HFT robots seeing orders before the exchange ?

There were a number of useful infos in this thread, among which two stand out (IMHO):

1. A small trader can be screwed by the sub-penny orders.

2. A small trader can avoid being screwed by a broker selling the order flow by using directed orders (and not "Smart" orders in IB's terminology).

Does anyone know if the brokers are required by regulations to send a directed order directly to the exchange ?

Can they send the directed orders to a third party or maybe internalize them ? (i.e. match them internally without sending them to the exchange).
 
This is only moderately on-topic, but I thought many readers of this thread would be interested: I've been keeping daily statistics for the last three months of Finra-reported trades (that is, for the most part internalizer and dark pool trades) that occur when I am either the NBB, NBO or NBBO in the visible order book. Of course there are zillions of classic subpenny trades at 0.0001 - 0.005 better than my markets, but there are also zillions of Finra "trade-ats" where the Finra trade is a round penny at my price (and of course I get nothing). Also there are zillions of both subpenny and round-penny Finra trades at points 0.01 - 0.05 away from the visible NBBO, which I believe are for the most part just the same type of trades but going off against the "hidden" NBBO ("hidden" in quotes because anybody who can send arbitrary numbers of bogus orders into the market can find the hidden NBBO in a few milliseconds using the newer order types, or if not this way then by classic pinging).

Anyway, I suppose my point is that the term "subpenny pricing" is useful shorthand for the better-informed but otherwise might divert the focus from the fundamental issue which is simply the on-steroids growth of internalization/payment-for-order-flow/dark pools: these guys clearly don't care about providing the wonderful sub-penny "price improvement" if they can get away with just trading at the NBBO.

Numerical example from my stats: On average over the last three months, 31% of all the "trade-ats-where-I'm-at-the-top-of-the-book-but-get-nothing" (i.e., no subpenny trades counted) were Finra trades as differentiated from on-exchange trades.
 
Why is a guy buying preferred stock whining about a penny on 500 shares of a 26 stock. wtf seriously a piker. I've hit 10 cent spreads on a daytrade on more shares than that. in short, STFU. Whoever this guy is he sounds like a fckin beginner.

Quote from softdown:

Here's an interesting, documented example of bad execution where the HFT robots are suspect:

http://www.zerohedge.com/news/2012-12-11/guest-post-five-minute-example-hft-shenanigans

If what the guy says is true than I cannot see other explanation than that the robot "saw" his order before it reached the exchange.

Is it possible for a HFT robot to see someone's order before it is executed by the exchange ?

It used to be legal in the US with the "flash orders".
Is that still legal in the US or EU ?
More...
 
Quote from trader422:

This is only moderately on-topic, but I thought many readers of this thread would be interested: I've been keeping daily statistics for the last three months of Finra-reported trades (that is, for the most part internalizer and dark pool trades) that occur when I am either the NBB, NBO or NBBO in the visible order book. Of course there are zillions of classic subpenny trades at 0.0001 - 0.005 better than my markets, but there are also zillions of Finra "trade-ats" where the Finra trade is a round penny at my price (and of course I get nothing). Also there are zillions of both subpenny and round-penny Finra trades at points 0.01 - 0.05 away from the visible NBBO, which I believe are for the most part just the same type of trades but going off against the "hidden" NBBO ("hidden" in quotes because anybody who can send arbitrary numbers of bogus orders into the market can find the hidden NBBO in a few milliseconds using the newer order types, or if not this way then by classic pinging).

Anyway, I suppose my point is that the term "subpenny pricing" is useful shorthand for the better-informed but otherwise might divert the focus from the fundamental issue which is simply the on-steroids growth of internalization/payment-for-order-flow/dark pools: these guys clearly don't care about providing the wonderful sub-penny "price improvement" if they can get away with just trading at the NBBO.

Numerical example from my stats: On average over the last three months, 31% of all the "trade-ats-where-I'm-at-the-top-of-the-book-but-get-nothing" (i.e., no subpenny trades counted) were Finra trades as differentiated from on-exchange trades.
More...

Actually this is very much on topic for this thread.
I think the stats you provide can be very useful to other traders.

By the way, by "Finra trades" do you mean trades that are not executed on an exchange but internalized ?
 
Quote from softdown:

Does anyone know if the brokers are required by regulations to send a directed order directly to the exchange ?

Can they send the directed orders to a third party or maybe internalize them ? (i.e. match them internally without sending them to the exchange).
More...

"Regulations" are only as good as your recourse.

In the 90s, I could get my broker to bust trades on the NYSE...
Or I could call the NYSE directly and get trades busted.

WTF, exactly, are you gonna do today?
You'll never be able to prove any "regulation" has been broken. Ever.
 
Quote from DeeDeeTwo:

"Regulations" are only as good as your recourse.

In the 90s, I could get my broker to bust trades on the NYSE...
Or I could call the NYSE directly and get trades busted.

WTF, exactly, are you gonna do today?
You'll never be able to prove any "regulation" has been broken. Ever.
More...

+1
 
You guys are aware NYSE just got whacked by the SEC for
releasing trade and quote data to internal big $$$ clients milliseconds to seconds before sending the data to NMS for broadcast.

NYSE settled the case without admitting or denying the charges for a pittance of $5M. Hell if that is the extent of penalty they should just front run their own system all day long making insane profits and settle the matter if they ever get caught 5 years from now for peanuts...

The penalty for rigging the game is so insignificant that they can probably buy "in case we get caught" insurance from AIG and hit the tax payers up to pay for their crimes.


http://www.reuters.com/article/2012/09/14/us-nyse-sec-idUSBRE88D11F20120914

http://www.reuters.com/article/2012/08/06/us-sec-nyse-probe-idUSBRE87514X20120806
 
It wasn't just the big $$$ clients who saw the data first, it was any client who subscribed to their proprietary datafeed (aka BBO and Openbook Ultra feed). Many venders and firms use these feeds and trickle that data onto their clients like us, we just may not be aware of the source.

Even if they don't have that problem anymore, if you're getting the data from the consolidated feeds vs the proprietary feeds you're getting the data millis after the latter. But then again if someone is using the consolidated feeds for trading we're competing to be second in line at best vs the big banks and hft guys.
 
Correct:

NYSE as a SRO is chartered to maintain and regulate a fair and orderly market. Appears they have a conflict of interest as SRO while having a financial interest to license access to their proprietary feeds.

I was really surprised to read the SEC actually took action and whacked a traditionally untouchable SRO.


Quote from baglunch:

It wasn't just the big $$$ clients who saw the data first, it was any client who subscribed to their proprietary datafeed (aka BBO and Openbook Ultra feed). Many venders and firms use these feeds and trickle that data onto their clients like us, we just may not be aware of the source.

Even if they don't have that problem anymore, if you're getting the data from the consolidated feeds vs the proprietary feeds you're getting the data millis after the latter. But then again if someone is using the consolidated feeds for trading we're competing to be second in line at best vs the big banks and hft guys.
More...
 
By the way, by "Finra trades" do you mean trades that are not executed on an exchange but internalized ?
More...

I don't have expert knowledge of all categories of Finra-reported trades in listed stocks, and which categories are or can be relevant in terms of

size or impact ... but I believe it is correct to say that the vast majority of Finra prints in almost all exchange-listed stocks are from broker-

dealer internalization trades and dark pool trades. I would love to see somebody with more detailed knowledge post to this thread ...
 
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