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Anti-HFT Trading Platform Comes To "Rigged" FX Markets

Tyler Durden's picture




 

The surge in volume on the anti-HFT equity trading platform IEX - of Flash Boys and TV-fight-night fame - makes it very easy to see how the buy-side (which the US retail investor is one small part of) clearly prefers an un-rigged place to find willing sellers (or buyers). Relatively light regulation and high volumes make the $5.3 trillion-a-day foreign-exchange market a prime target for high-frequency traders. More than 35% of spot currency volume in October was by speed traders, up from 9% five years earlier, but just as in equity markets, there are speculators and there are natural buyers and sellers in FX markets (looking to hedge payments and receipts from real business for example). As Bloomberg reports, a currency-dealing platform known as ParFX, established in 2011, offers a transparent marketplace and subjects orders to random pauses of about 20 to 80 milliseconds, and "is the industry’s effort to heal itself."

IEX volumes hit record highs...

 

And now the FX markets - also dominated by High-Frequency-Trading - have an anti-HFT platform upon which to transact...

The FX market is just as plagued by the HFT "parasite" as equity markets...

Relatively light regulation and high volumes make the $5.3 trillion-a-day foreign-exchange market a prime target for high-frequency traders. More than 35 percent of spot currency volume in October was by speed traders, up from 9 percent five years earlier, according to Boston-based consultancy Aite Group LLC.

 

...

 

There’s been a lot of dissatisfaction, particularly on the buy-side and asset-management community, about high-frequency trading,” said Richard Bentley, the vice president for financial services at Software AG, which aggregates trading platforms including ParFX. “There’s the perception that they’re parasites. What ParFX have done is essentially play to that and said, come and trade in our pool, because we’re not going to allow the HFT people to come and spoil the fun.”

And ParFX was set up specifically to rmeove HFT's ability to front-run orders (just like IEX did in equity markets)...

A currency-dealing platform known as ParFX, established in 2011 by firms from Deutsche Bank AG to Citigroup Inc...

 

The system started trading in July, and now executes deals for 15 firms including Deutsche Bank, Citigroup, Barclays Plc and UBS AG, the four biggest currency dealers. It expects to have 25 percent more clients by the end of April.

 

ParFX offers a transparent marketplace and subjects orders to random pauses of about 20 to 80 milliseconds, and “is the industry’s effort to heal itself,” according to Marcus.

The bottom line is a search for "trust" is on the rise...

“These banks do need to trade foreign exchange because it’s their business and they’re hedging their currency exposure across the world,” London-based Marcus said in an April 15 interview. “They would rather trade in an environment that they can trust.”

 

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Sat, 04/19/2014 - 19:35 | 4676291 SmackDaddy
SmackDaddy's picture

What a great gimmick this has turned out to be.  Get all the guillable retail and institutional investors back into the market whie it's at record highs.  How long until they slaughter 'em I wonder?

Sat, 04/19/2014 - 19:50 | 4676309 Yen Cross
Yen Cross's picture

  Short microwave towers...also short Virtu Financial.   Oh wait! I can't short ' Virtu Financial' the 99.9999% winner because its IPO was pulled.

Sat, 04/19/2014 - 20:46 | 4676399 Waterfallsparkles
Waterfallsparkles's picture

Amazing how they wanted to suck everyone in to buy stock in Virtu when they already had plans to destroy it.

Sat, 04/19/2014 - 20:49 | 4676400 Yen Cross
Yen Cross's picture

 There's many moar examples my friend. ;-)

Sat, 04/19/2014 - 23:35 | 4676604 NoDebt
NoDebt's picture

O'Brien from BATS is jumping up and down on his couch screaming at you right now.

"Two dollars!  I want my two dollars!"

 

Sun, 04/20/2014 - 02:05 | 4676728 Four chan
Four chan's picture

random delays of 2 seconds might do more good.

Sat, 04/19/2014 - 19:46 | 4676310 buzzsaw99
buzzsaw99's picture

parasite bankers don't like having other parasites attached to them.

 

there's a bump on the log in the hole at the bottom of the sea...

Sat, 04/19/2014 - 20:04 | 4676338 BuddyEffed
BuddyEffed's picture

I'm one of the top coders in the country, and I wouldn't trust anyone to implement a random delay mechanism as a solution.  Too many ways to not be random, but look random on the surface, and it would be even harder to to tell where the bastards have gamed the system.  Fuck that.  Would just make it harder to show where the rule of law and where good faith has gone very bad.

Sat, 04/19/2014 - 20:15 | 4676355 Dazman
Dazman's picture

I wouldn't trust anyone that starts off with "I'm one of the top", "I'm one of the best", etc.

Sun, 04/20/2014 - 01:02 | 4676687 Urban Roman
Urban Roman's picture

Well, you know, being 200,000th in a field of 300 million still puts you pretty close to the 'top'..

Sun, 04/20/2014 - 05:11 | 4676790 BuddyEffed
BuddyEffed's picture

Found and fixed the mixed track TCAS bug in 92 that was plaguing pilots and Air Traffic Controllers and getting national news since leaving the pattern in crowded airspace because of Collision Alerts is serious business.  Others looked for it and couldn't find it.   Took a mindset that knew hardware and software and how once in a blue moon stuff can happen.  Took me a week to get there after I already cleaned up their design on everything including improving the data loading to be compatible with all brands of loaders 

Even Toyota talked to me about once in a blue moon scenarios and how to find and fix subtle vulnerabilities around the timeframe of their unattended acceleration problem.  Their hardware/software had similar design and potential for a similar subtle problem.

