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Special Order Type Exposure Hurting HFT Advantage

CalibratedConfidence's picture




 

The TABB Forum interviewed Haim Bodek today on the state of the current HFT advantage.  Surprisingly he believes that because of the exposure of order types that have been available to only a connected few, the bad HFT's we have focused upon so heavily are now a dying breed.  This "special order-type" is something he considers to be part of the market's asymmetry and order types have been a continual focus of his campaign.  The cries from public figures like him, Themis, Nanex, and Zerohedge have lead to a somewhat more transparent reporting of the types of orders available for high-speed traders.  

We all agree that not everything has to be simple.  Certain environments require complexity and usual strive to make it accessible on a human intellectual level.  Exchanges can not completely reverse what has happened since REG-ATS/NMS but what they are doing is making these "special-orders" available to the public.  Ingrained traders will surly spend sleepless night studying all the new ways to enter orders but this continues to handicap the heavily sought after retail Mom and Pops

The issue around the transparency of the order-types is a hot button issue because many in the anti-bad algo camp still believe that aside from exposing special order types, there is still more to correct in terms of regulatory oversight ability, market fragmentation, and overall protection for the less connected investing public who may just be trading after their 8-10 hour corporate workday.  Most of these folks get their info from the evening news and micro-structure complexity isn't something easily digested by any mass public therefore it is conceivable that they will still have no idea what they are trying to protect themselves from (internalizers, maker/taker rebates, queue positioning, etc) with all this new shit order-type information.

Market reform still has a ways to go but the turn around on special order types is welcomed and comes with a warning to the SEC to not sit back in front Brazzers for long as more work still needs to be done. 

Get to work SEC

 

 

 

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Tue, 02/26/2013 - 12:22 | 3277852 ThisIsBob
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Why don't we just smash the machines and go back to trading under a tree?

Tue, 02/26/2013 - 12:38 | 3277979 TraderTimm
TraderTimm's picture

You're absolutely right ThisIsBob - all this insanity makes me yearn for some good old fashioned open-outcry.

Tue, 02/26/2013 - 09:48 | 3277184 babylon15
babylon15's picture

What's the order type?

Tue, 02/26/2013 - 08:11 | 3276967 Racer
Racer's picture

Now isn't that a surprise that DAX and FTSE are down loads but US futures are UP!

Manipulation sure stinks dreadfully

Tue, 02/26/2013 - 07:31 | 3276919 Confundido
Confundido's picture

Gold manipulation back at 4am ET in earnest: THEY still are in COMPLETE control of the situation. Let's see if they slam the price further down by 8:20am ET.

Tue, 02/26/2013 - 12:21 | 3277901 NEOSERF
NEOSERF's picture

And yet there are those that believe that PMs are a hedge...when your price is manipulated to this extent, YOU DO NOT HAVE ANY IDEA OF THE VALUE OF WHAT YOU HOLD.  To wit, if you are starving and have a gold coin, you cannot eat it and you would trade it in a heartbeat for a can of Spam....

Tue, 02/26/2013 - 06:53 | 3276896 pndr4495
pndr4495's picture

In an open air physical marketplace there is a  sense of honest dealing between the buyers and sellers , but the very second a back of the tent "special deal" section is created , well , suspicion is aroused and rightly so. Why ? Not everyone gets the special deal. Think of the scene in " Casablanca " when Bogart happens into Ingrid Bergman and Paul Henreid in the bazaar and the hawker says something like , " aaaah for friends of Mr. Rick it is now only 1/2 price , for special friends of Mr. rick now only a 1/3 of the original price." Favoritism which is bought will never level the playing field , NEVER.

Tue, 02/26/2013 - 06:13 | 3276871 groundedkiwi
groundedkiwi's picture

Is the SEC by the laws it operates under, permitted to investigate the Fed?

Tue, 02/26/2013 - 00:40 | 3276630 Barbaric relic
Barbaric relic's picture

How bout all bids and asks be placed for a minimimum of say one minute -- wouldn't that get rid of all the spoof bids?

Tue, 02/26/2013 - 05:26 | 3276837 Mediocritas
Mediocritas's picture

I support the minimum quote life concept however it doesn't, in and of itself, guarantee a stop to stuffing (they can still blast in parallel). It just means that algos have to be more cautious about when they do and do not stuff.

One option was to limit maximum quotes per second, but that doesn't work because it just leads to blasts in the first fraction of the second.

I prefer a minimum time between quotes (per participant), ie, a minimum market tick. If, for example, the minimum is set to 0.01 seconds then the maximum number of quotes per second is 100 and they can't be compressed into a single blast in the first millisecond.

I'd prefer to give humans a chance and set the market tick to 1 second (one quote per second). Bye bye bots. Spreads would widen but so what? We'd get MASS back, and market mass is more important than small spreads.

An obsession with small spreads is one of the justifications for exchanges enabling HFT. The consequence has been books with absolutely no mass in them, no depth. Run a price in either direction and the book vanishes before your eyes. Thanks to HFT shenanegans, the entire market is able to whip around like a paper plane in the wind because it has no mass, which then kills confidence and participation and increases risk, ultimately undermining the exchanges' profitability. Apparent depth is just a stub illusion (as it stands) and no way in hell is that a good thing. 

Then there's all the bullshit with hide-til-light orders etc. That shit has to go too. When the referee is biased in favor of one team, players start quitting the league and spectators lose interest in watching. Bad refs kill the game.

Ironically, the exchanges would likely make more money if they eliminated all their special services and the expensive IT that supports said services.

Tue, 02/26/2013 - 01:28 | 3276688 fourchan
fourchan's picture

yes time is their exploit and leveling that field is the only path to fairness.

Tue, 02/26/2013 - 00:11 | 3276556 Confundido
Confundido's picture

Wanna kill HFT? Force the brokerages/exchanges to give the public the option to tick on/off whether they want their order to go through machines or face other orders from people. Want free markets? Give the brokerages/exchanges the latitude to charge different fees according to how the public chooses to process the orders. The market will sort out the rest, as usual.

Tue, 02/26/2013 - 04:19 | 3276816 Kriya144
Kriya144's picture

+1

Amen to that!

Tue, 02/26/2013 - 12:29 | 3277940 SafelyGraze
SafelyGraze's picture

kill hft? who would want to kill hft?

not only does hft alleviate freezing in the markets, but it also allows traders to experiment with, and perfect, different approaches for offering choices to human investors and to algorithmic platforms.

each offer represents a choice. what some people malign as "painting the tape" should more accurately be viewed as "generating a broader set of choices"

limiting hft would entail limiting choices and, therefore, limiting freedom. 

and no one wants that.

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