FOW event coming up
Future & Options World, FOW for friends, will be having their annual event again in Amsterdam on March 25th. This time the event will be held in the Hilton.
On the agenda a discussion about the microwave connectivity (which is a waste of resources imho), exchange competition (yes, with TOM) and Mifid II.
Another interesting discussion will be held about the next opportunity for market makers, which is a round up of usual suspects in the panel : Hans Pieterse (Optiver), Remco Lenterman (IMC) and Marco van den Berg (Webbtraders).
At the end of the day there's a gala dinner and charity auction at barretje Hilton. Charity goes to Emma Kinderziekenhuis and Alzheimer's Society. To book your place at the dinner you can contact Ferry Boekholt. Tickets for the FOW Event are basically free for traders and brokers.
Full agenda : pdf
first,
your honest opinion about microwave connectivity sounds about right, it’s enough already with wasted human and physical investments on the high speed arms race
“Why everything you think you know about volatility is wrong”
Colin Bennett, head of derivatives strategy, Santander
Shouldn’t this genius keep the secret upto himself and print mios for Santander? here’s a sneak preview, don’t tell anyone though
http://cfe.cboe.com/education/TradingVolatility.pdf
what are the numbers for this event – 100 people attending paying few hundred each?
All apply for the microwave:
RF Project Manager / Lead Engineer at IMC financial markets …
http://www.linkedin.com/jobs2/view/11284658
This is a preview of the RF Project Manager / Lead Engineer job at IMC financial markets & asset management
Optiver … ok
IMC … ok
Webbtraders … who?
https://www.linkedin.com/jobs2/view/11284631
really, that far behind in stir?
Webbtraders .. http://www.webbtraders.nl/
only vdm survivors?
http://www.amsterdamtrader.com/2013/01/webb-buys-caerus.html
@1:36
“Expert level Java knowledge” ?! java ?! it beats the purpose of microwave. Or maybe the purpose of microwave is to “fry” the garbage collector, it makes java more palatable in low latency environments ?! 🙂
junior, you are confusing RF Engineer with STIR Engineer
Microwave is such a waste of money. You pay a premium to be on the fastest line for a few months then someone else brings out a shorter route / less towers and you’re no longer the fastest but yet paying HUGE money.
The same holds true of course for the low latency fiber lines.
In my view, level the playing field: the exchanges should add a random latency on all orders placed, that’ll stop all HFT
@11:06
not really, they work both for the same company, probably with same purpose. One with java, the other with microwaves. Or maybe they don’t use microwaves for STIRs? this could be…
frequent auctions is better, you don’t need ‘liquidity’ every second
junior, ‘probably with same purpose’ is your safe assumption?
Illusion : Auction means no bid/ask spread. Dream on.
.. plenty of auction today at Euronext 🙂
If there is one settlement price from auction, where is the bid-offer? If you are referring to moving the settlement price as a result of large size, well then that is fine, you can continue with less resource intensive stat arb
http://www.forbes.com/sites/stevenbertoni/2014/03/10/wall-street-gets-new-billionaire-as-virtu-prepares-for-ipo/
who’s buying?
http://www.ft.com/cms/s/0/18454592-a8a6-11e3-a946-00144feab7de.html?siteedition=uk#axzz2vcPEUjOd
‘He is also known for his support of the US army and his fierce loyalty to friends across Wall Street.’
wasn’t vinnie just a friend of himself and nobody else
‘The company said it had suffered just one day of net trading losses between 2009 and 2013.’
what are the comparables for firms on either side of atlantic?
Silver Lake’s 22% stake for 250mil investment in 2011 sounds like solid private market valuation for years?
> what are the comparables for firms on either side of atlantic?
I would say that Webbtraders and Optiver are equally successful, IMC may have had two or three down days during that timespan.
for intraday pure etd market makers, the only way for firm to be down is for some desk carrying big overnight position or aggregated correlated holdings which moves against big?
http://www.bloomberg.com/video/virtu-announces-cftc-probe-into-trading-practices-plV80DQARc~5xyGXo2_a1w.html
any color?