Not many people are good enough to have coded nuclear warhead interfaces either.

So, I got game, even code them too.  But haters gonna hate and talk shit here when they have no insightful perspective or valid way to criticize.  Par for the course to some here.  But I do respect some of the people who play "under par" here and bring insight to issues instead of flapping their gums with disrespect.

Sun, 04/20/2014 - 08:42 | 4676884 PT
PT's picture

Buddy Effed is right but it doesn't even have to be that complicated.

I'm NOT one of the top coders in any country, in fact most of my skills are ~ 20 years out of date (though alot of that knowledge is still relevant).  But you don't need too many brain cells to figure out that if you don't know what is under the hood then whatever the salesman says is propaganda.  And you don't need too many brain cells to know that media can be complicit in the propaganda (especially those of us old enough who remember "practically indestructible CDs that don't need cleaning).

Today's lesson is trust.  People used to put money in banks because they trusted the bank's guns more than they trusted their own guns.  These days its just too hard to find a boss that pays cash and now we pay extortion money, I mean bank fees, for our lack of leverage when seeking employment.

We understand bricks, steel, concrete, guns, but everything after that is based on trust.  We trust that the banks want us to give them money in the future, and so they will do the "right" thing by us (pardon me while I puke, that word "right" doesn't quite seem to fit properly).

But why do we trust credit cards?  Most people know nothing about electronics or encryption.  All they know is that they haven't been ripped off yet, and a lot of people, richer than they are, for the most part also haven't been ripped off by credit cards yet.

Why on earth do people trust computers?  Because so far they have mostly been trustworthy.  But every programmer in the world knows that there is no reason why what a computer does has to match what it says it is doing on the screen.  It takes maybe two days, if that ( 2 minutes with the right instructor ? ), to learn how to make a computer window that doesn't close when you click on the "X" icon.  

It takes no effort at all to write a program that tells you it is withdrawing $100 from your bank account when really it is withdrawing $1000 and sending it to someone you do not know.  Okay, that last sentence is almost a lie.  I have no idea how modern encryption and bank transfer coding works so, perhaps, most programmers don't know how to make that happen.  But I guarantee you that someone out there does.  Or perhaps more than one person.  But either way, the average yob has no idea what he is clicking on and has no way to prove whether his bank transfer coding has been written by someone like me or by someone who did it properly.  Maybe there really is some magic coding that stops your computer from deducting money from your credit card every time you play solitaire - like I said, my coding skills are out of date.  I know that computers can't be trusted, and I have no way of proving if and when computers can be trusted (any links appreciated, I vaguely understand public and private keys and that is it ).

All we can really say is that we only can trust computers because they have been trustworthy up until now.

Now regarding some random number generator and delay for a HFT platform.  First, most people cannot prove that the random delay will work on their computer as advertised.  They will just have to trust it.  A few people will be able to time  transactions and prove that their computers work as promised.  Secondly, just because your computer works as advertised, doesn't mean JD or JC or LB's computers will work as advertised.  They'll just have no delay and then whatever your computer does will be irrelevant.  You've deliberately taken on a platform that gives you a random disadvantage.

The relevant programmers can prove what is really happening.  Everyone else is purely relying on trust.

Sat, 04/19/2014 - 20:03 | 4676340 Jafo
Jafo's picture

This could be a case of Schumpeter's gales of creative destruction and if so they will be blowing hard against the markets that allow HFT.  Let nature take it's course.

Sat, 04/19/2014 - 20:10 | 4676349 FieldingMellish
FieldingMellish's picture

Hmmm.... will some be considered more "random" than others?

Sun, 04/20/2014 - 09:19 | 4676949 PT
PT's picture

Just remember that whoever owns the platform has no delays what-so-ever.

"After I finish blindfolding everyone, no-one will be able to cheat!    hehehehehehehehehehehe..."

Sat, 04/19/2014 - 20:21 | 4676370 sid farkas
sid farkas's picture

"Random pauses", I thought that's what ebs and reuters were for.

Sat, 04/19/2014 - 20:57 | 4676410 Waterfallsparkles
Waterfallsparkles's picture

Somehow when Wall Street finds a solution to the pervasive theft of the HFT, I am skeptical.  They  have raked in Trillions in the last 5 years. So what changed their mind to kill the Golden Goose that laid Golden Eggs?

Why now?  After all the Regulators have turned a blind eye to the Theft for 5 years.

They say in Poker when you do not know who is the Patsy at the Table it is probably you. 

Sun, 04/20/2014 - 08:20 | 4676869 Rising Sun
Rising Sun's picture

Programmed trading has been around since the 1980s.

 

Different platforms perform at different speeds.

 

So how long before they all run at the same speeds???  And the exchanges don't seem to mind collecting co-location fees from HFT firms - not much in the MSM about this.

 

HFT gives advantage to the firms with the faster platforms.

 

But here's another truth - that fucking FED has fucked up the planet with their liquidity and these fuckers are the real problem - what better way to divert than to blame some new upstarts instead.

 

FUCK YOU YELLEN/BERNANKE - FUCKING ASSHOLES!!!!!!!!!!!!!!

Sun, 04/20/2014 - 14:15 | 4677556 Mediocritas
Mediocritas's picture

So the bots just submit way more quotes in batches. The quotes get different, randomly assigned delays, some going through fast, the others slower. Once the fast ones are through, the bots then cancel the delayed ones.

Ie, this "solution" (alone) solves nothing.

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