30 Mar

Misconceptions about algo trading

[This is a piece by the lobby group for European HFT traders, FIA EPTA, and appeared first on their website. While I’m not completely in the same boat, and it’s not a groundbreaking view on the matter – it’s still a good read.]

By Johannah Ladd, Secretary General, FIA European Principal Traders Association

Today marks the end of my first month as Secretary General for FIA EPTA. In only a month, my eyes have opened to the many misconceptions I see reflected in the media about what our member firms actually do. Although I came from a principal trading company myself, I was frankly not very aware of the public dialogue around trading firms and market structure. Principal (or proprietary) trading firms have a reputation for being secretive. In my experience, it’s no one’s plan to be secretive; rather, these firms are filled with busy entrepreneurs who aren’t pushed by customers (because they don’t have any) or public shareholders (because in most cases they are privately held companies) to publicize and explain everything they do. So they just get on with it – because solving an intellectual software development puzzle, in practice, is more urgent than talking to the press. But it’s now clear how many people outside this world are curious about what we do, and in absence of us talking about ourselves, a lot of incorrect information goes around online, so it’s time to change.

I’d like to start by trying to clarify a subject rife with misunderstanding: high frequency trading (“HFT”). Not many people understand what HFT is, but have a vague, uneasy sense that it represents a  certain type of market participants, who are at best opaque and at worst up to no good.

If I can impart one message, it’s this: high frequency trading is nothing more than a technique for sending orders, like e-mail is for sending messages. It’s a tool used by banks, brokers, asset managers, or firms like ours, but … not all principal traders are high frequency traders! Likewise, not all high frequency traders are principal trading firms!

EPTA stands for European Principal Traders Association. The main characteristic uniting our members is that they trade exchange-traded financial markets as principals, not as agents for clients. That means they only trade using their own capital, for (and at) their own risk. This is not “Wall Street.” These are small groups of entrepreneurs spread out across the world: in the US – Austin, Chicago, Houston, Kansas City, L.A., San Francisco and more; in Europe – Amsterdam, Hamburg, London, Prague. Our firms are active in a variety of asset classes such as futures, equities, foreign exchange, and fixed income, and on a variety of exchanges, globally. This is key: they engage in automated, manual and hybrid methods of trade generation and execution encompassing a wide variety of strategies.

Generally our member firms do all use algorithms, like so many modern businesses today. Amazon does, to generate recommendations of what you should buy; Facebook does, to rank your friends’ status updates; Google does, to prioritize the relevance of pages to your search topic; and UPS does, to help deliver packages in the most efficient way possible. An algorithm is nothing more than a step-by-step method for doing a job.

Many different companies active in the financial market use algorithms to enter trading orders on electronic platforms. The algorithm executes pre-programmed trading instructions, making decisions based on variables including the timing, price, or quantity of the order. Algorithmic trading is widely used by investment banks, pension funds, mutual funds, and other buy-side (investor-driven) institutional traders, as well as sell-side traders, such as principal trading firms, market makers, and hedge funds.

HFT is a sub-set of algorithmic trading. It is a technique that ensures that information, orders and trades are processed quickly and efficiently. It’s characterized by low latency infrastructure and high messaging frequency. Any company that operates computerized algorithms, whether on the buy- or sell-side, might also elect to use HFT techniques for some or all of their trading.

HFT is a strategy-neutral technique. E-mail is a much faster medium than a hand-written letter, but it doesn’t imply anything about the content. Likewise, HFT can be used to facilitate many different strategies by different types of market participants. Most of the strategies conducive to the HFT medium are in fact quite simple arbitrages which could previously have been performed at lower frequency, but which now, due to evolving technology, have to be executed faster in order to be timely. For example, a basic arbitrage strategy evens out price discrepancies in a particular security trading simultaneously on different markets. This makes sure no investor pays more for a share than the markets think it’s worth.

Likewise, market makers use HFT to provide liquidity to the exchange. Market makers are in effect providing a public service to the exchange world. They provide liquidity, reduce transaction costs, and facilitate trade by standing ready to buy from anyone wanting to sell and sell to anyone wanting to buy. They don’t have an opinion on whether prices will go up or down. They simply quote both a buy and a sell price on a financial product and hope to make a profit on the difference between them (the ‘spread’).

Being a market maker is a highly complex profession. Market makers have to understand not only the products for which they make a market, but also their relationship to other financial products across many other markets. Competition and technology have changed the job of being a market maker. HFT techniques enable market makers to manage their risk by processing all publicly available information as quickly as possible and updating quotes regularly in real-time to avoid that their prices become stale. Market makers have to stick to risk controls laid down by the European Securities and Markets Authority (ESMA) and their own risk management departments. That might mean that from time to time, they have to exit the market, for example when they’ve hit limits that prevent them from re-entering bids, or because they have to build down positions that have created too much exposure or demanded too high a margin call for the company. But as their bread and butter is providing liquidity, they post quotes again as soon as it’s safe (for both the markets and the firms) to do so.

In general, HFT has been proven by numerous academic studies to be a benefit to investors, for example through the tightening of the bid/ask spread. Since the advent of HFT, price discovery has improved, and liquidity has increased. Historically, the founders of these firms are the same “locals” who fought against the monopolistic pricing on exchanges back in the day when you had to buy a seat to be able to participate. Nowadays, they’ve formed their own firms and celebrate the more democratic market made possible by technological innovation. Their role in the markets, today, is to even out inconsistencies in the prices of a product, no matter where it’s trading. That means investors can now more or less always be assured that the prices being quoted encompass all the latest information available.

Of course, any tool can be misused by the willing. There have been instances of different types of financial companies abusing HFT techniques to facilitate manipulative strategies. Market abuse can take many forms; it can also be perpetrated by manual or low latency trading. Regardless of how market abuse is carried out, it should be punished, and EPTA firms stand behind regulatory and judicial authorities that pursue and enforce against those who damage the integrity of public markets through manipulative and disruptive trading practices.

In future blogs, we’ll explore other aspects of algorithmic trading, with the aim of shedding light on the fair & competitive investment decisions trading firms make.

The views expressed in this blog post are the personal opinions of the author and do not necessarily reflect the official policies or positions of the FIA European Principal Traders Association or the Futures Industry Association.

174 thoughts on “Misconceptions about algo trading

  1. first,

    of course she is going to talk up her own book, what’s new?

    nice attempt at PR though ‘entrepreneurs’

    ‘Being a market maker is a highly complex profession’
    she should watch imc learning videos, the complexity just vanishes

  2. He lost me already in the first paragraph. ‘high-frequency traders with advanced computers make tens of billions of dollars’
    That claim is probably just as exaggerated as the rest of his book.

  3. @11:36
    maybe when if one sums it up for all HFT participants on all exchanges…
    wait, tens of millions ?! ok, and for all time…

  4. @11.36 The complete sentence was ‘The U.S. stock market is rigged when high-frequency traders with advanced computers make tens of billions of dollars by jumping in front of investors’.
    That last part is an important addition. Most of the profits of HFT firms has nothing to do with jumping in front of investors. Companies like IMC and Optiver make a fair bit of their money on market making. It really would be a stretch to call that ‘jumping in front of investors’. They trade a lot in broker markets (i.e. off-exchange). Then there is the profit coming from spreads that move (e.g. RDSA-RDSB), which could also be traded manually and still make money.
    The only way you maybe can get to his tens of billions is by adding up all revenues (not even profits!) in all markets of all trading firms that also do HFT, without making any distinction of how those profits were arrived at or where they were made. But that’s not what he says. I guess because it wouldn’t attract the same amount of attention. Never let the facts get in the way of a good story.

  5. You’re right.


    1) We don’t know how much money has been made by jumping in front of investors in the stock market. We simple don’t know.

    2) The author didn’t say this profit was made in one year. Maybe he meant that this was to profit since the invention of this possibility.

    Nevertheless, “queue-jumping” is a shame.

  6. what’s the gross trading pnl of hft, say $6-8bn? was around 20 mark few years ago?

    yes, of course the lines between stat arb and lat arb are very blurry, so the pnl can’t be bucketed, any guess on split? you obviously can’t censor stat arb, that would lead to complete joke of market prices

    which comment is from Johannah?