At any point in the auction there’s no one price where you can place both buy and sell orders and expect to be matched. Seems like a bid-ask spread to me.
well, people have lot of misunderstandings, lots of people still don’t believe in evolution
auction is not meant to provide liquidity at every second, the point, there is no bid-ask spread at the settlement price, or does it seem like a bid-ask spread on the settlement price as well to you?
also, you are confusing if auction is meant to reduce or help these ‘bid-ask spread’; the bid-ask spreads have come down tremendously over the years, so that’s less of an issue, more of the point is endless investment in endless need for speed which is not really required, do an auction every half an hour, that would be more than sufficient liquidity source if you want to get out or get in
Interesting debate. There is clearly a price point for each incremental advantage in speed. The question is how long that advantage lasts and whether you can recoup your investment before it is diminished.
Come along on the 25th and join the debate. We have some world experts on microwave coming to Amsterdam and they I am sure would be happy to hear and debate your comments on whether it is worth the investment.
Register now at http://www.fowevents.com.
I hope Jack will forgive my blatant plug!
Hope to see you on the 25th.
Will Mitting, publisher, FOW
How much are you paying these experts, how many attendees you expect, what is the average fees for the event?
Hi,
We are expecting around 100-150 attendees.
The event is free for traders, brokers, banks, buyside etc so I guess almost all users of this site would qualify for a complimentary pass.
How much are you paying these experts?
The trouble with chasing speed is that it becomes a game of increasingly high investment in infrastructure for an edge. Along the way smaller niche players get forced out since they cannot afford the investment costs, and only the big survive; not necessarily because they are better but because they are larger with likely a greater range of trading activities.
Such expensive technology raises the barrier to entry and is ultimately NOT in the interest of the markets and open competition.
There’s lots of other strategies than trying to be the fastest. Just be creative. There’s enough players out there that make money without depending on a very low latency infrastructure.
This all sounds a lot like whining from people that can’t come up with anything more original than being fast, and don’t have the means to compete on speed.
again, it’s nothing to do with ‘whining from people that can’t come up with anything more original than being fast’
the point instead is that the whole speed race should be entirely eliminated since its value add to market place is exactly zero
@11:57 am
Exactly. It only serves to make the network / telecoms companies richer.
@11.57am
Just like fast cars should be eliminated since its value added to marketplace is exactly zero. It only serves to make the car manufacturers richer.
The problem with fast car and fast trading as comparable analogy is that unlike in the case of fast car where a consumer has the choice to not buy fast car, the financial market participant have very little choice to not be dimed and hunted by fast trading. Fast car is a niche market like any other niche market, fast trading is the market itself. Think next time before you come up with another stupid analogy
The financial market participant is not hunted down. He is not involved in activities observed by market makers such as diming. So who are you protecting? Only the wannabees, who have inferior equipment. In the whole economical world, people who give the best price, get the job. It adds no value? Imagine an order book without market makers. Only static orders. There is a 100% chance that your participant needs to pay more for his acquisition.
how did you conclude that ‘financial market participant is not hunted down’ or that ‘He is not involved in activities observed by market makers such as diming’? Fast Trading just makes money out of thin air isn’t it?
again, it’s nothing to do with ‘So who are you protecting? Only the wannabees, who have inferior equipment’
the point instead is that the whole speed race should be entirely eliminated since its value add to market place is exactly zero
Sure you can have a lopsided system where a financial market participant has to compete with high speed trader rather an alternate auction platform fulfilling the liquidity needs, but what’s the value add, surely we can live without the slippage to high speed trader?
Now let’s imagine an order book without market makers(those parasite rats running out loose in the nation’s granary), sure it would be less volumes and orders, after all 70% trading is from high speed market makers these days. But on the flip side there would be no slippage in execution quality. You pay more if there are no sellers or get a discount if there are lot of sellers; instead of current paradigm where you are hunted and dimed either which way, after all that’s the business model of high speed trading, you make the financial market participant pay up to the liquidity provider necessarily, not unlike a financial toll booth or the mafiosi collection the security payments
Ah now I see your problem: you’re not so intelligent. I thought you’d might actually have arguments but you think as a one-grader: if someone is making money, then someone else is losing money. Let’s terminate the middle man, and the world is better.
One intermediate question: are you also seen protesting outside a supermarket? Are you the one that looks for clothes in a shop and then goes home to order them online?
