solves. Or that the innovators can always outrun the regulators. Or, and this is my favorite, that nothing you do to stifle these new derivative products like credit default swaps will (ominous music in the background) lead to “systemic risk.” Systemic risk is the new stun-gun phrase to impart dread to those who would tamper with this delicate machine.
Malarky. This is all code for defer to the wishes of those who make money from these techniques.
Financial engineers on Wall Street are employed to make money for Wall Street firms and themselves. There is no hidden code that says they will design their products to align private and social benefits and costs. That is precisely where a healthy role for regulation and laws and enforcement can be envisioned. At the same time, it is important not to be romantic about that vision, though. Regulatory policy often does not live up to the romantic appeal, as theories of collective action and regulatory capture have illuminated."
http://www.newdeal20.org/?p=3476
To the point: http://www.businessinsider.com/the-market-has-never-been-fairer-for-the-...
To the point: http://www.businessinsider.com/the-market-has-never-been-fairer-for-the-...
Few of these comments actually discuss the Senator's statements. One of his bullet points is an outright lie: "Flash orders allow exchange members who pay a fee to get a first look at share order flows before the general public."
What is he talking about? These orders are disseminated in their exchange's Level 2 market data feeds. If you use such information in your trading (by hand or by algorithm), then you get that provided your system supports the new message formats.
You don't pay anything more to be part of a special club -- if you want that, become a DMM at the NYSE.
It also kills me that all these flash order articles/blogs/comments/etc never mention that flashing an order is optional (albeit typically opt-out). The trader in the NYT article is a mook for showing serious size with that order flag.