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Anti-HFT Revulsion Grows: IEX Ties For Fourth In Dark Pool Trading Thanks To World's Largest Wealth Fund
While Wall Street is certainly free to broken record that Michael Lewis' hugely popular story about HFT and market rigging did not impact the natural course of events, the reality is it did: the collapse in Barclays' dark pool LX (shown in the bolded red line on the chart below), in the aftermath of the NY AG case against the British bank, has been documented in the past, and is just one example. An even more vivid case study comes from the surge in popularity of upstart dark pool IEX (green dotted line below), the protagonist of Lewis' Flash Boys book, and which out of nowhere, has just tied with Lavaflow's dark pool for fourth spot in ATS trading with just over 200 million shares in the week ended October 27.
Select ATS venues as ranked by total shares traded:
Above IEX is only the traditional (Europe-based) trifecta of dark pool titans: Deutsche Bank, UBS and in top spot, Credit Suisse. How long until IEX' current rate of ascent cements it as the most desired venue to execute large order blocks without being frontrun by millions of frontrunning HFT algos?
What is clear is that the revulstion against HFT is only growing: overnight we learned that the world's largest sovereign wealth fund, Norway's, with $860 billion AUM, "has worked out how to dodge traders in the U.S. trying to profit on his orders by leaving no pattern for them to track."
From Bloomberg:
Investors who want to pre-empt trades by the world’s biggest sovereign-wealth fund and act on that information to make a profit -- a practice known as front running -- won’t have much success, he said.
Norway's solution: get away from the scam that is VWAP and do everything in a dark pool, that of IEX itself: “We’ve done a lot to try and avoid leaving those patterns,” Schanke said in a Nov. 14 interview at the Oslo headquarters of the fund. “We’re trading less using algorithmic trading now than we did some years ago and are doing much more trading in large block sizes to avoid pattern-reading.”
Sure enough, more and more intelligent institutional investors are sick and tired of HFT-induced slippage, of the recursive collapse in liquidity in which markets dominated by HFTs also stand to see all the liquidity evaporate in a millisecond once the "machines are turned off" for whatever reason, and are pulling away from venues they know are populated by frontrunning preadtors and parasites:
The market as [Schanke] sees it “isn’t good enough for raising investor confidence,” which has been an issue in the U.S. since the financial crisis and was deepened by the flash crash of May 2010. While the solution isn’t necessarily public ownership of exchanges, he said a closer look at the existing regulation could help make markets less complicated.
“Some of the things that an exchange does are in a way a utility function,” Schanke said.
The fund in June said it supported Brad Katsuyama’s IEX Group Inc. exchange because it allows “all players to participate on the same terms.”
Perhaps the only question is why it took so long. Another question: when the Fed's natural and symbiotic partner in the relentless stock market levitation of the past 6 years, the Hi-Freaks, finally go away when all the institutional money follows in Norway's footsteps, just how will the Fed be able to dictate the direction of the market when catching momentum inversion points courtesy of the likes of Citadel, which has long since done its patriotic duty and stepped up to buy ES at the just beyond arm's length bidding of Liberty 33, and halt market crashes.
Because when everyone is on an HFT-free dark pools, momentum ignition strategies are finally done.
Now if only everyone else could hurry up and do what the Norwegians did, perhaps the market will finally rid itself of the HFT terror, since by now it is clear to even 5 year olds that the SEC, bought and paid for by the same HFT "lobby", will never move a finger, at least not until the market crashes out of its own weight and the need to crucify a scapegoat means HFT will be finally sacrificed at the altar of populist anger.
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Their stocks are still held in streetname at the DTCC not?
Thinks he's avoiding HFT's and front running? What's he thinks happens in Dark Pools? On exchanges? Oh, JHFC. Methinks Mr Norway understands naught of algos, pools and the like.
They understand that adding a few miliseconds of delay makes a WORLD of difference in the ability of an HFT to front-run the trade. That's what IEX does- levels out the playing field between HFTs and everyone else who isn't.
There's nothing wrong with dark pools per se. They're just exchanges like any other. How they're run and for whose benefit is the telling factor. If the exchange is being run for the benefit of the HFTs, you don't want to do it on IEX. If you're sick of being front-run by HFTs, IEX is exactly where you do your trading.
But unless IEX is matching every order coming through it, they will have to cross somewhere. In that case, they are just providing a known fixed delay tap to front run. It's worse.
Dark pools in theory may be ok, but in practice they are evil. Timestamping fraud, manipulation of children upstairs, quote stuffing, etc and you have nothing but a den of thieves.
In this age of high technology, why do we need multiple price tiers and dark vs lit pools. That's where the problem is.
In China, the general rule is that you can not buy & sell a stock the same day.
A rule like that in the US would reduce HFT.
Poor Norway. Everybody and their dog is going to try to take a bite out of that $860B.
Psst, hey Norway, ya wanna buy some junk bonds? heh heh
there might be another lone gunman if they don't drink out of the cesspool.
i heard the squid owns three companies that make nailguns
you need protection alright, from me! [/luigi pappalardo]
The only way forward is to step backward. I imagine the big Wall St. firms will demand that dark pools be outlawed since they interfere with good, honest HFT's.....
You seem to be forgetting that GS is part owner of IEX, and were quite happy to provide Michael Lewis with lots of face-time with senior partners.
In other words, now that the HFT con is exhausted, the only "fair" place to play is now under the guidance of the Vampire Squid.
As long as GS isn't mucking around I'm not particularly worried and IEX isn't the only dark pool, so if GS does get cute money can be moved.
And pretty much everyone else with it:
Not seeing how this is a good thing.HFT has to go but dark pools ain't the answer. Let's not forget, most HFT BS starts in the dark pools.
Be careful what you wish for.
Exactly. Gotta love the stale trades they dump on the tape.
http://www.nanex.net/aqck2/4419.html
http://www.nanex.net/aqck2/4599.html
It appears Virtu's algos may have hacked the site and added "Anti-" to the headline (evil but clever, aren't they?), but all for nought, fellas, as we still get the drift.
Interesting.Let's sum up...
This wholesale embrace of dark pools means that we have public entities trading publicly listed shares in a forum where the public is strictly excluded from trading or even seeing the price structure of the trade.
There is a word for this and the word is financial serfdom. Okay, that's two words.
These dissers deserve dissing .
Loss of Respect scuppers all .
See
https://www.academia.edu/9354151/The_Economics_of_Disrespect_
Or
http://andreswhy.blogspot.com/2014/11/economics-of-disrespect.html
The key thing is whether an exchange pays for order flow from a brokerage or not. IEX doesn't. Thus, if you want to sell x shares for y$/share and some other buyer wants to buy it for somewhat less than y, you don't have to put up with a HFT algo frontrunning the transaction by quickly buying the shares on some other exchange and then even more quickly scalping them to the buyer for a few pennies more. Put more simply the transaction now doesn't need the HFT skimming middleman who has no intention or desire to own the shares in question for more than a few msec. IEX is just a place where HFT don't have any speed advantage over any of the honest buyers and sellers-a good marketplace.
And for individual investors, don't use any brokerage which is paid for order flow (interactive brokers is an example of one that gets paid for order flow). They are simply setting you up to be front run on the exchange which is paying them for your orders. Or more simply never place a market order, only a limit order signficantly below the current bid (buying) or above the offer (selling) and use your one advantage in rigged markets-patience. HFT algos hate limit orders since there's no time advantage for them. Its really true that haste makes waste.