By increasing the spreads in the orders books (through reducing liquidity) it gets more expensive to reverse a position when you want it (agree?). Practically the market participant is selling his position on a worse price than what he would have done in a liquid market. The difference is that the buyer gets more risk. Where currently this often is a market maker, who absorbs the delta and uses correlated instruments in the shortterm until he finds a buyer for the shares, it will then be party who has to hold onto the stock for a longer period.
Other notable disadvantages: much more strange price moves. The fat finger or stupidity has easier a bigger impact; more flow moving to unregulated markets as on exchange the liquidity drops; the entry of newly developed instruments by banks that circumvent regulation; it gets much, much easier to manipulate prices, front running, expiry, squeeze; it will be more expensive for a pension fund or wealth manager to swap the position, also in combination with the biggest argument: in case of a small panic, when more people want to sell than possible, you will get your chaos quickly, this is much more expensive to the market participant than you probably think.
yes, that’s always handy, call the other side unintelligent enough to understand your invalid point.
what makes you call this as one-grade thinking ‘Let’s terminate the middle man’; you call the service provided by wallmart and amazon as one-grade thinking, if not for them we would still be going through expensive mom and pop stores, of course wallmart and amazon are middle man themselves but they are step in right direction in cutting out more expensive middle man, end producers like tesla are even cutting out those middle man and reaching out consumers directly, you still want to preserve car show rooms as well?
‘it gets more expensive to reverse a position when you want it’; not expensive, occasionally more time consuming but compensated by no frictional cost arising from your great service of fast trading
btw, again, for nth time, nobody is eliminating stat arb, the point instead is that the whole speed race should be entirely eliminated since its value add to market place is exactly zero, if a buyer wants to reverse his position he can do that in the next auction in an hour’s time, or is that too long a wait in your world of nano seconds?
there is nothing wrong with strange price moves, if you don’t like it, trade against it in the auction
if a fat finger trade has big impact, that’s actually leaves it in better positioned to be nullified by exchange, rather than having the person go bankrupt, btw, fat finger trade controls are a separate topic, so let’s not have two discussions simultaneously, as it is, it’s hard enough for my unintelligent brain to keep up with your stupidity in one dimension
what’s wrong with auction in a cheap dark pool than on a expensive lit exchange?
can you name some specific ‘newly developed instruments by banks that circumvent regulation’ in regards to elimination of high speed trading?
you know lot of people these days are in very serious trouble for ‘manipulate prices, front running, expiry, squeeze’, has anybody got the balls to risk throwing themselves in front of regulators?
it’s not at all expensive to swap the position in the next auction in an hour’s time, the whole idea of pension fund or wealth manager is to not keep swapping position every minute?
as for small panic, well high speed trading is definitely not going to provide the cushion, they obviously would jump ahead and sell before the other sellers and lead to even worse executions for the sellers, the point, high speed trading leads to worse price execution either direction, that’s the business model, guaranteed worse price without the option of having to wait for the financial market participant
What a clown. You have no clue about actual market mechanics.
No one is stopping anyone setting up alternative venue with any sort of matching rules. There are many alternative venue like park pools and broker-dealer networks. The reason reason everyone flocks to continuous limit order markets hosting a bunch of market makers all trying to cut each others’ throats with higher speeds and narrower spreads is obvious to anyone who has ever ACTUALLY TRADED. More volume and tighter spreads.
Don’t like the market place? Go to an alternative venue. Can’t find one you like? Set up a new one ; if it’s better it will get the business and you will become incredibly rich.
what if some international authority would (be able to) enforce a market model where auctions happen every 5 minutes (frequent enough)? Would this be ok with both of you?
(assumption: every island that would want to profit by keeping the continuous market model will be heavily discouraged to do so by means of… taxes? would this even work?)
yes, that’s always handy, call the other side clown, having no clue about actual market mechanics, like it’s some great mystery and very complicated puzzle
you don’t need to use caps, your message/emphasis is loud and clear without it
there’s obviously advantage of being first mover, better execution quality, chi-x vs lse is a good example of it, however until the market structure is revamped significantly, there would be enough muppets with incomplete understanding of business model to not move to auction model
you don’t need auction every 5 min, specially not in the slow day hours, every hour say and more frequently during open and close, specially with overlapping US hours
you don’t need to tax continuous trading, offering auction model itself might make the advantages visible
Listen, do you ever actually buy or sell stuff on electronic markets? My guess is no. Hence – clown.
