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State Street On Electronic Trading And The Liquidity Hazard
Continuing the series of State Street presentations on relevant market topics, the latest piece "What are the Implications of the Growing Use of Electronic Trading" focuses on the nuanced difference between "real liquidity" and "liquidity hazard", depending on whether one is a price taker or market maker. Yet based on limited available public disclosure, non-premium clients of the NYSE and other PT-espousing exchanges have no visibility of who and under what conditions any given broker/dealer and quant become one or the other. And while merely a few years ago HFT was less than half of traded stock volume, recent data indicates high frequency trading now accounts for over 70% of US volume, and thus it is important to reassess what is the relevant set of data disclosure by dominating broker/dealers. The risk is palpable - as State Street itself notes, there is "equity capital at risk."
And closing off this weekend's program reading series is the following 2005 panel piece from Euromoney, which captures the insights of insiders such as John Elay of Hotspot FX, Scott Freeman of GFX, Bank of America, George Houlihan of GETCO, Ed Hulina of UBS, Ulf Lindahl of A.G.Bisset & Company and Mark Robson of Reuters. Particularly notable is the disclosure by Ed Hulina who discusses the liquidity mirage: "There are a lot of banks making prices and there’s ultimately only so much end-user volume to support those prices. So, yes, I think there is a risk of a liquidity mirage in some respects if there is a proliferation of platforms and people providing prices and representing more liquidity at any given time than is actually there."
Zero Hedge has disclosed how HFT/PT is now unquestionably dominating the markets as traditional trading mechanisms have fallen on the sidelines. Hulina's point in 2005 is exponentially more relevant now: how can we possibly know what liquidity is real in this market dominated by intermediaries and evaporating end-users? Absent regulatory reform, the only way to know would be a forensic analysis once the current topology breaks and the components are analyzed in retrospect. Of course, by then it would be too late.
hat tip Richard
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An average person living in Main Street is dyslexic - to read all this and figure it out for themselves, unless some talking head on a major network presents a bunch of gui and repeats the same thing over and over again for 2 or 3 days under BREAKING NEWS with the accompanied dramatic music. Attention Deficit Disorder runs rampant in this country. I sent an article to a bunch of folks, of what I thought is mind boggling and upon questioning I found out that none of them have read anything beyond the headline and the few lines. This country's attention to detail is ZERO.
Just jam it all in a database... and crank up the speed.
~~
http://kx.com/Products/kdb+tick.php
What are the messaging protocols ? AMQP ??
Well Well Well..... What do I have here. http://en.wikipedia.org/wiki/Advanced_Message_Queuing_Protocol
The usual suspects:
" AMQP was developed from mid-2004 to mid-2006 by JPMorgan Chase & Co. and iMatix Corporation who also developed implementations in C/C++ and Java. JPMorgan Chase & Co. and iMatix documented the protocol as an interoperable specification and assigned to a working group that included Red Hat, Cisco Systems, TWIST, IONA, and iMatix. As of February 2009, the working group consists of Cisco Systems, Credit Suisse, Deutsche Börse Systems , Envoy Technologies, Inc., Goldman Sachs , IONA Technologies PLC, iMatix Corporation, JPMorgan Chase Bank Inc. N.A , Microsoft Corporation, Novell, Rabbit Technologies Ltd., Red Hat, Inc., Solace Systems, Tervela Inc., TWIST Process Innovations ltd and 29West Inc. "
..................
HFT is harmless. My ass.
It just a protocol and there are many out there. A HFT platform isn't too complicated to develop. Just like manual trading, the keys are how close you are to the data, the trading strategy and capital.
WHERE are the investigations into Goldman's conduct???
There have been a hundred serious allegations, and YET..not one elected official has led the charge for investigations...
I think if the truth ever comes out about the scale of the corruption and fraud in this country and on Wallstreet, our GOVERNMENT will be shown to be the ultimate PONZI creator and sustainer!
Support Ron Paul's ammendment! It is clear we are going to get NO leadership on this issue from Washington, because they are all bought and paid for.
It is beyond sickening.
// our GOVERNMENT will be shown to be the ultimate PONZI creator and sustainer! //
No Madoff has been made an example and jailed for 150 years. No more ponzi scheme, YAY ! Happy days are here again !!!
Is there any metrics on the trading of pension, mutual funds and endowments - are they the price takers in the above discussion ? Are they also part of the government strategy to create a positive feedback loop ?
lots of info on Maiden Lane - - -
http://blogs.ft.com/maverecon/2009/07/a-walk-down-maiden-lane/
Tlyer just a suggestion....
Why isn't "Richard" a Zero Hedge contributor?
Well done Richard, you come up with some of the best stuff, it doesn't go unnoticed..
lol, trade anon onslaught before teh bell////
the government will not be taking action against goldman
goldman is the government
mock turtle
We don't know how much runs into this
Wow... MW has a negative story for a change....
http://www.marketwatch.com/story/is-grousing-about-goldman-reaching-crit...
this 70% of vol for HFTs has been thrown around lately (I guess started by Themis) but can they prove that number?
http://advancedtrading.com/algorithms/showArticle.jhtml?articleID=218401...
I'm not entirely sure that HFT in the FX space is an appropriate example to point out the issues related to HFT in the equity space. For one thing, FX is a LOT more fragmented than equities (a lot more execution venues) and consequently HFT there would be LESS advanced than in the equities. For another, the trading strategies are probably more opaque in the FX space as FX is increasingly becoming just another leg in a multi-asset class trade.