  7. the comment @12:19 is too polite an careful so that’s the suspect one (to come from a female noob)

  8. women in banking and market are more bloody aggressive than your regular alpha male, they just go great lengths to put up appearances to give off the ‘polite and careful’ side, nothing in their world is straight forward

  9. lewis is a journalist, less than complete understanding, less than full facts, more than enough sensation in his final result, take the conclusions with a pinch of salt and cherry pick the facts he brings out

  10. Just bought 1000 shares for my PA for a liquid US stock via a direct access platform. Tried to lift the offer and got 6 fills over ~3 seconds. HFT is killing the market and the fall back argument “we are providing liquidity is BS”.

  11. people will bypass centralized exchanges and look for more direct pathways of investment or crowd fund etc.

  12. @3:15 I did like his “the big short” book… and now I wonder WTF did he do to the reality (if any) in it :)

  13. iex or auction model or any other alternate model would work only if the quality of execution doesn’t suffer, i.e. it attracts the highest volume share of all the alternatives, otherwise it’s not a valid comparison

  14. reality is composed of facts and perception, sun rises in east is a fact, it’s warm is a perception which can move with reflexivity, so of course lewis can move the ‘reality’

  15. if you try to lift offer, doesn’t mean the offer volume wouldn’t have changed by the time your order hits, so expect multiple fills as your bid gets executed against multiple incoming mini offers, the pings and fills is how the other side strips you and uncovers naked reality

  16. Apparently I am a high frequency trader. Like Lewis over elaborates on in the NYT article today, most of the prices I try and purchase or sell are no longer there by the time I reach the market. Does anyone have any advice?

  17. The reason MH370 went missing is because HFT firms recruited eager aerospace engineering graduates from MIT and Boeing is now short staffed.

  18. the reason mh370 went missing is very precise, ‘yet to be determined’, what’s that got to do with hft?

  19. I expect (and used to have) a sharpe ratio above 6. The advice I need is what to do if I am not making money anymore? Where do I go to die?

  20. come work at the Fed. Your reverse insider trading activities will be rewarded as 250k “lecture fees” after the conclusion of your chairmainship.

  21. It is fun to see market makers never mention liquidity taking strategies. Would be interesting to see how much they give compared to how much they take.

  22. liquidity taking strategies are also good for institutional investors which need their passive orders to be executed. Just as an example, Getco is providing execution algorithms to 3rd parties, many of these algos manage clients orders by making them “passive” in an attempt to reduce market impact and thus execution costs. Basically liquidity taking strategies can also provide liquidity when analyzed at a different time scale.

  23. the question is in this case whether there would be another institutional investor eager to transact against the resting order just taken by the hft trader using its speed advantage.

  24. these two institutional investors are free to go OTC or via a dark pool. The problem is that then the price for one of the two might not be fair and the expected costs might be higher than interacting with one or more HTF competing between them.

    Also, consider the issue of time and risk. Finding a counter-party OTC or in a dark pool might take 10 (or 1000) times the time of interacting in the lit exchange with HTF (call this time t). Waiting t units of time on average leads to an uncertainty (as measured by the standard deviation of the returns) about the current value of sigma*t, BUT waiting 100*t leads to a 100 times more uncertainty/risk.

  25. for such a high sharpe ratio , how many mios did you print when the going was good?

    if somebody smarter and faster has come in, try harder or find a new challenge?

  26. bernanke makes 250k after 8 years of fed chief, anybody can print mios if they have been in such influential position, the issue is that there are mios of wannabes wanting to get those positions and there are just handful of them to go around, try or die

  27. mm don’t take liquidity on principal basis, they take it while giving it to someone else on some other security, duh

    the two institutional should pitch for frequent auctions during the day and end this speed game already

  28. http://online.wsj.com/article/BT-CO-20140331-713756.html?mod=googlenews_wsj#

    Yellen Assures Markets on Interest Rates–Sixth Update

    By Pedro Nicolaci da Costa and Jon Hilsenrath

    CHICAGO–Federal Reserve Chairwoman Janet Yellen offered new assurances the Fed intends to keep interest rates low, describing in unusually personal terms why the economy needs these policies to support a weak job market.

    “While there has been steady progress, there is also no doubt that the economy and the job market are not back to normal health,” Ms. Yellen said Monday in a speech at a community-reinvestment conference here, her first public remarks outside Washington since she took the Fed’s helm in February. “The recovery still feels like a recession to many Americans, and it also looks that way in some economic statistics.”

    Ms. Yellen’s comments, coming less than two weeks after a Fed policy meeting where officials discussed the path to rate increases, were a notable affirmation of her commitment to low rates until the economy is much stronger. Some investors had taken Ms. Yellen’s remarks at a news conference after that meeting to mean rate increases might come sooner than they expected.

    Ms. Yellen’s comments Monday helped underpin a rally in the stock market. The Dow Jones Industrial Average gained 134.60 points, or 0.8%, to 16467.66, while the Standard & Poor’s 500 rose 14.72 points, or 0.8%, to 1872.33. Those gains contrasted with a selloff spurred by her press-conference remarks.

    “She doesn’t want to get the market overly concerned that she’s going to tighten anytime soon, because she’s not,” said Doug Cote, chief market strategist at ING Investment Management. “She said she has an extraordinary commitment to boost the economy in a still-struggling labor market. I think it put the market at ease.”

    While Ms. Yellen’s underlying message on Fed policy was unchanged, her delivery was striking. Central bankers tend to speak in terms of economic theory and statistics, in jargon better understood by investors and other economists than the broader public. Ms. Yellen instead exhibited a personal touch Monday by coloring her comments with experiences of three people who had struggled to gain full-time work.

    ” Jermaine Brownlee was an apprentice plumber and skilled construction worker when the recession hit, and he saw his wages drop sharply as he scrambled for odd jobs and temporary work,” Ms. Yellen said of one man in the audience. “He is doing better now but still working for a lower wage than he earned before the recession.”

    Ms. Yellen spoke to Mr. Brownlee and the other two people last week by telephone in preparation for her speech. Ms. Yellen’s staff found Mr. Brownlee through the North Lawndale Employment Network, a nonprofit workforce-development program in Chicago.

    “She was interested in having a true story to put a face on the challenges that are out there in the labor market,” said Brenda Palms-Barber, executive director of the group.

    Mr. Brownlee, 39 years old, said in an interview that he is working a part-time, minimum-wage operations job with Sweet Beginnings, a Chicago business that makes body lotion, hand lotion and other products from bee honey. “I thought she’s a very nice lady to even be considerate enough to give me a phone call and hear my story and to share my story,” Mr. Brownlee said.

    Ms. Palms-Barber said more than half of the people who seek employment help through her group have minor criminal offenses on their records. Mr. Brownlee said he had a minor drug offense.

    Ms. Yellen said several indicators suggest the labor market is operating well short of its potential, including the high number of long-term jobless, the seven million Americans who are working part time and want full-time work, and slow wage growth. She also said the relatively low number of workers willing to quit their jobs compared with historical levels indicate a lingering insecurity about other employment prospects.

    She also emphasized how she believes the Fed’s policies benefit the economy, a point debated by other economists inside and outside the Fed.

    “By keeping interest rates low, we are trying to make homes more affordable and revive the housing market,” she said. “We are trying to make it cheaper for businesses to build, expand and hire. We are trying to lower the costs of buying a car that can carry a worker to a new job and kids to school, and our policies are also spurring the revival of the auto industry.”

    She has often said that she tries to look beyond statistics in her work to note the effect of Fed policies on actual people, an approach that was drilled into her by her mentor, the late economist James Tobin, during her Ph.D. studies at Yale University.

    “Yellen pulled out just about every dovish tool in the box as she highlighted that the economy needs extraordinary support for ‘some time, ‘ ” said Bricklin Dwyer, an analyst at BNP Paribas.

    Not all Fed officials agree with Ms. Yellen. Philadelphia Fed President Charles Plosser said last week that “given the progress the economy has made over the past year,” the time has come for the Fed to raise short-term rates from near zero. Many economic rules “indicate that the policy rate should be above zero,” he said. If the Fed holds rates down for too long, it risks stoking inflation or another financial bubble, though Ms. Yellen and others have expressed confidence those problems are not now a risk.