You honestly think people would flock to a venue which offers hourly auctions just because you and some nutcases on zerohedge think there is a massive conspiracy going on with hft?
Do you not think that in an industry driven by money and where new alternative trading venues appear every year, that if your idea was good someone would have tried it?
Can you stop and think what the chances are that you alone are right and and everyone else involved in a huge industry are wrong or stupid or blind to truth?
You know a trade is a willing interaction between a buyer and a seller? They can do this wherever or however they wish, subject to reporting rules. Ask yourself, if all these greedy financial people were getting ripped off by hft, why they still rprefer to find other buyers and sellers and trade on continuous limit order markets?
I see you don’t understand why they do this – so your ideas are worthless .
yes, that’s always handy, call the other side clown, having actually never bought or sold stuff on electronic markets, like it’s some great mystery and very complicated puzzle
again, for nth time, it’s nothing to do with ‘there is a massive conspiracy going on with hft’; instead their value add is exactly zero if there is cheaper alternative like auction being available
there are so many people stuck in the old paradigm that it’s hard to get head around something very different from what you have seen forever; not complicated, just new; give it some time; somebody would come around to introducing it; what do you think this whole debate is about; to waste time on some arrogant muppet like you?
everybody else actively involved are satisfied with current situation; passive players have other 10,000 worries on their head; this is similar to any radical change in the market place; existing incumbents would always present a radically different view of world to preserve comfortable status quo
there was a pension fund buy side genius earlier who couldn’t stop singing praises about hft; you could imagine why he is happy; he pays a bit of investor’s money to hft, executes speedily and goes home to his wonderful life, it;s not his money going to hft, why should he care
you understand any better? rather than stupid random mud-slinging, if you got credible ideas, pls by all means, otherwise take a step back and imagine a world where your current business model is obsolete, how hard would it be for you to open your stupid head to it, let alone move yourself towards it?
http://www.bloomberg.com/news/2014-03-18/high-speed-trading-said-to-face-n-y-probe-into-fairness.html
March 17th, 2014 at 12:21 am
People go where the volume is, hence they stick with existing markets. Any change to a new market will be slow, but don’t read into that the fact that the current, dominant market is the best option. Time will be the decider and will show which model is best.
What a clown. You have no clue about actual market mechanics.
Listen, do you ever actually buy or sell stuff on electronic markets? My guess is no. Hence – clown.
Ok you’re right.
Auctions aren’t “available” for electronic trading anywhere. No orders are matched in auctions and of that zero volume, absolutely none involves hft companies.
And yes you’re the sole genius – everyone else in a massive industry is stuck in their ways because they – despite many hard science Phds think auctions are too complicated.
And of course, having practical exposure to something is completely unnecessary when coming up with ideas for improving it. I, for example, have suggested better ways of performin brain surgery to doctors – despite no medical training or practice – and my ideas were adopted with enthusiasm.
By the way, since you are genuinely stupid, i’m being SARCASTIC YOU CLOWN.
And do you really wanna go the way of hard science PhDs, the kind who comes up with no frictional cost argument to solve for BS options price
In regards to practical experience, how did you conclude that the other side is academic or another safe assumption that they are clown and thus?
It’s got zero value since it can be done free of hft’s cost, this has also been repeated ten times, if you get over your obsession with yourself and with the word clown, maybe you can read it bit closely next time?
can you rephrase this – ‘You give the impression, by avoiding all argumentation, of being unfamiliar with the business, and anyone will agree that it’s impossible to judge’
preferable with less commas and more coherence, yes, i am well aware that i am puppet and thus can’t reach your level of intellect and communique
http://www.bloomberg.com/video/bodek-conflicts-of-interest-in-high-speed-trading-G2x5QcD6Rm6Y_QBIxFUSeg.html
At 9:05pm Bigger picture bro – Dont know to many doctors that are fit and healthy and I would go to seeking advice to make my overall systemic health sustainable. A surgeon may be technically great at that skill (perhaps not unlike you as a trader) but is operating on a discrete part of a system that has had a catastrophic failure. I think the poster you are challenging is just trying put forward a more systemic view as how markets could function not just more efficiently and equitably for all market participants but more sustainably over the long term without friction costs. Things that are sustainable will revert back to natural law – as can be seen on the markets with increasing artificial intervention – QE, rebates to attract volume,credit driven investment (as opposed to capital and savings) etc This is favoring a small group of participants but not others hence the emergence of dark pools, decentralization from concentrated markets by everyday participants not just institutional that provide the volume for HFT to dime from etc. Until such time as the market rules operate fairly or in an un-parasitic fashion these events will continue fracturing markets.
