Special Order Types and Exchange Blathering
The acknowledgment of the importance of Special Order Types highlights the asymmetry created from guaranteed economics by exchanges to HFTs that benefited from an uninformed public unaware that the game of checkers they thought they were playing was now, indeed, a game of chess with different pieces available and different rules....not publicly disclosed or not disclosed without any "reasonable effort" to "fairly inform" the industry of the new rules and pieces available to "play the game". Colin is saying DE didn't need to disclose Hide-Not-Slide (HNS) because it was default behavior for the exchange. Louis Marascio and O'Brein both highlighted a 2009 release with message coding instructions for using HNS, again, no document of Order Type Approval....Internet way-back machines will show exchange websites didn't highlight these order types, they only covered what they wanted the "public" to know about.
When these guys come out (pro-HFTs attacking those highlighting the problems associated with HFT), now, 6 years after the guaranteed economics were created out of Reg NMS which was designed to improve micro-structure, they conflict each other regarding Order Types, like you saw with Colin and Louis tweets about HNS disclosure, it should painfully obvious that the only guys who know what they are talking about are the ones admitting they don't have all the answers. An exchange CEO & creator makes "good faith efforts" to explain how his exchange works while another guy claims regulatory connections and electronic coding prowess at the exchange level highlights a release two years post Reg NMS and the re-branding of Knight's Attain exchange as Knight, Citadel, and Goldman launch exchange Direct Edge in 2007 with the default behavior of HNS not approved by the SEC/NASD/FINRA and clearly structured to take advantage of Reg-NMS and the systematic restructuring of our National exchange economics. No longer were vanilla order types beneficial. Note O'Brein likes to highlight Edge's "Edge", here's an excert from Haim Bodek's "The Problem of HFT":
Market fragmentation in combination with the maker-taker market model, and in conjunction with a dramatic period of exchange “innovation,” had resulted in a new form of artificial edge. The net result was that unfair and discriminatory asymmetries in exchange order handling had been introduced into the marketplace. Special order types were the key to unlocking the advantages.
HFTs don't use them (vanilla order types) either, the alpha is in their special order types and guaranteed economics that take advantage of the less informed orders that exchanges were telling customers to use on their websites (IE Limit, Market, Stop-Loss, etc).
Remember, it's 6 years past Reg NMS and only now, post Wall Street Code, have we seen a coordinated effort to promote positive PR for HFT as proponents waste energy defending themselves against a growing sentiment that questions the veracity of a trading strategy that Direct Edge exchange head can only try to explain in the limited knowledge hinted at when describing the Special Order Type Guide as a "Good Faith Effort". It's bullshit, admit it and stop rationalizing this in a similar destructive manner as the mice of the Utopia experiment from the mid 1900s. I hope this better highlights the debate around HFT and disables the proponents ability to discredit me by merely highlighting hyperbole of my commentary 6 years into Reg NMS and a month after our release of Wall Street Code. At least I admit I don't know exactly how every intricate part of the structure operates and that is the problem, no one can explain it because the HFT field IS manipulated, slanted, AND structured for a privileged few who never describe it publicly and surely wouldn't desire for everyone to be trading with Special Order Types, the exchanges need dumb-flow. Note what Jamie Selway of ITG and of the BATS Board of Directors said about HFT in Trader Mag (also, side note, here's why I'm bringing Jamie in now, aside from the quote you are about to read):
The post-only order is not particularly innovative, said Jamie Selway, head of liquidity management at agency broker Investment Technology Group. Plus, the focus on rebates "is not a good thing always. If you're
a broker and you're concerned more about the fee you pay than best execution, that's sort of a conflict of interest."
We continue to debate this on Twitter with no one choosing to set up a public debate with the most vocal adversary to the HFT practice. Wonder why?
All this conflict of commentary shows the complexity and fucked up structure of our market post REG NMS, even SEC wasn't ready as just a year ago they bought MIDAS from an HFT firm (can't make this shit up guys) started by a guy who admitted HFT stole his lunch (first quote from HuffPost). The pro HFT guys have no choice but to pay attention to us because we have been documenting, commenting, and highlighting the bullshit for years....consistently, while they have merely waited to hear what we say so they can adjust their behavior accordingly.
Pay attention going forward, the discussion you will see from the Pro-HFT community will be starkly different than the behavior we've seen from them up to this date, they are feeling the pressure and are on a PR push to skew the facts of what they have done. You have been warned yet again.
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