    Most Fed officials indicated in March that they expect to start raising short-term interest rates from near zero next year. Many investors expect that point in mid-to-late 2015. Ms. Yellen didn’t offer specifics Monday.

    She emphasized that the Fed’s recent decisions to reduce the size of its bond-buying program, meant to keep long-term interest rates low to spur growth, shouldn’t be viewed as a withdrawal of support of the economy. Rather, she said the Fed is adding support at a slower pace. The Fed, which decided in March to reduce its monthly bond buys by $10 billion to $55 billion, is expected to continue trimming the purchases this year and end them in the fall, barring a sharp shift in the economic outlook.

    Ms. Yellen later visited Richard J. Daley College, part of the City Colleges of Chicago system. As she toured a brightly lighted factory classroom, full of clanging equipment and sometimes lying sparks from welding demonstrations, the chairwoman spoke with students individually and in a larger group to discuss their program.

    “I thought it was going to be someone that was uptight but she seems so approachable,” said Rasheeda Shannon, a 38-year-old student at the college who also works full time at technical-services firm Kay & Associates Inc.

    Dan Strumpf contributed to this article.

    Write to Pedro Nicolaci da Costa at [email protected] and Jon Hilsenrath at [email protected]

  29. Santelli: But the average investor thinks the SEC is watching out for the marketplace. I’m sorry but if a large group of people can take that one cent all day long, day-in and day-out, then there’s a problem.

  30. Billionaire investor Mark Cuban: “And because we don’t know all the algorithms, because we don’t know the end factorial, all of the different ways they may interact and the negative consequences that occur as a result. That introduces a market risk. That market risk has an unquantifiable cost.”

  31. Revenues of HFT firms are measured in the hundreds of millions (and this is not just equity, but also e.g. currency), equity trading revenues of banks are many billions. I think there are much bigger fish to fry.

  32. ‘variances are additive, so uncertainty is sigma*sqrt(t)’

    is this changing the point the commentator made? Are you a quant missing the big picture?

  33. “Also, consider the issue of time and risk. Finding a counter-party OTC or in a dark pool might take 10 (or 1000) times the time of interacting in the lit exchange with HTF (call this time t). Waiting t units of time on average leads to an uncertainty (as measured by the standard deviation of the returns) about the current value of sigma*t, BUT waiting 100*t leads to a 100 times more uncertainty/risk.”

    Frankly I don’t think it would be a problem for the institutional to wait 1 sec instead of having his order executed in 1 microsec via hft (a factor of 1000 x 1000).

    Let us be concrete here with an example. Let the market quotes be 10@11. Institutional A places a buy order at 10.9, the mm takes it almost immediately. Then a second later institutional B is placing a sell at 10.1 which is again taken by the hft, realizing a profit of 0.8.

    Now without the hft intermediation, the institutionals could have traded at 10.5, 0.4 better each than with hft. So how exactly does the mm help in this situation?

    Let’s leave dark pool and otc out of the discussion, different ball game.

  34. It feels like the possibility to remove liquidity even makes the mm to widen out so that there is space for aggressive liquidity

  35. ‘Now without the hft intermediation, the institutionals could have traded at 10.5, 0.4 better each than with hft’

    is a bank giving you the same interest rate for a debt and a credit? Of course there is a spread like in every business there is a margin=price-cost, otherwise there is no reason make a business.

  36. ” there is no reason make a business”

    exactly. ;)

    Point is, intermediation can have its price, when needed. But is it possible to avoid it, when it just costs a lot without providing any value?

  37. cramer and santelli are a joke, pls filter those two out from future discussions, their noise can distract and distort the reality itself

  38. @12.00 pm
    If the first would have put in his order at 10.9, then he would still have traded at that price even in the absence of HFT. If he wanted to trade at 10.5 he should just have put the order in at 10.5. Even if there is HFT they could have traded at 10.5. So how exactly does the mm do damage in this case?

  39. you are right that a [email protected] and a [email protected] transact at 10.9 at some exchanges if the buy was placed prior the sell. (AFAIK at some other exchanges they transact at mid 10.5 as in my example).

    But if they transact at 10.9 as you mention, the seller takes the full difference of 0.8 (10.9 – 10.1 = 0.8) with himself as opposed to trading with the HFT at 10.1, when the HFT takes the 0.8 profit. I would not call it a “damage”, it is its speed premium, too high one could argue.

  40. cuban should do more with his life and money than come up weak talking points on the shark show, just pull in some inspiration from musk

    how much more do you wanna fry the billions of banks, haven’t they been burned enough already? but ya too big to fail > hft

  41. the following two look same to you?

    ‘Waiting t units of time on average leads to an uncertainty (as measured by the standard deviation of the returns) about the current value of sigma*t, BUT waiting 100*t leads to a 100 times more uncertainty/risk’

    ‘variances are additive, so uncertainty is sigma*sqrt(t)’

    How did you conclude ‘quant’, just from knowing the difference between variance and std dev?

    What big picture got missed?

  42. Dark pool and otc are very much relevant to the example of market being 10@11 and 2 institutions trying to execute mid-market; without them, hft is the only alternate and worse execution for both institutions with frictional cost increasing non-linearly with size; but with dark pool and otc very large transaction can occur at 10.5 with very little fixed cost; not unlike a mid-day auction

    Similar to this, banks bid-offer spread in retail fx market is under large pressure from new business model disruption – https://transferwise.com, direct peer to peer model

    Banks lending business is not comparable as their deposit and loans book have very different risk profiles and thus appropriate spread for principal risk, online-only banks and crowd funding try to bring this spread down by trying to match borrower and lender cheaply and directly; 2 institutions should thus try to do the same to hft, short circuit it, that’s why pershing has funded IEX

  43. If the institutional can get 10.5, sure that be good, but more often than not, under the buying pressure the price would go to 10.9 and then once the seller comes in the price would go down to 10.1 and after the transaction is finished, the price would revert to 10.5, what was all the point of that?

    IMC HR would like all the rumour monger’s IP so that they can go and complain to your current HR

  44. why doesn’t iex introduce regular auctions through out the day; large block volumes can go through without mm or hft

  45. ‘Dark pool and otc are very much relevant to the example of market being 10@11 and 2 institutions trying to execute mid-market; without them, hft is the only alternate and worse execution for both institutions with frictional cost increasing non-linearly with size’

    this seems logical, but there are still some issues in the logic.

    1) What if party A wants to buy at 11 or, as you suggest at 10.5, but there is no party B ready to sell? We are speaking about large volumes here and there is an economical value added in an intermediary buying from A and taking the risk of inventory. Is this not similar to the banking spreads due to risk?

    2) Assume you have to parties, A and B agreeing for a price of 10.5. How do you know this is the market price? It might well be that A can buy this in the lit exchange for an average price of 10, by interacting with several HTF and using some smart execution algo. There are different ways to interpret Reg NMS directives on best price matching which leave room for dark pools and OTC to not match at the best price. The point is that you might think to reduce your execution costs by leaving out intermediaries but you get the wrong price.

    3) Imagine a world of only dark pools and OTC, systematic risk would increase dramatically and prices would be less transparent and ultimately less fair. Nobody wants this.

    Just accept that MM are payed for a service they provide to financial markets, the same way exchanges are payed using transaction fees. Or should be perhaps avoid transaction fees by eliminating exchanges?

  46. As requested, we confirm that the dude has been fired at privileged conditions (6 months salary payment, full year bonus of 1 mio) due to under performance.

  47. the problem with 1) is that even though party A doesn’t mind paying, they would obviously want to save on the frictional cost, similarly they would want to save on bank’s spread, that’s why pershing invested in IEX, did you not read that?

    the problem with 2) is that the ‘lower execution price’ is the dream which sell side tries to sell, buy side is little bit more savvy these days, that’s why pershing invested in IEX, did you not read that?

    the problem with 3) is your imagination, nobody is banning lit exchanges, we are just trying to cut you little less piece of pie, that’s why pershing invested in IEX, did you not read that?

    yes, we accept mm are paid for a service they provide, but that service is no longer needed thanks to technology, just like the pit on the floor, didn’t those get eliminated?