Clown, ‘no value because an alternative mechanism reduces costs’, …, is that all? Hèhè, you have no clue, buddy, how much more costly that will be to a lot
I’m getting confused by the swarm of little bozo s running around.
To keep things simple, @1057, could you use “clown” in the name box?
@510, because im such a lovely person, i always give people benefit of the doubt, so my first reply to you will be civil. Let’s see how it works – whether you end up in clown club or not – not optimistic because your claims are so vague and language already shows a prejudice and bias; how about you describe exactly what you mean by parasite?
Anyway @clown, you know that auctions ARE ALREADY widely used for many products on electronic exchanges. You know this right? I can’t imagine such a clever guy like you wouldn’t. You know that most of these products offer both auction and continuous phases, tight? So people have a CHOICE? And yes there are even some products where the auction volume is a significant portion of overall.
So here we have what’s called “reality”. We have situation where people have choice between auction and continuous and there is plenty volume in auction BUT STILL more volume is traded continuous.
In light of this awkward thing called “reality”, you have a choice of response:
1 all other people are idiots, sheep, don’t know better,… (a popular choice)
2 admit maybe your idea to fix world is flawed (the difficult but brave and honest chice)
3 ignore reality completely but keep arguing (also known as the clown option)
I’ll check later to see your response!!
‘Hèhè, you have no clue, buddy, how much more costly that will be to a lot’
help the clown here, how costly? you are the brain surgeon of trading, right?
if you are getting confused, either try harder or give up already, no need to waste your precious time
obviously the name ‘clown’ can’t be used in the name box, the default remains ‘anonymous’ to help with people’s obsession of personal mud slinging
here’s something to help your understanding http://en.wikipedia.org/wiki/Parasitism
hft being equated to parasitic behavior is primarly driven by the fact that their friction cost would disappear without meaningful impact to the end user
‘you know that auctions ARE ALREADY widely used for many products on electronic exchanges. You know this right’
why are people not reading previous comments, it’s annoying to keep repeating and repeating – ‘how do you mean auction’s aren’t ‘available’, don’t you do auctions in the morning open and evening close?’
and what’s with this obsession with caps, you love shouting, fine, do it at your dog, talk to other people as you would like to be talked to
in terms of comparison, volumes on continuous vs auction format, the comparison remains spurious until they are offered in parallel, in light of your spurious comparison and spurious ‘reality’, the 3 conclusions you derive thereafter are obviously spurious too, try harder next time
Here’s another similar advance that was made some time ago – ‘Among other changes, the government-mandated compression of stock trading increments to pennies from eighths and sixteenths of a dollar, a process known as decimalization, squeezed profits for market makers and specialists that had overseen stock trade’
Similar to the above you can compress 30min volumes into one single auction and be over with this endless speed game already
Dont care where you put me bro. To use your brain surgeon analogy – you may know how to use a scapul but it doesn’t mean you understand preventative health or the overall health of the system. There are a lot of market developments outside of specific trading strategies and techniques. A lot of these artificial interventions and manipulations distort markets; such as QE and accumulation of debt, suppression of interest rates, LIBOR, Gold Fixing etc. HFT relative value to its costs to participants is declining – not to mention systemic risks it poses by algos chasing algos. Its parasitic because it relies on volume (the host) to survive. But because of the market interventions, speculative nature and more aggressive HFT strategies the market is changing. Buyers and sellers will continue to seek other locations to transact i.e dark pools or cease to participate in the market. Volume and broad participation is declining. Decentralised investment will be the new theme. Change or die.
