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Survey On HFT Shows Opinions Split Down The Middle
In a surprising outcome, Securities Industry News reports that according to a research survey conducted by Greenwich Associates, 55% of investors think high-frequency trading does not have a
negative impact on their trading operations, "viewing the phenomenon as
the latest development in a constantly evolving market," while 46% think that
their institutions are placed at a disadvantage by traders who employ
such strategies. Basically, the conclusion, before we disclose more of the study's observations, is that practically nobody has any idea what is really under the HFT surface. With an equal number of advocates and critics, confusion is rampant (and for some of the more vocal HFT supporters who believe the NBBO is never crossed and displayed liquidity is always protected, we have three words: you are wrong... More on that and "qualified contingent orders" tomorrow).
Other findings of the survey:
Forty five percent of institutional
investors believe that high-frequency trading poses a threat to the
current market structure and in some instances, involves preying on
traditional stock investors; Thirty six percent believe it actually
benefits the market, adding liquidity to global markets and 20% say
they do not know enough about the activities of high-frequency traders
to make a judgment about its overall market impact.
Where there is agreement is on the lack of data: Institutional
investors -- 85% -- believe they do not have enough information to make
any final judgments about high frequency trading. As one survey
respondent put it: “Both detractors and those touting the liquidity
provision and spread-tightening benefits of high frequency trading have
very little data to back them up.”
Despite the uncertainty, a clear majority of institutional investors –
57% - - favor new regulations on high-frequency trading while 21% would
support a high-frequency trading ban.
The conclusion by Greenwich Associates:
“Despite the lack of clarity surrounding high-frequency trading as
defined as strategies that seek to take advantage of small market
inefficiencies, (the Greenwich Associates’ survey) results suggest to
us that institutional investors believe regulatory actions aimed at
limiting the use of individual techniques like flash orders and IOIs to
maintain a level playing field might be entirely appropriate at this
time as these are seen as unfair advantages,” said Greenwich Associates
consultant John Colon.
“However, the results also make it clear that additional
research on high-frequency trading’s impact on investors and its net
effect on the market structure is needed before regulators act to
impose any broad new rules,” he added.
By all means: let the SEC investigate extensively. With many more in-depth analyses likely to come out, as there are as many justifiable opinions as there are revenue streams, many of which will refute point by point the objections raised in Goldman's dark pool defense (for example), the end result will be a much more enhanced proliferation of information about this critical topic. At the end of the day that is the only way to prevent ongoing abuse by those who hoard not only the critical market structure data but its application.
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INGSOC drones. What else... They will wake up one day and wonder what happened.
Didn't 4 out of 5 kids prefer Jiffy peanut butter over that other leading brand? Or was it 4 out of 5 dentists prefer Crest over that other leading brand?
Oh yeah, now I remember. 4 out of 5 doctors prefer Camel cigarettes over that other leading brand.
Yeah, that's the ticket.
NEW YORK (AP) -- GMAC Financial Services is in talks with the Treasury Department for a third injection of taxpayer aid as the auto lender faces a November deadline to raise the $11.5 billion capital cushion mandated by results of the government's "stress test" earlier this year.
A Treasury Department spokesman confirmed Tuesday that GMAC is in discussions about securing additional government help.
Of the 19 banks that underwent the government's stress tests, 10 were determined to be undercapitalized. GMAC is the only one of those to not have been able to raise all of its necessary capital from investors.
Citing unnamed people familiar with the matter, The Wall Street Journal reported on its Web site late Tuesday that the U.S. government could hand over another $2.8 billion to $5.6 billion to Detroit-based GMAC. The move would make GMAC the only U.S. company to receive three rounds of bailout aid.
GMAC spokeswoman Gina Proia declined to comment.
The government currently holds a 35 percent equity stake in the auto lender after providing $12.5 billion in aid to keep loans flowing to buyers of GM and Chrysler cars. The latest capital infusion would be in the form of preferred stock, the paper said Tuesday. The government's stake could rise if the new preferred shares were ever converted into common stock.
Last December, the government gave GMAC $5 billion in exchange for 5 million shares and GMAC's agreement to extend financing services to bailed-out Chrysler LLC. Then in May, the Treasury Department announced a new $7.5 billion injection for GMAC. Of that, $4 billion went to support new loans to Chrysler dealers and customers, and the rest went toward boosting GMAC's capital base -- still short of the $11.5 billion the government's "stress test" showed the company would need to stay afloat if the economy worsens.