  48. can you print his bonus number here pls, also throw in some more numbers from other top management, also don’t trace my ip and come complaining to my own hr

  49. That’s not the real imc hr. They are too busy writing fake positive reviews on glass door.

  50. SEC Investigations Into High-Frequency Trading Under Way


    If HFT Algos Were People They’d Be Perp Walked


    ‘Epic’ debate on high-frequency trading between Michael Lewis, Brad Katsuyama and William O’Brien


    This debate is going mainstream and starting to heat up. @1:27 the point is even while Cramer is a pelican this debate is now being broadly discussed. If HFT advocates cannot simply communicate its merits – they have lost before they start.

    @2:31 precisely….. the market system is corrupted, with little integrity, most ‘muppets’ have left the market, institutional has eroding in-flows, QE has been the illusion keeping it afloat and HFT will be scapegoated before the banks as it is down the pecking order. Creative destruction – change or die.

    Doesn’t matter ‘if its to complex..you wouldn’t understand’ – HFT and market relies on volume and broad participation and if the perception is that it is rigged or even complex participation falls. Typically in history complexity is cloak for hiding something simple.

  51. @ 9:02 Dark pools are still centralised market systems between centralised market players. Decentralised platforms of investment such as direct, crowd funding and localized vehicles will remove volume from these exchanges. ‘Muppets’ have had enough. Who wants to invest in something or someone spruiking it disconnected from where they live or not even in the same country. Investment Savings of ‘muppets’ (stored energy of labour, innovation and creation) are now going into more localised ‘entrepreneurial’ Investments (as opposed to trading and ‘financialisation churn’).

    Creative destruction – change or die.

    ‘yes, we accept mm are paid for a service they provide, but that service is no longer needed thanks to technology, just like the pit on the floor, didn’t those get eliminated?’ NICE!!!!!!

  52. anybody got transcript for this


    the debate going mainstream is actually counter productive, there would now be too many people with incomplete understanding of business and limited set of facts peppered with lots of opinions, false statements and biases, it’s an incorrect step in resolving a rather straight forward problem, people like cramer shouldn’t be listened to while discussing pros and cons of various alternatives, even though it’s not complex or hard to understand paradigm

  53. If you want broad participation in the market then you have be better at communicating and convincing households and institutions that the markets are fair and safe whether you think its counter-productive or not. Debates from more then one position more often then not are healthy. To prove that whats your position on the straight forward step to fix it. (what problem is there to fix? you admit there is a problem with the markets or the mainstream introspection?)

  54. you are confusing broad participation with constant churn, yes masses should invest and contribute to capital formation, not constantly churn their portfolio and keep dropping dimes in pockets of hft liquidity providers

    as for the problem statement and the straight forward step to fix it, this has been repeated several times already, you want another repetition?

  55. a MM unit which sells for 30 million implies that it is not making any P&L… But perhaps they have some expertise which IMC could leverage by using technology.

  56. http://www.bloomberg.com/news/2014-04-02/michael-lewis-says-einhorn-was-like-a-dumb-tourist-in-market.html

    Speed trading stayed in the news yesterday when one of its practitioners, Virtu Financial Inc., delayed the marketing of its initial public offering to weeks later than bankers anticipated, two people with knowledge of the matter said.

    reminds of you of blackstone selling at the top of the cycle in summer of 07, the stock dropped 90% over next 18 months, but being an asset manager, they had tangible business model with which to recover over the next 5 years, hft as a tech company are in very serious risk of being made complete obsolete with a new entrant on a new playing field, la facebook vs myspace

  57. when narang goes on about ‘speed matters less in today’s market than it has ever mattered’, he is referring to stat arb > lat arb in terms of importance where with decreasing volume and absence of increasing fragmentation, the speed and predatory activities contribute less to portion of already shrinking hft pot

  58. http://www.zerohedge.com/news/2014-04-03/marc-cubans-primer-hft-idiots

    No skin in the game only the capital outlay for infrastructure to rigg the game……….

    “Taking advantage of an advantage in speed and algorithmic processing to jump in front of trades from slower market participants to create small guaranteed wins millions of times a day. A High Frequency of Trades is required to make money.

    There in lies the problem. This is where the game is rigged.

    If you know that by getting to the front of the line you are able to see or anticipate some material number of the trades that are about to happen, you are GUARANTEED to make a profit. What is the definition of a rigged market ? When you are guaranteed to make a profit. In casino terms, the trader who owns the front of the line is the house. The house always wins.

    So when Michael Lewis and others talk about the stock market being rigged, this is what they are talking about. You can’t say the ENTIRE stock market is rigged, but you can say that for those equities/indexs where HFT plays, the game is rigged so that the fastest,smart players are guaranteed to make money.”

    Perception is what counts as HFT relies on volume….

    “Is this a problem of ethics to you and other investors ? If you believe that investors will turn away from the market because they feel that it is ethically wrong for any part of the market to offer a select few participants a guaranteed way to make money, then it could create significant out flows of investors cash which could impact your net worth.”

    Systemic Risk (as a result of order stuffing and competing codes) …..

    “This is where HFT create quotes that are supposed to trick other algorithms , traders, investors into believing their is a true order available to be hit. In reality those are not real orders. They are decoys. Rather than letting anyone hit the order, because they are faster than everyone else, they can see your intent to hit the order or your reaction either directly or algorithmically to the quote and take action.”

  59. the mistake you are making is that few billion dollar frictional cost is going to deter investors in a 23 trillion US equity market, there are lot other frictional cost like corporate governance which can cost few billion dollars in each large multinational, unfortunately that doesn’t deter investors and there is only one loud mouthpiece to that cause

  60. the mistake you are making is that its not primarily about ratio’s between frictional cost and the size of the market. If people think they are getting fleeced they will and have been withdrawing from centralised markets. Household investment in the US stock market since 2008 has dropped from 65% to 52%. Creative destruction and market solutions like IEX, more co-ops, seeking localized investment and partnerships is increasing. Its like declining viewership in free to air TV – its no longer a monopoly on information or entertainment for our leisure time.

    the mistake you are making is that if a strategy that does not have skin in the game and only requires price movements will always look to optimize their outcome – there is no thought of systemic risk or collision of code in the form of flash clash. Thats why reform is needed. The incentives are perverse in the industry and is unable to self-regulate.

  61. Does IEX still restrict retail orders to come through broker-dealers?
    Sounds like it’s representing the interests of its owners in whipping up the gulible and cynical into a state of indignant frenzy about hft.
    Poor broker-dealers finding it difficult to convince their clients that they canoffer anything in a world where better prices are available on public exchanges directly.
    Bring back the good old days…

  62. you are a muppet if you think retail are withdrawing due to hft, retail enjoy tightest spread ever, the reason they are withdrawing is 666 on march’09, that scar would take a long time to heal mate, even tripling from that hasn’t started the optimism phase much

    sorry what mistake did i made here
    ‘the mistake you are making is that if a strategy that does not have skin in the game and only requires price movements will always look to optimize their outcome – there is no thought of systemic risk or collision of code in the form of flash clash’

  63. iex is not whipping up any frenzy, they are just showing the truth underneath all the complexity

    can you rephrase this
    ‘Poor broker-dealers finding it difficult to convince their clients that they canoffer anything in a world where better prices are available on public exchanges directly.
    Bring back the good old days…’

  64. They are withdrawing – fact combination of developing meme of markets are rigged and structural with debt servicing – most are only tied up in it with 401k and superannuation obligations. If that was not in place it would be less. Money printing is levitating the market.

    Your mistaking computer trading with interception technology with the spreads. Investors aren’t traders. They have a valuation and a price. HFT is fake liquidity and strategies are distorting that price.

    Reform is required. Weaknesses outweigh strengths atm with HFT.