Ladies and gentlement you heard it here first. I know my grandpa already closed his
Etrade account and already registered his principal account on Sigma X
Define Clown
How about you look up the definition of “clown pocket” instead.
can someone please explain, with a simple example, how this tax divided arbitrage strategy works and for which financial instruments it applies?
thanks
Hard to guess which one
http://gta.wikia.com/The_Clown's_Pocket
http://www.urbandictionary.com/define.php?term=clowns%20pocket
http://www.urbandictionary.com/define.php?term=clown+pocket
http://bit.ly/1dfCMQD
http://www.theguardian.com/business/2011/dec/18/tax-avoidance-trade-london-bankers
http://www.ft.com/cms/s/0/42474b12-034b-11e2-bad2-00144feabdc0.html#axzz2wVgdkUud
http://www.bloombergview.com/articles/2014-03-20/why-do-high-frequency-traders-never-lose-money
Labelling it as High Frequency Trading and blaming it for making money is not justified just coz the average participant does not want to/cannot get into sophisticated coding.
Think of all market makers as dealers. Now if every dealer in the world dealing cows, milk, eggs, wheat, corn etc etc had the ability to get in and out of their inventory with high speed, carry no position overnight, then the statistic of not loosing money for 1200 days would not be alarming.
Somebody else could throw better light on this, but I do not think these numbers mean positive cash flow every single trading day. This is only gross profit. If the cost of technology, desk costs etc were attributed every day, there would be a chance you would have more than one loosing day.
is Tibra still alive ?
how come IMC is not active on LSE ?!
is Source Capital still alive?
of course gross profit shouldn’t be negative for hft, they might as well switch off their systems and put a floor of zero on their gross pnl, the fixed costs of course keeps running and the company with high ROE and dominant market share are able to stamp out competition; nothing different from any other industry
the point in the article is not about hft profitability but whether their value add is justified and barriers to entry are not excessive; if you can cut out hft all together or make them even more cheap/competitive that’s good for end users
@9:11 pm
Spot on
“It’s got zero value since it can be done free of hft’s cost”
No, you are missing essential understanding of markets in general. Investors want the ability to trade at any moment at a fair price. They don’t want to do it blindly and uncontrolled. The reason why “market orders” are still used is because arbitrageurs and market makers ensure that trades won’t happen on strange prices. This principle has a value that you do not comprehend.
There are numerous measures you could propose to obtain a better and fairer market, with better thought of the consequences.
okay, give us some essential understanding of markets that you have found out which has been lost of on the rest of clown humanity.
how did you reach the conclusion that investors want the ability to trade at any moment, by that conclusion, investor would definitely would want to trade in European evening hours now that Yellen is speaking, do you provide your precious liquidity at that time too?
define ‘blindly and ‘uncontrolled’
‘market orders’ are luxury investors don’t want to pay, listen pal, how much of your personal cash or investors cash do you pay out to hft for this great access to immediate liquidity?
There is nothing to comprehend since there is no value to getting executed ‘now’ where i am likely to get better executed in 30 minutes time in an auction, the only other participant who wants liquidity immediately is your fellow competitor hft, long term investors don’t get in and out of stocks whole day long, is this point too hard for you to comprehend?
there is no reason to put on ‘measures’, that would be waste of time, money and resources; just introduce regular auctions, volumes would come in, hft can then focus on finding cure of world poverty, hunger, disease, education; much more important to the whole wide world, would you agree?
http://video.cnbc.com/gallery/?video=3000258416
here’s your hft mate talking to long term investors
http://video.cnbc.com/gallery/?video=3000260044
http://online.wsj.com/news/article_email/SB10001424052702303563304579447692855042948-lMyQjAxMTA0MDIwMjEyNDIyWj
The Responsible Way to Rein in Super-Fast Trading
At Goldman Sachs, we would back these measures to limit the risk and instability that technology gains brought.
By
Gary Cohn
Updated March 20, 2014 8:05 p.m. ET
Equity-market structure in the U.S. has made important advances over the past 20 years, promoting greater transparency and liquidity. Three powerful forces have been at work: technology, regulation and competition. The result has been narrower spreads, faster execution and lower overall explicit costs to trading stocks.