To help GMAC raise the remaining capital, the Federal Deposit Insurance Corp. took the rare step earlier this year to allow the junk-rated company to gain access to the FDIC's debt guarantee program. The FDIC agreed to guarantee up to $7.4 billion in GMAC-issued debt in case the company defaulted on payment, and has already backed about $4.5 billion worth.
According to the paper, the FDIC told GMAC Tuesday that it would guarantee the remaining $2.9 billion in debt in order to prevent the company from being forced to reduce its lending volume at a time when the U.S. government has a sizable interest in making sure customers can afford to buy vehicles from government-backed automakers General Motors and Chrysler.
The Treasury spokesman declined to comment on whether the government's ownership stakes in GM and Chrysler make it more willing to again help prop up GMAC.
GMAC has been trying to recapture its once-dominant share in the auto financing market. Leasing virtually collapsed during the financial crisis as the resale value on leased cars plummeted and the practice stopped being profitable for lenders. The government-subsidized lender rebranded its banking division earlier this year as Ally Bank, hoping to smooth over its image and lure new customers.
GMAC's market share in the auto financing market has fallen sharply during the crisis as its cash available for lending declined. Banks like J.P. Morgan Chase and Wachovia, meanwhile, scooped up new business. GMAC had 3 percent of the auto financing market in the first six months of the year, down by almost half in the same period a year ago, according to Experian Automotive.
GMAC in August posted a wider second-quarter loss of $3.9 billion, mainly due to booking a $1.6 billion charge related to the company's ResCap mortgage business. GMAC also incurred a $1.2 billion tax charge on its conversion from a partnership, or LLC, to a privately held corporation.
Net revenue fell 22 percent to $1.03 billion from $1.32 billion.
Midway through the quarter, GMAC added Chrysler Group as a preferred lender. However, GMAC's automotive unit lost $727 million in the quarter, as higher unemployment rates in the U.S. pushed the number of delinquent contracts up a percentage point to 3.4 percent.
Institutional Investors were surveyed - this includes firms that participate in predatory HFT, so the sample population is skewed.
If this included small and retail investors, the poll findings would be much different.
+100
The consulting firm Greenwich has no idea what they're doing. Please do not followed their advice.
That was my thought, a big increase in sample size is needed. Then present the results in segments by firm size right down to individual retail.
The results would be much different.
Typical. 55% in denial.
Right. In addition, one needs to question exactly how Greenwich gets paid. The research and its conclusions (in this case a real cop out) can assist in fulfilling many paying clients' objectives.
I'm thinking Greenwich gets paid the same way Moody's & S&P used to.
Paraphrased: fifty-five percent feel market manipulation is just fine as long as it works out in their favor.
I have a mind to join that club and beat them over the head with it!
Paraphrased: forty-five percent feel the grass is greener on the other side.
Actually, we really need a survey of the entities that have gone bankrupt as a result of these evil things, since anyone still i the industry must be making money using some type of an advantage?
dark-pools and flash trading should be banned entirely.
As a trader, i'd rather see ALL bids. If either of these give anyone an advantage over a regular trader, they should not be in existence, especially if not transparent.
OK, let me get this straight : Greenwich Associates, whose pay model depends on the securities industry paying it for product, purports that HFT has no negative influence.
Hmmmm. Lets have Fox News run a survey to assess the quality of support for the Health Care Bill...
Can we get any more inbred here? What pray, tell, are the data points and scope of the survey? Cynicism is hard to resist - after all they can't explicitly come out in favor of HFT so why not couch it more modestly in terms of confusion (" the constantly evolving market")
Thank God big brother is there to tell me I shouldn't be fearful (or rather that which I don't "understand" - because I am not as clever as the government 0% funded crowd at GS etc - will not hurt me!)
Get in line sheep, its all for our own good.Three cheers for front running and obfuscation.
Is the survey only using buyside recipients/ trading desk? Or does it also include organizations that practice HFT, or cater to it? I ask because if it is the latter, then this survey is akin to surveying folks in Pennsylvania about whether they approve or Democrats in general, or not.
Someone please provide a detailed example of predatory HFT. I'm not talking about a thought experiment. Please provide it as it occurred - times and sales, level II data, etc.
If banning it altogether is called for, there should be a plethora of such examples.
As for this blog post, nice job being deliberately obtuse. You know full well that HFT, IOIs, flash trading, and dark pools are separate issues. Throw it all at the wall and see what sticks, eh?