  65. The truth is IEX are a new trading venue designed for the traditional buy side.
    They are promoting themselves by vilifying hft – easy target if you’re dumb enough to think that the tin-foil-hat idiots on zerohedge are representative of retail customers.
    Wait a year – the only thing anyone cares about is price. If iex can offer better prices – i dont see how with 1c spreads eveywhere thanks to hft – they will take market share.
    But i bet this time next year they still feed marketing bull to the paranoid conspiracy theorists about fairness when they lose price war. Classic big bank behavior – not surprising given background of the owners – big spend on public relations to try to twist government to bring in regulation to restrict competitors when you cant compete on price and bleat about fairness.
    Sucessful too looking at the excited little lap dogs yipping around this comment section.

  66. Your trying to distill it down to centralised markets as the only investment pathway and market share. Its not just about fairness bro – its about having money exposed invested in a structure that has systemic risk – unintended or not by ‘good’ or manipulative HFT practices – the risk exists. No one is smart enough to understand nor predict the potential impact of hyperspeed and collision of competing code trying to trick each other. Once investors which are more capitalists (allocating capital where it can service the most needs) then any HFT firm (HFT dont allocate any capital to income producing assets apart from their own interception technology) understand through the airing of this debate what is happening, reform, a proliferation of IEX market based solutions and household outflows collectively will begin to polarise the centralised marketplaces. Your right on that its successful – because .001 of a cent or not investors dont like getting stolen from. HFT firms absolutely hate it when they steal each others code – no different. One just happens to have rules currently in place or regulation as you put it. I think you are underestimating traditional capitalists investor motivations. Price is only one motivator in a buying or selling decision.

    HFT aren’t invited by the buyer or seller to intercept the transaction. Thats why dark pools exist, that’s why traditional investors are exiting centralised markets to invest their money. Thats why the airing of this issue in the public domain is important. If afraid of this going public then your worried about what will be revealed. If not just let it run its course.

  67. ‘Wait a year – the only thing anyone cares about is price. If iex can offer better prices – i dont see how with 1c spreads eveywhere thanks to hft – they will take market share.’

    this is a top comment, let the facts speak.

    On a side note: dark pools are there since years and the majority of trading flow is still taking place on traditional exchanges. This happens because investors want so. Why do companies like Schwab sell their retail flow to HTF if they really think they are so bad for investors?

  68. money printing is supporting the market, yes, that’s the job of central bank, to achieve maximum employment in context of price stability, u6 is 13%+, Inflation is around 1%, so yes central bank should keep printing, do you prefer to have higher unemployment and deflation?

    and if the investors are withdrawing from equity markets, they are making a big mistake, they have already missed out on 200% returns in less than 5 years, but this is expected, retail miss out on the rally and buy-in at the top of market during euphoria, gold was the latest eg of this euphoria

    and can you sound little like greek philosopher, and more like real world professional with real world solution

  69. so you don’t like, hft, iex, big banks? shouldn’t you live in a jungle somewhere, what are you doing living amongst normal human beings

  70. yes, fear of unknown,

    ‘No one is smart enough to understand nor predict the potential impact of hyperspeed and collision of competing code trying to trick each other’

    what’s new?

    Schwab sell their retail flow to HTF for money, duh, the investors don’t get too bad an execution, hft steals only small amounts at a time

  71. Exactly….. wait year – you cannot quantify the systemic risk attached to centralised markets. Distrust in markets trumps price any day. This is an evolving meme. Households don’t have time to dance while the music is playing – expecting to divest prior to downturns – they are either in or out and more so becoming out.

    A comment above suggested it is taking years for household investment to return post 2009 due to a lack in confidence in the market. Statistically this is fact…. down by over 10% in the US. Dovetail that behind these emerging risks including HFT and it is adding up. Markets are floating around on a sea of liquidity but it does not equate to wealth creation and surplus income for households to invest. The false wealth effect is just inflation and households no it because their budgets are affected – the majority of household funds are typically sourced via obligation from 401ks. If its complex retail and household wont invest. If they don’t understand these risks they wont invest. They are exiting as a result of these collective factors.

    Investing in centralized market exchanges including IEX is not the only investment pathway gents. All these factors are deterring investors and if they do have surplus investment funds it is increasingly through, direct investment platforms, SMSFs, crowd-funding, co-ops, localised investment. Distrust and ‘complexity’ of centralised markets through excessive financialisation, hollow low quality liquidity is parasitic to it. Market structures have to reform or die. No more low hanging fruit gents.

  72. Real world solution is decentralized investment where excessive financialisation and manipulation is avoided. Money circulates in the community and regions you live. Solutions already exist – other investment towards alternative decentralised pathways is gaining momentum.

    @11:41 Deflation at some point either by policy choice or by market forces. Financial history not philosophy tells you that.

  73. Gents – you aren’t looking at this systemically – your just talking your book. I don’t expect anything less. Ignore these factors at your. Brad Katsuyama seen a problem and offered a market solution. No more low hanging fruit – creative destruction – change or die.

  74. where do you get this ‘Distrust in markets’, markets are very competitive, so if you hope to make money without beating other extremely hard working competitors, then you are just plain stupid, your distrust is nothing different from endless trust people put in higher power, both extremely lazy, there ain’t a free lunch mate, get real

    and if people are increasingly out of investment, well then that’s just another eg of their laziness and stupidity, the rest of investors are happy to purchase assets on cheap, thank you very much, survival of fittest

    market structures are constantly evolving, you just need to stop all your complaining and moaning about it

    growing economy, higher asset prices, not in all cases, but currently do indicate growing wealth and surplus income in US, income inequality for this is another issue

    there is no inflation, what’s all this noise about inflation, its barely 1% in US, it’s falling in europe and uk, japan still can’t get it’s inflation up, even india and china are having reduced inflation, how can you have inflation when there is excessive labor supply, capacity excess, commodities pile up with no demand, central banks can print all they want but base money is so much less than broad money, if there is no velocity, there is no inflation, get real and stop all this non-sense talk of inflation, what inflation

  75. ‘No more low hanging fruit’

    there is plenty low hanging fruits because of muppets like you having incomplete understanding of market dynamics and instead content with mantra of ‘change or die’, don’t you think we already know that yes, it’s change or die from before?

  76. Markets are facing competition as investment platforms from alternative pathways. Distrust amongst other factors outlined above is motivating this movement. Seeking out those pathways of direct investment is not lazy – that’s being entrepreneurial.

    Reverting back to the its way to complex for a ‘muppet’ to understand argument – that’s lazy. The market’ you are referring to or what I refer to as centralized markets isn’t the only pathway to facilitate allocation of capital and a return on that capital. Don’t need to understand it to your level. Diversified direct investment is less risky given how markets are and have been behaving.

    There’s no velocity because its going all to debt servicing. Therefore they need more debt, more money creation. Theres no inflation in economic expansion and growth commodities like copper, iron ore etc because of deleveraging but most other assets have increased in value (in this area of the the economy – ‘stagflation’) particularly real estate. The 1% your referring – not sure where you plucked that from or what inflation formula was used but real inflation primarily for households is greater then 1% if you take hedonistic adjustments and other adjustments that reflect the true cost of living of those on a budget for fuel, food and energy. But you already knew that inflation is primarily in increase the money supply???????? Cost increases across services and products assets etc is uneven. It then becomes a matter of which formula you use to measure that.

    And precisely because of your attitude there will be less muppets and less low hanging fruit. You don’t respect the market as a fair place to match buy and sell orders without scalping. You don’t respect it as a venue to apportion capital where it do the most need. You just want volatility, price movements and co-location.

