Consolidated Audit Trail Costs May Hit HFT Hardest

[Random.Capital]

Quote from mastertrader456:

It is estimated that stock fraud alone amounts to $40billion annually. The CAT will drastically reduce that number.

Have to really disagree with this assertion. Such a system would have done nothing to prevent eg Madoff.

Storing data doesn't solve anything, unless there is a regulatory structure in place to actually use the data. There is nothing in the proposal that would have caught, eg, Madoff sooner, because that would require empowered regulators, which are virtually non-existent.

 

[mastertrader456]

It would have alerted Madoff's scam much sooner. He created false trading reports based on the returns that Madoff ordered for each customer. Having a consolidated audit database would have allowed the verification of those trade reports instantaneously with minimal resources.

As it stands today various trade/order information is stored at several locations including FINRA, SEC, various exchanges, etc. That makes it that much more difficult to verify trade reports. It would go from taking weeks to minutes to verify such information.

 

[ronin266]

Quote from ChkitOut:

actually, i don't see the difference. why would it cost the industry 2 billion a year in aggregate to maintain some sort of infrustructure to run this stupid thing? i dont get it.

whether the sec just demands 2 billion from the industry OR they are paying it to someone else, it really doesn't make a difference.

LOL Just imagine billions and billions of quotes/transaction data that has to be stored EVERYDAY (and night) for the rest of the decade. That is a really BIG amount of data. Not talking about the complex that has to be designed for their manipulation and analysis. I bet the gov have more than a pair of underground strategical data storages with tons of data from any kind from the last 40-50 yrs. And everyone of them maybe costs even more to maintain (knowing how much does the military loves to overprice their projects).

You are still trading in the 90?. Things changed, and a lot since reg NMS. The SEC/FINRA are just a big guy fighting against millions of mosquitoes at the same time. The audit trail will work like a nice insecticide in their hands.

Right now every dirty strategy used since the begginin of the XX century is being recreated in a micro-scale (all the old pool tricks, specialists things, MMS things, everything, everyday). And no one can prove nothing if there is no trail of the movements.

 

[Random.Capital]

Quote from mastertrader456:

...would have allowed the verification of those trade reports instantaneously with minimal resources...

The SEC already had enough information that "would have allowed" them to figure out Madoff. They even had direct testimony.

Lack of data was never the issue - lack of will was the issue - and that's not something piling up petabytes of data can solve.

 

[TraDaToR]

Quote from Random.Capital:

The SEC already had enough information that "would have allowed" them to figure out Madoff. They even had direct testimony.

Lack of data was never the issue - lack of will was the issue - and that's not something piling up petabytes of data can solve.

Exactly. Just a new waste of money.

I hope they will at least manage to keep the supercomputer free of porn so that they don't have to change it every 2 years...

 

[ronin266]

Madoff wasn't found earlier because of the delusion surrounding him. I bet even SEC guys had money with him. And even if they found him, they could only use it to earn fast money, and take all out .

Anyway, HFT doesn't have anything to do with that. Audit trails are needed.

 

[Bison42]

Any of you see where the Mtual Funds want to create their own exchange so they can eliminte the HFT crowd.

Could be a good start.

 

[gandieB]

I have read a lot about it and it really hit hard. Consolidation is really important.

 

[zdreg]

Quote from mastertrader456:

I can't wait. This plus the Volcker Rule. Thank God JPM lost $2billion cause it strips any credibility away from opposing arguments. I got nothing personal against HFT's, just my wallet dose. Trading was easier before. Bring back the 1/8 tick as well. I can dream.

maybe for people like you. good traders adjust.

 

[BUTfr]

Quote from Options12:



High-frequency traders are know for placing thousands of orders, then canceling most of them before making a single trade.

That answers my question. I have always wondered how HFT can make money by trading a few thousand trades a day. The price doesn't even move within a second, how can a trade make money if the price doesn't even move?

Turns out a few thousand "trades" should be labeled as a few thousand "fake trades." But many reporters and writers about HFT (Reuters, Bloomberg, CNBC, Yahoo Finance, CNN Money, etc.) have been wrong and misleading. They baffled me for a long time.