With the overwhelming majority of transactions now done over multiple electronic markets each with its own rule books, the equity-market structure is increasingly fragmented and complex. The risks associated with this fragmentation and complexity are amplified by the dramatic increase in the speed of execution and trading communications.
In the U.S., there are 13 public exchanges and nearly 50 alternative trading systems. Regulation NMS (National Market System), adopted in 2007, requires that market participants route their orders to the exchange that displays the best public price at any given time. This has increased both the number of linkages in the market and the speed at which transactions are done. The Securities and Exchange Commission has correctly called for an “assessment of whether market structure rules have kept pace with, among other things, changes in trading technology and practices.”
In the past year alone, multiple technology failures have occurred in the equities markets, with a severe impact on the markets’ ability to operate. Even though industry groups have met after the market disruptions to discuss responses, there has not been enough progress. Execution venues are decentralized and unable to agree on common rules. While an industry-based solution is preferable, some issues cannot be addressed by market forces alone and require a regulatory response. Innovation is critical to a healthy and competitive market structure, but not at the cost of introducing substantial risk.
Regulators and industry participants, including asset managers, broker-dealers, exchanges and trading firms, have all put forth ideas and reforms. We agree with a number of their concerns and propose the following four principles:
• First, the equity market needs a stronger safety net of controls to reduce the magnitude and frequency of disruptions. A fragmented trading landscape, increasingly sophisticated routing algorithms, constant software updates and an explosion in electronic-order instructions have made markets more susceptible to technology failures and their consequences.
We propose that all exchanges adopt a stringent set of uniform, SEC-mandated execution controls to reduce errors. In addition to limit-up, limit-down rules that prevent trades from occurring outside a specified price band, pre-trade price and volume limits should be implemented to block problematic orders from entering the market. Mechanisms should also be introduced to halt a firm’s, market maker’s or other entity’s trading when an established threshold is breached, thus minimizing the uncontrolled accumulation of trades.
• Second: Create incentives to reduce excessive market instability. The economic model of the exchanges, as shaped by regulation, is oriented around market volume. Volume generates price discovery and liquidity, which are clearly beneficial. But the industry must recognize how certain activities related to volume can place stress on a market infrastructure ill-equipped to deal with it.
Electronic-order instructions connect the objectives of buyers and sellers to actions on exchanges. These transaction messages direct the placement, cancellation and correction of orders, and in recent years they have skyrocketed. In the 2010 “flash crash,” a spike in the volume of these messages exacerbated volatility, overwhelming the market’s infrastructure.
According to industry analysis, since 2005 the flow of these order instructions sent through U.S. stock exchanges has increased more than 1000%, yet trade volume has increased by only 50%. One consequence of the enormous growth in order-message traffic is that increasingly the quote that an investor sees isn’t the price he or she can transact, as orders often get canceled at lightning-quick speeds.
Currently there is no cost to market participants who generate excessive order-message traffic. One idea would be to consider if regulatory fees applied on the basis of extreme message traffic—rather than executions alone—are appropriate and would enhance the underlying strength and resiliency of the system. Regulators in Canada and Australia have adopted this approach.
• Third: Public market data should be disseminated to all market participants simultaneously. Exchanges currently disseminate prices and transaction data to the SEC-sanctioned distributor for all investors, but exchanges may also send this information directly to private subscribers. While the data leave the exchange simultaneously, the public data are delayed because they go through the intermediary’s processing infrastructure. The public aggregator should release information to all market participants at the same time.
Removing the possibility of differentiated channels for market data also reduces incentives that favor investment in the speed of one channel over the stability and resiliency of another. Instability creates and compounds market disruptions. Stable and accurate market data is one of the most important elements of market safety; it is the backbone of the market that must weather the most extreme periods.
• Fourth: Give clearing members more tools to limit risk. A central clearing house with strong operational and financial integrity can reduce credit risk, increase liquidity and enhance transparency through enforced margin requirements and verified and recorded trades. But because clearing members extend credit, the associated risks must be recognized. Tools like pre-trade credit checks and being able to monitor positions and credit on an intraday basis are essential. Clearing firms use various tools like margin and capital adequacy to manage their risk, but exchanges should also provide uniform mechanisms for clearers to set credit limits and to revoke a client’s ability to trade immediately upon request, when necessary.