  77. you have now repeated this number of times, we already know it well from before, ‘alternative platforms’ and ‘change or die’, anything new? you want to repeat it once more, it’s okay, go ahead, we properly didn’t get the message when you were repeating yourself before

  78. if you like direct investment, by all means, i like them too, i just go around repeating myself all day long

    how’s trillions of dollars parked by banks at central banks and trillions of dollars on company’s balance sheets going into debt servicing, can you not bloody talk out of your ass?

    can you describe your calculation of ‘real inflation primarily for households is greater then 1%’? also define ‘hedonistic adjustments and other adjustments’

    As for energy cost, there is plenty of oil and shale gas in the world, energy prices haven’t gone anywhere in years now, infact they are the leading cause of some low inflation prints in euro area

    As for food cost, just because you see 10% inflation on single item in supermarket doesn’t mean there is no substitution effect, also food as % of your basket of expenses is much small compared to housing and labour cost, there is plenty of good deals on cheap labour and affordable housing, inflation just can’t go up unless demand picks up relative to supply for labour, housing and commodities in general

  79. one thing you are somewhat close is the friedman philosophy that central banks can exclusively control the inflation rate at 5 year horizon, and they are doing that well, and in order to meet their 2% target, they have to provide monetary accommodation, otherwise the output gap increases further followed by disinflation

    now to provide this monetary accommodation, they obviously can’t lower short rates that are already at zero, so you provide accommodation through asset purchases and forward guidance to bring down the rates in long end and belly, you should open sometimes the websites of fed and ecb, they have lot of good education materials for ignorant muppets like you

  80. how did you reach this conclusion
    ‘You don’t respect the market as a fair place to match buy and sell orders without scalping. You don’t respect it as a venue to apportion capital where it do the most need. You just want volatility, price movements and co-location’

    why are you still sounding like a greek philosopher and not a real world professional

  81. Ya but you almost have to admire his effort.

    Churning out reams of meaningless babble – blah blah hft blah blah inflation blah blah centralized markets blah blah adapt or die blah blah. …

    Someone has already said all that needs to be said. If IEX can offer better prices than the venues where hft operates, then they will win market share. Good luck to them. If hfts continue to offer the best prices they will continue to attract trades and pay themselves. All the rest is empty waffle.

  82. its not empty waffle if they got you to attack the person not the problem. they have obviously hit a nerve just like iex has. its not just about numbers and price, there is behavioral economics at play now that the issue has been elevated to mainstream discussion.

  83. “[HFT] siphons capital away from the exchange, and of course that’s capital that would be available for things like jobs, or capital expense”.

    He lost me in the first two minutes.

    Can anyone explain how a listed company loses any capital because of what happens in the secondary market for its shares?

  84. it’s not the listed company losing capital, it’s the investor losing capital who might have deployed it elsewhere, duh, aren’t you a algo hft trading genius or some?>

  85. that Keiser is in the same camp as his fellow doomsayers rickards, faber, schiff etc, you have to learn to not listen to all their noise, otherwise they end up putting wrong ideas in your head

  86. “it’s the investor losing capital who might have deployed it elsewhere”

    You mean deploy it somewhere else in the secondary market?

    What’s the difference between that, and it ending up in the pocket of a trader. Why can’t he or she deploy it elsewhere? A trader will probably have a better idea of where to put it.

  87. it can be employed in secondary or primary market

    the difference between original investor deploying it and it ending up in a pocket of trader is that before a fraction of money ends up in trader’s pocket, a lot of is invested in hft’s human and physical infrastructure and this investment really is non-productive to anyone outside hft industry, thus the parasitic nature of hft activities

    how did you reach the conclusion that a trader has a better idea of investing capital than a buyside legend einhorn?

  88. you sounds like you are an hft algo trading genius, and given your rather weak arguments about investing/capital markets, it’s better your hft activities be shut down and capital not be put in your hand, first learn how real world works and then steal money from other people’s pocket to invest in it

  89. the guy starts off well but doesn’t go in detail of anything, how is his rambling and the final conclusion more believable than anybody else’s, and how hard is it to write the explanation crisply and simple to understand manner, just look at the conclusions, those seem to be pretty well worded – i am smart, you are dumb

  90. that was three and a half years ago, that’s a lifetime you would think, are his views still the same

  91. an ex-imc recently showed up as head of options trading in a shop in London. Would be interesting to see if the entire en-masse resignation team shows up there.

  92. the only edge an imc options trader has is speed so once they leave imc they are completely useless

  93. who cares ?

    Half the posts on this post are about non-compete enforcement and why these boys resigned. The other ‘suedo-intellectual’ posts being about HFT with smart guys calling each other ‘clown’ and yes ‘define’

    Whisper and secret are apps all of you need to download.

  94. the edge is in my head and the money is in my pocket mate, get real, there are more tricks in world than speed, speed matters less in this market than it has ever mattered in the history of market

  95. ‘what exactly is this 350 microsecond iex speed bump, is that a delay on all orders?’

    it is the time needed to transmit information from the access point of the exchange, i.e. where all servers are located, and the matching engine. So it affects orders send and the book information read by the algo. This is done to avoid that orders sent there can reveal too much information on other exchanges (latency arbitrage)

  96. so, if order arrives at t, would algo would know of it at t+350?
    If Algo chooses to send a matching order on other side, would that be executed t+700?
    If trade executes, would algo know of it at t+1050?

  97. who’s going to make markets there at these conditions? The business plan of this exchange will not work out as an exchange with no liquidity will not survive for long. Time is information and money, you can’t stop the progress.

    Moreover, market makers will still update their quotes based on the most liquid price information, so quite at time t might already have been updated and the institutional order will not get filled.

    Liquidity on this exchange is like the starts on a beautiful summer night, a view on the past…

  98. it’s microseconds not milliseconds, still too high speed bump?

    the problem of deterministic lag still remains though

    why can’t iex do frequent auctions, one every 5-10min during open and close, rest of the day say every 15-20 min?

  99. half of those posts about non-compete repeat the same bloody point, non-compete doesn’t hold if you are not paid, you still care about that point?

    and as for ‘suedo-intellectual’ posts, why don’t you come up with real intellectual stuff from your ass?

  100. >why don’t you come up with real intellectual stuff from your ass?

    Behave, son of a banker

  101. http://www.iextrading.com/about/

    How does IEX calculate the NBBO and protect orders resting on its book from trading based on stale market data?

    IEX’s trading system is architected to ensure our Matching Engine calculates the up-to-date NBBO before any participant can calculate and act upon the up-to-date NBBO on IEX.

    Specifically, IEX takes in direct market data feeds for 12 of the 13 registered stock exchanges*. Most importantly, the (patent pending) IEX POP architecture introduces 350 microseconds of latency for any order action taken by a participant (enter, cancel, revise an order), which ensures the IEX Matching Engine has sufficient time to receive and process changes to the NBBO before a fast participant can receive and act upon the change on IEX. By having the most up to date NBBO calculation IEX protects orders on its book from being picked off due to stale market data.

  102. ‘it can also be perpetrated by manual or low latency trading’

    this sentence in the main article should probably be:

    ‘it can also be perpetrated by manual or high latency trading’

  103. ‘By having the most up to date NBBO calculation IEX protects orders on its book from being picked off due to stale market data.’

    still not clear. Assume X is quoting at 99-102, this is the NBBO. Suddently, in some other exchange the quote 100-101 appears. No doubt that this is the new NBBO. High-frequency trader Y immediately sends and order to buy on IEX at 99 (let’s skip the sell at 102 for simplicity). Trader X is slower than Y, so he is not able to pull his quote away. Up to know the latency embedded in IEX is irrelevant. After 350 micro seconds IEX understands that the new NBBO is 100-101, however, at the same moment the buy order of Y (at price 99) enters the matching engine. By definition the agressive order should execute because the price is at least so good as the NBBO and there is a resting order at 99.

    How can IEX avoid that the X is being picked off?

  104. you are right dude, too much beer, wine, and vodka. Let’s still assume the quote is 99-102 and let’s change the buy order at 99 with a buy order at 102 and assume the market changed to 101-104 (instead of the previous example 100-101). The rest stays like the previous description.
    Ie the aggressive order executes at 102, this is not against the NBBO rule (for both the 99-102 quote and the next 101-104 quote) as there can be a price improvement. The next step would be to sell at 104 (passive order) making a PL of 2.

  105. the whole book is a huge commercial for IEX.
    And the IEX “solution” looks retarded to me: “delay all orders with 350 us”. Even a market model based on frequent auctions with randomized end looks better.
    But what about the new warrants model on Euronext, in use since .. 5 years now? When you are about to be matched aggressively by someone you receive a “request for execution” and have some seconds to update your price (sending the same price again would mean accepting the trade).