Bring on the ad hominems!
lol, just place a bid and watch another exchange post volume mimicking your bid before it even hits. Then lift your bid, but the mimicked order is gone first.
lol, time and sales for dark pools, ummmmm...
Are you kidding me? Someone bidding and offering in front of a public quote is a problem? So traders on the floor jumping in front of each other (as they have done since the beginning of trading), competing to offer the best limit price is a problem? Seriously? If you don't want your intentions known, don't show them. Hide your orders - or go market.
And again, I'm talking about HFT, not dark pools. I know distinguishing between two separate ideas can be hard.
Kind Sir,
Your attempt to equate the behavior of floor traders and HFT are at best simplistic. I spent many years on the NYSE floor as an AGENT for my clients. There is a huge difference between the two and I can guarantee that no specialist or floor broker ever was able to conduct their business in the reckless, predatory fashion that is HFT. That is a fact,not an opinion.
If you place a bid on an ECN and the same bid appears on a different ECN first, it's unrelated to your bid - HFTs can place a similar bid quickly, but it would still have to be a response to your bid and would appear after it. If you have an issue with not have price-time priority across ECNs, you can just place bids on all the ECNs at once. What exactly would the mechanism be for an HFT to detect your bid and place it before it appears on the market? True, flash orders, but if you didn't want that, you just wouldn't place it as a flash order.
Are you really a trader? The terminology "lift the bid" is not correct - you can lift the offer, or hit the bid, but I doubt you want to trade with yourself, so it probably should just be cancel your bid.
Placing bids across all ECN's is not a viable approach to maintaining time priority. What do you do if you only want 1000 shares?
These are not separate issues because they each represent ways that technology has been perverted to provide an advantage to some at the expense of the many. Put down your thesaurus and ask any major buy-side trader about how predatory the marketplace has become. Have a nice plethora !
Yes, they are separate issues. Eliminate HFT and dark pools could exist. Eliminate dark pools and HFT could still exist.
I am 100% in favor of regulating dark pools and examining the impact HFT has on market microstructure. What I am against is the knee-jerk, foaming-at-the-mouth perspective this blog generally approaches these complex issues from.
All I see are grand claims of injustices with no actual evidence backing any of it up. It shows a lack of a mature perspective and honest interest in understanding and resolving potential problems.
Instead of honest consideration and debate most posts on these topics on this site assume their conclusion and throw in a little snark for flavor.
And, I haven't used a thesaurus. I would hope a middle schooler could understand the words I've used.
HFT and Dark Pools are both cut from the same cloth.
HFT transacts at speeds that puts humans at a disadvantage. There is no way to regulate HFT. The sheeer amount of message traffic makes it impossible for anyone to be certain that this order flow is compliant. The problem is simple. HFT allows prop desk participation in the marketplace under the guise of electronic market making without any obligation to the marketplace. This blurs the traditional line between agent and principal. This is not innovation, it is front running and has created a predatory marketplace. The argument that HFT adds liquidity is weak. The traditional market maker/specialist model forced contra side participation when it was needed and allowed for an economic incentive to exist to support these liquidity needs. HFT is simply code language for gaming the exchanges current "liquidity rebate" scheme.
112759 is right regarding the ad hominem attacks. "This is not innovation, it is front running and has created a predatory marketplace." You realize front running has a specific meaning, which is executing orders for your own account before your pending customer orders? Most HFTs don't even have any customer orders, and the ones I know of that do, have a wall where the only entity that is aware of the customer orders doesn't even have a prop account. Now, if you are incorrectly using the term "front run" to jump in front of a market order, HFTs can only respond to orders, so they would actually be after the order. If you are even more incorrectly using the term "front run" to mean posting matching liquidity on another ECN, that's just ridiculous.
I love the idea of a full SEC investigation. Have them kill HFT on a bucket of stocks and compare their activity to the stocks that allow HFT. With the control group, they could find out if anything bad really is happening or not.
Remember what happened when they took a look at the uptick rule that everyone was so sure was killing stocks and found that volatility actually was reduced without it. More traders, more activity, more equilibrium.
Would be interesting to see what an actual test - rather than speculation - of these activities would conclude (yes, I am fully aware that any test the SEC would do would not be as good as the test you would do...but at least its more concrete than what we have now)
Conclusion : Nobody has any idea what is going on. Public securities must trade on public markets ! Liquidity which transacts faster than human response times should be illegal. Displayed interest must be rewarded. This is not a complex issue. Common sense must prevail.