U.S. markets today are the deepest, most liquid in the world and serve an indispensable role in allocating capital. That means the companies that have the greatest potential to innovate and grow will get the capital they need to create jobs, build new industries and ensure a vibrant economy. Investors have benefited significantly from technology and innovation, but the speed and complexity at which our markets operate aren’t being matched with the operational and control environment to support them.
Mr. Cohn is president and chief operating officer of Goldman Sachs.
@10:44 Hey bro – your assuming investors want to trade at any moment. An investor is someone looking at investing over a longer time horizon, has done some research on the companies fundamentals, appraises its value and primarily looking for an income stream from that investment. A speculator is interested in price movements not allocation of capital to serve an economic need. Any market structure that favours speculation leans towards being parasitic. It is why unsophisticated investors or clowns as you refer to them are downsizing their participation. Even clowns know the markets are rigged. Apart from legislated participation through super and institutional investment decentralisation from markets is increasing such as crowd funding, local venture capitalism, co-ops are even reappearing. Your missing the point bro – If its that complicated and sophisticated as you make out is precisely why broad participation is decreasing – change or die .
yep no cost to HFT ‘pinging’ strategies
As a fund manager, allocating in financial markets, i strongly depend on liquidity and efficiency of prices. The ‘hft’ provides that liquidity and price discovery. Ojuff course they are making money on me every trade i make, which you call frictional costs. The thing is that any alternative of hft would only increase these costs. Not allowing low latency would widen the spreads significantly and would trow us 20 back in time, i don’t why anybody would want that. Auctions, every 5minutes or hour, only increase my risk because of lack of transparency (at what price can i buy/sell next auction). It leaves me in the dark of my portfolio risk. In other words, i am 100% fine with ‘hft’ taking pennies from me every trade, because the liquidity and efficient price discovery that comes with it saves me dollars.
So thank you ‘hft’ for taking pennies and giving liquidity and better price discovery. And i don’t give a bit on how much you make or lose for taking the other side of my trade.
the way you write, it sounds you are a HFT in reality…
The thing is no one likes the diming, systemic risk or volatility associated with centralised markets and HFT hence the increase of other investment pathways raised above as well as SMSFs. Your in the same boat – change or die.
here comes the fund manager, the guy who has little skin in the game, generates little alpha and thinks that hft is free of cost to his end investors
regular auctions would increase cost to your end investors as well? who do you think you are going to be paying those costs to?
how do you mean auction prices increase risk because of lack of transparency, don’t you carry positions overnight when there is exactly zero liquidity?
Define ‘portfolio risk’
of course you are 100% fine with ‘hft’ taking pennies from every trade, it’s not your freaking money you muppet, it’s my and other investors money that you are paying down the hft sinkhole, you are a bloody fiduciary and better start acting like one
2 out of Cohn’s 4 points are action points for exchange operators, who have been trying to increase #orders, #trades and sell data. Actually 3 out of 4.
thus the natural incentive for the exchange and hft to keep the party going, add-in the clueless fund manager to the mix
Jack, could you ban the “clown” guy please
Please ban the ‘define’ guy too. I suspect he has transformed into the clown guy
Ban all the stupid people too while you are at it
@12:01 if he did that there’d be no comments at all
not exactly, your precious comment would still be left behind, that would be enough to alleviate the problems for the rest of stupid humanity
Removed most clown comments – keep the clowns and puppets in their own circus, thank you.
where is the censor police hk fella
next time imc comes crying
http://www.bloomberg.com/video/einhorn-seeks-to-reveal-anonymous-market-bloggers-tHH1prETS8Gn2q68jfcnkA.html
and decides to file a law suit
http://www.bloomberg.com/video/greenlight-drops-seeking-alpha-suit-ynUtUjMxTiSxDc84S6PANg.html
http://www.bloombergview.com/articles/2014-03-23/how-high-speed-traders-are-like-fish
whow, what a nice article.
so basic… even I could understand the basics of HFT.
don’t feel shy to elaborate on this subject.
what’s your problem fella, haven’t had anybody else to shit over the whole day long?
anyways, coming back to the hft helping in knitting together the marketplace, there is no reason to merge high speed with stat arb, they can easily be decoupled, all the money draining in need for speed can be saved