  106. rather than speculating your opinion, let’s discuss some hard facts

    do you know exact functioning of iex and delay of 350us

    auctions don’t need to have randomized end, just tighten order abuse and cancellation policy and hold them at intervals so that reasonable volumes can aggregate around it

  107. Warrant model on Euronext just encourages laziness. Why bother constantly updating your prices if you you don’t have to give execution at that price anyway?
    If you’d do that in shares you’d also be given people a free option: wait the maximum amount of time to see where the market is going and decide based on that whether you give execution at that price or not.

  108. true, I only read the IEX documentation on the diagonal, didn’t pay too much attention. So then, would you care to explain why the IEX market model is not just “delay every order for 350 us” ?
    as about the enx warrant model, I would have expected more intelligent critique, like “what do you do when there’s more then 1 MM for the same instrument”:) so much for traders, heh?

  109. yeah, i agree, traders are completely stupid, incapable of understanding your great genius, so can you elaborate more on ‘what do you do when there’s more then 1 MM for the same instrument’

  110. http://www.iextrading.com/about/

    How does IEX calculate the NBBO and protect orders resting on its book from trading based on stale market data?

    IEX’s trading system is architected to ensure our Matching Engine calculates the up-to-date NBBO before any participant can independently calculate and act upon the up-to-date NBBO on IEX.

    Specifically, IEX takes in direct market data feeds for 12 of the 13 registered stock exchanges*. Most importantly, the (patent pending) IEX POP architecture introduces 350 microseconds of latency for any order action taken by a participant (enter, cancel, revise an order), which ensures the IEX Matching Engine has sufficient time to receive and process changes to the NBBO before a fast participant can receive and act upon the change on IEX.

  111. so looks like there is just deterministic latency, if there was new bid joining, whoever is the fastest, gets the dime order in first, if that’s how they plan to queue them, otherwise if they are democratically doing ‘mini-auctions’ then that’s completely out-there

  112. Roger Cohen, Joris Kooiman
    Thursday 24 April 2014, 08:18
    update: Thursday 24 April 2014, 08:22
    Johannah Ladd
    Peter Strelitski
    ?Ik moet er niet aan denken hoe de markt
    erbij zou liggen zonder flitshandel?
    Ze stond om vijf uur op, de dag dat Flash Boys werd gepubliceerd, het
    boek van Michael Lewis dat een storm van verontwaardiging heeft
    ontketend over flitshandel (?high frequency trading?, hft). Johannah
    Ladd, net begonnen als secretaris-generaal van de internationale
    belangenvereniging voor geautomatiseerde handel FIA Epta, wilde
    de aanklacht gelezen hebben voordat ze eventueel in de publieke
    beklaagdenbank zou moeten plaatsnemen.
    Een ?great read? vindt ze Flash Boys. ?Maar ik ben wel even gaan opzoeken wat
    de definitie van non-fictie eigenlijk is. Want het is nogal een eenzijdig verhaal dat
    niet strookt met de feiten.? Hoewel Lewis anders beweert, heeft de schrijver van
    Liar?s Poker en The Big Short volgens de 39-jarige Amerikaanse niemand
    gesproken uit de hft-sector. En hij heeft ten onrechte het beeld gecreëerd van deheld en de schurk, flitshandel in dit geval.
    Ladd is geschoold als jurist aan Harvard en na een korte carrière als journalist in
    Londen via het Amsterdamse handelshuis Flow Traders in de wereld van de
    algoritmische handel terechtgekomen. Ze spreekt met bewondering over de
    jonge, technisch geschoolde ?intellectuelen? ? Ladd weigert hen nerds te noemen
    ? op wie handelshuizen als Flow Traders, IMC en Optiver drijven. De mannen
    dus (vrijwel altijd mannen) die de razendsnelle algoritmes schrijven die de
    market makers jaarlijks miljoenenwinsten bezorgen. ?Ze zijn meestal
    aandeelhouder en handelen dus met eigen geld, niet met de centen van een
    ander. Dat maakt hen voorzichtig en integer.?
    Hft handelt met voorkennis, stelt Lewis. Ze pluggen hun
    razendsnelle verbindingen in bij de beurzen (co-locatie) en zien
    marktdata daardoor eerder dan andere handelspartijen. Is dat niet
    ?Nee. Het is niet zo dat handelshuizen data te zien krijgen voordat die zijn
    gepubliceerd. Alle informatie is publiek. Het is als op een marktplein waar een
    koopman zijn prijzen schreeuwt. Je kunt ervoor kiezen alles op alles te zetten om
    zo dichtbij mogelijk te komen en de prijzen als eerste te horen. Als snelheid niet
    belangrijk voor je is, blijf je meer op afstand. Zoals de particulier. Maar
    institutionele beleggers zullen wel zwaar moeten investeren in technologie om bij
    te blijven.?
    ?Snelheid is trouwens altijd belangrijk geweest. Vroeger stonden mannen met
    vlaggen op de heuvels tussen de beurzen in New York en Philadelphia om orders
    zo snel mogelijk heen en weer te seinen. Nu doen we het met glasvezelkabels. De
    markten zijn juist veel eerlijker dan in die tijd, toen je vriendjes moest hebben
    om een zetel te krijgen op een beurs. Nu heb je alleen geld nodig.?
    Brokers met institutionele klanten klagen over ?legal front- running?:
    zodra ze een order willen uitvoeren, wordt die door hft gedetecteerd
    en beweegt de prijs weg. Klopt dit?
    ?Die term frontrunning is verwarrend. Dat betekent dat je illegaal gebruikmaakt
    van informatie van je klant om tegen hem te handelen, terwijl de handelshuizen
    die ik vertegenwoordig niet eens klanten hebben. De problemen die de brokers
    ondervinden, lijken me bovendien eerder het gevolg van de grote orders van
    institutionele beleggers waarmee ze de markt in moeten. Het is logisch dat de
    koers dan beweegt. Denk aan wat er gebeurt als je op de website van KLM gaat
    zoeken naar tickets. Dan gaan de prijzen ook omhoog. Dat is gewoon kapitalisme.?
    Het verschil is dat ik de aangeboden tickets kan kopen met een druk
    op de knop. Bovendien mogen airliners niet meer adverteren met
    prijzen die ze niet kunnen waarmaken. Brokers spreken van
    schijnliquiditeit: de aangeboden orders verdampen zodra ze willentoeslaan.
    ?Het terugtrekken van liquiditeit is een mythe. Dat heeft de Duitse optiebeurs
    Eurex laatst nog in een rapport bevestigd. Grote orders geven nu eenmaal altijd
    spanning in de markt. Dat is nu niet anders dan vroeger. De opkomst van hft en
    de concurrentie tussen beurzen hebben er echter wel toe geleid dat de spreads
    (het verschil tussen bied- en laatkoers, red.) kleiner zijn geworden en de
    transactiekosten zijn gedaald. Ik moet er niet aan denken hoe de markt erbij had
    gelegen zonder hft.?
    Wie draaien op voor de winsten van de flitshandelaren?
    ?De banken en de brokers. Die kunnen door hft nu niet meer zoals vroeger hoge
    marges verdienen op de handelsstromen.?
    Wat merkt de eindbelegger?
    ?Die heeft geen last van hft. Ik denk dat hij zich beter druk zou kunnen maken
    om de $?9 commissie die hij betaalt aan zijn fondsbeheerder.?

  113. Roger Cohen , Joris Kooiman
    Thursday 24 April 2014 , 08:18
    Updated: Thursday 24 April 2014 , 08:22
    Johannah Ladd
    Peter Strelitski
    ? I hate to think how the market
    there would be no flash trading ?
    She stood at five o’clock on the day that Flash Boys was published , the
    book by Michael Lewis that a storm of indignation
    unleashed on flash trading (? high frequency trading ? , hft ) . Johannah
    Ladd, just started as Secretary – General of the International
    association for automated trading FIA Epta , wild
    read the indictment before possibly in public
    dock should take place .
    A ? Great read ? Flash Boys find them . ? But I’m just going to look up what
    the definition of non-fiction is. Because it is rather one-sided story
    not consistent with the facts . ? Although Lewis claims otherwise , the author of
    Liar ? ‘s Poker and The Big Short , according to the 39 – year-old American one
    speaking from the hft sector . And he has wrongly created the image of deheld and the villain , flash trading in this case .
    Ladd was trained as a lawyer at Harvard and after a brief career as a journalist in
    London via Amsterdam trading Flow Traders in the world of
    algorithmic trading ended . She speaks with admiration about the
    young , technically skilled ? intellectuals ? ? Ladd refuses to call them nerds
    ? who trade houses like Flow Traders , IMC and Optiver float . the men
    So ( almost always men) who write the algorithms that the rapid
    market makers provide profits million annually . ? They are usually
    shareholder and therefore act with their own money, not with the money of a
    other . That makes them cautious and integrity . ?
    Hft acts insider says Lewis . They plug their
    lightning fast connections to the exchanges ( co-location ) and see
    market data thus earlier than other trading parties . If this is not
    Nee . It ‘s not that business houses have data to show that before his
    published . All the information is public . It is like a market place where
    merchant prices screams . You can choose to put everything in
    to come as close as possible and hear . prices first If speed is not
    important to you , you stay more remote. As individuals. but
    Institutional investors will have to invest heavily in technology to
    to continue . ?
    ? Speed ​​has always been important anyway . Earlier men stood
    flags on the hills between the stock exchanges in New York and Philadelphia to orders
    to signal. back and forth as fast as possible Now we do it with fiber optic cables . the
    markets are just a lot more honest than in those days , when you had to have boyfriends
    to get a scholarship a seat. Now you need . ? Only money
    Brokers with institutional clients complain about legal front running ? :
    when they want to perform , an order is detected by hft
    and the price moves away . Is this correct ?
    ? It frontrunning term is confusing . That means you illegally use
    information from your client to act against him while trading houses
    I represent clients do not even have . The problems that the brokers
    find , moreover, seem to me rather the result of large orders
    institutional investors that they have the market . It is logical that the
    rate moves . Consider what happens when you go to the website of KLM
    search for tickets . Then prices go up too. That’s just capitalism . ?
    The difference is that I can buy a print tickets offered
    the button. Moreover airliners may not advertise
    prices they can not keep. Brokers talk
    apparent liquidity : the orders offered evaporate once they willentoeslaan .
    • The withdrawal of liquidity is a myth . That the German options exchange
    Eurex recently confirmed in a report . Large orders simply always give
    tension in the market . That is no different than before now. The rise of hft and
    competition between exchanges have , however, led to spreads
    (the difference between bid and ask price , ed ) have become smaller and the
    transaction costs have fallen. I hate to think how the market there had
    located without hft . ?
    If run on the profits of the flash traders?
    • The banks and brokers . Which may by now hft not like they used high
    margins money on the trade . ?
    What marks the end investor ?
    ? It does not suffer from hft . I think he could make better pressure
    the $? 9 commission he pays to his fund manager . ?

  114. why do people listen to journalists in these highly specialized situations, they don’t know head from arse

  115. duh.

    of course regulators and lawmakers don’t know their head from arse either, welcome to the real world, full of biases, information asymmetry and just plain old stupidity

  116. http://www.zerohedge.com/news/2014-04-24/what-professional-buyside-traders-really-think-hft

    “On the subject of High Frequency Trading, our respondents are thus far unimpressed with the argument that HFT helps U.S. equity market participants. Fully half answered that it is “Harmful” or “Very Harmful”. Only 19% said it was “Helpful” or “Very Helpful” to participants. Clearly, advocates of the current market structure need to sharpen their arguments if they want to move the debate in their direction. Right now, the notion that HFT is helpful to market players is falling on deaf ears fully 80% of the time.”

    “In short, our survey seems to tell a very clear story. Most professional investors and institutional brokers do not feel that markets treat all participants fairly. They worry about how fragile markets might become during periods of abnormally high volume. At the same time, they are cautiously picking their way through the minefield in which they find themselves and are unsure what role regulators should play. How the landscape will change as a result of their unease is still unclear. What is certain is that change is coming. ‘

  117. I couldn’t give two flying fucks what the survey says. They are just parroting whoever yells the loudest.

  118. yo indiana jones, when more than 80% say that they don’t ‘think’ hft is useful, how did you conclude that the survey results ‘are just parroting whoever yells the loudest’

  119. Ladd wrote too: http://www.cityam.com/article/1400528973/flash-boys-delusion-why-high-frequency-trading-critics-are-wrong

    The Flash Boys delusion: Why high frequency trading critics are wrong
    By Johannah Ladd, http://www.cityam.comView

    May 19th, 2014

    THE PUBLICATION of Michael Lewis?s book Flash Boys has understandably turned the spotlight onto high frequency trading (HFT). A cacophony of voices repeating catchy sound bites about markets being ?rigged? against average investors have forced the Twitter decibel level to ?11?.

    If the noise translates into book sales and the rumoured movie deal comes to pass, Lewis will have done well. But as the sense of hysteria dies down, it?s worth considering whether the characterisation of HFT is accurate. One point of contention is not only that ?HFT firms? are to blame for the market?s woes ? but that they exist as a category at all.

    The reality is that HFT is a technology, not a type of company. HFT describes the use of low latency connections to exchanges, such as co-location, which allows traders to send high volumes of messages to post orders and to manage their risk. These technologies can be used in the execution of any trading strategy and are now an integral part of the market, employed by many types of market participant (including proprietary firms, buy-side, and investment banks).

    Perhaps the companies who make the most use of HFT are market makers, so a more useful question to debate would be whether or not we need specialist market making firms. We take for granted that we can buy or sell a stock at a moment?s notice. Without market makers to take the other side of a trade, there would be far fewer participants interested in that trade ? and investors wouldn?t be able to buy and sell stocks whenever they wanted.

    Market makers offer quotes in multiple equities across trading venues, so investors can trade at the price they want, on the exchange they use every day. By trading in multiple markets simultaneously, market makers are able to monitor and keep prices consistent across trading venues. This is a crucial part of the market maker role. By making prices, however, a market maker opens himself up to the risk of losing to informed traders who know more about asset values. That?s where HFT comes in as a necessary tool, enabling market makers to update their quotes quickly enough to limit their exposure when prices become stale.

    Without market makers, equities would be less liquid, prices more volatile, and the market, without the speed and accuracy of the price discovery process and lower transactions costs made possible by HFT, would be all around more expensive to trade. So although a market maker may earn a fraction of a cent on trades, the investor saves substantially more than this in their overall costs.

    Speed is, and always has been, a form of competitive advantage for traders. Any market participant can choose to invest in high-speed trading technology, but even if they do not (because speed is not an essential component of a long-term investment strategy), they still benefit from the more accurate pricing and increased liquidity it brings.

    Many investors state that they have seen clear evidence of this. In a 2010 US Securities and Exchange Commission comment letter, Vanguard (one of the world?s largest mutual funds) ?conservatively? estimated that transaction costs had decreased by 0.5 percentage points per side, or 1 percentage point per round trip. If we extrapolate, this means that an actively-managed equity mutual fund with a 100 per cent turnover ratio currently producing a 9 per cent return would have returned only 8 per cent in the years before HFT.

    An investor would see a $10,000 (£5,900) investment grow to $132,000 over 30 years at 9 per cent, compared to $100,000 at 8 per cent ? a 30 per cent difference in the end value of the portfolio. These savings are due to efficiencies as a result of modern market technologies and electronic market-making practices.

    Fortunately, European legislation treats HFT as a tool used by lots of different market participants, not just one group, with dialogue addressing market structures in general, and trading behaviours of all market participants. The European Parliament?s vote on the Markets in Financial Instruments Directive II, which also recognises the essential role of market makers, comes at a good time to bolster confidence. It?s a clear signal that Europe has already committed to creating effective, well-regulated markets; indeed it has been working towards this goal for years.

    So while Michael Lewis claims that markets are ?rigged,? we believe they are fairer today than ever. You no longer need to be part of the right ?club? with an expensive seat on the trading floor to start trading. All you need is a computer.

    Johannah Ladd is secretary general of the FIA?European Principal Traders Association.

  120. you should stop wasting time listening to the management of the business, no one of them is ever going to claim that their business is shit or they themselves are shit, duh

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