You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
High frequency traders literally printing money!!! LITERALLY PRINTING MONEY!!!!
- Thread starter S2007S
- Start date
so, is this a hft problem or is this a privatization of public exchanges problem? your implications throughout this thread is that hft's are to blame for this.Quote from Jerkstore:
[flash orders]This is true for exchanges, but not dark pools. Dark pools use all sorts of different flash messages. The exact details vary. Sometimes they will give a price and a buy/sell indication, allowing the firm to take the other side. Sometimes they will give a price without a buy/sell indication and allow the firm to join either side. Sometimes, such as in the Getco dark pool, the order flow data remains private to Getco only. Other pools actively recruit "market makers" who trade for free and get flash quotes from the pool. Furthermore, if you look at a flow chart of some of the large execution services (like Redi Sigma X, or Knight execution) each order will make at least 5, usually more, stops BEFORE the trade ever hits a public exchange.
I have spoken with management of a proprietary options trading copany in Chicago that makes markets on dark pools, which gives them edge and information. They then lay off their positions as customers in public exchanges, where they get paid for their order flow. They literally quote each option half a penny wide, and trade huge size, though the only liquidity they provide comes from the public exchange market makers that they are canabalizing.
as long as it's legal and more profitable for liquidity providers to take their books off market, then public liquidity will suffer. is the a hft issue? no. it's a market/exchange issue. punish the liquidity providers for making use of the tools given them makes no sense.
Quote from propseeker:
btw, thought i'd point a term which is being used incorrectly.
ISO orders are intermarket sweep orders. they're NOT a hft tool used to front run and they're NOT interchangeable with the term 'flash orders'.
what they are, is an exchange based order WIDELY available (arca, naz, nyse, bats, etc) that allows ANY market participant to opt-out of inter-exchange route-outs. they're used by to target liquidity on a single book vs risking the inherent ineficiency in exchange based route-out algorithms. that's it.
these orders are available on most trading platforms.
Great posts! Thanks for explaining
it's not a latency issue as much as it's a regnms issue. exchanges have to comply with regnms, so if you send a routeable order to the nbbo, the exchange has to use what's called a securities information processor (siac, uqdf) to check for regnms compliance of the order. siac/uqdf, however, are notoriously slow. so, while the sip is doing it's check, the exchange has already updated their data to show the nbbo is no longer there (as it's already been matched with the incoming order). due to this update, market makers will step their orders up to what they think is the new nbbo with iso orders, but since uqdf still hasn't reported back to the exchange, the exchange fills the new orders which technically are now first in line and do not need to be sent to the sip. MOST fills that transact in this way are INADVERTENT. something as simple as an iso pegged order would end up 'frontrunning' without even knowing it.Quote from Traveler:
I got the impression that the front-running comes from the fact that the inter-market route outs have higher latency than the HFT guys.
again, people on this thread need to take some time and understand the issues thoroughly before running their mouths off about things they really have no clue about. there's a reason hft's are being targeted for all this and it has NOTHING to do with 'fairness'. when you jump on the bandwagon train without researching, you're inadvertently assisting the agenda of regulation that is being designed to HURT you as traders and ultimately to KILL competition in the marketplace. all before our very eyes.
sorry, but you don't know what you're talking about.Quote from achilles28:
If [a] CEO had pulled you aside after the meeting and confirmed he was in fact lying, that's insider information, and illegal to trade on.
Much of the high frequency trading being done is not a subjective directional "guess". Hard orders are placed (facts about trade decisions already made), and HFT'ers are able to jump ahead of those trades via ISO orders. And, perhaps, via their data feeds.
That's front-running based on non-public information, which is the definition of insider trading.
uqdf/siac/cts/cqs and the exchange data feeds are all PUBLIC. ISO orders are WIDELY available.
the situation you're incorrectly describing is NOT frontrunning. most times market makers/traders don't even know they're doing it. it's a regnms flaw. get your facts right before slathering all this bullshit all over the forum.
see, this is what i'm talking about. you have a guy, this achilles28 persona. who's already made up his mind that he's going to be dogging the hft industry, quotes out of context, and uses the GOOD information given by tradeworx and spins it into a bunch of worthless DISINFORMATION.Quote from achilles28:
Tradeworx is a major HFT operator who issued a comment to the SEC.
On page 17, they noted ISO orders enable HFT'ers to violate the time-price priority sequence of the order book (jump the queue) and front-run orders.
In their own words, Tradeworx said the practice is "widespread".
And why wouldn't it be? It's legal, afterall.
http://sec.gov/comments/s7-02-10/s70210-129.pdf
however, i have to thank this idiot for bringing page 17 to everyone's attention. i STRONGLY encourage everyone to read it, because it goes into good detail the mechanics of what the alleged 'front-running' actually is.
you can't 'front-run' publicly available data. you can outcompete, but you can't 'front-run' it. you can't 'insider trade' on data you pulled from a PUBLIC DATA STREAM. i can't believe the crap being spewed here.
is it flawed? hell yes it's flawed, but not because of hft's. the question that's not being asked here and that should be the central theme is WHY IS IT FLAWED? it's FLAWED because it's the result of FLAWED REGULATION. this 'unfair' result is the byproduct of FAILED and ILLOGICAL REGNMS REGULATION and it's BOTCHED IMPLEMENTATION.
so you hft bashers really want to fix it with MORE REGULATION?! give me a break.
Quote from propseeker:
so, is this a hft problem or is this a privatization of public exchanges problem? your implications throughout this thread is that hft's are to blame for this.
It seems I was not that clear. I do blame the regulators and resulting market structure.
I was also very clear that HFT companies are not breaking any laws. I just disagree with the laws.
Quote from propseeker:
if you really are a hft trading firm, you certainly have very little knowledge of what the majority of the industry is actually doing.
You knowledge base is obviously in the stock world, whereas mine is moreso in the options world. I am by no means trying to present myself as a HFT expert.
hft is just that: high frequency trading, ie trading a lot of times with computers. the BULK of high frequency trading is automated market making. period.
HFT has become a bit of a catch all. As you point out I was not being very clear. I feel the payment for order flow, flash quotes, order internalization, and lack of equal dark pool regulation are the big issues. FWI, options HFT companies are NEVER market makers--mostly due to the payment for order flow which market makers pay, and customers collect. You are correct though, that in the stock world, the HFT companies are quickly adding quoting engines into their toolbelts.
rebate programs are there for a reason: to attract liquidity by reducing transaction costs for market makers. it's not a 'payment for order flow game'.
Again, you obviously come from the stock world. Payment for order flow is very distinct from liquidity rebates. It is not clear from your post that you understand this.
In the options world, payment for order flow is the main weapon used by HFT companies to canabalize the market making liquidity. This one fee which every market maker pays when he trades with any customer order is largely responsible for the market making companies going out of business. It is for this exact reason that the CBOE has recently implemented the new professional customer order type.
Options HFT companies do make markets in dark pools though.
how are you not providing liquidity when getting rebates? your comments regarding this are contradictory and absurd.
What is with your fixation on liquidity rebates? What comment on rebates do you find absurd exactly?
flash quotes are a non-issue. what most people are referring to when they're demonizing 'flash orders' is the uqdf arb which only a tiny fraction of hft firms are exploiting.
This is where we disagree. Flash quotes are an enormous issue. They are banned on public exchanges (almost) while dark pools and order internalization still allow the largest companies to front run orders. Perhaps this is a definition issue.
what you, the majority of posters on this thread, and the media in general are doing, is demonizing the exploitation of exchange/market inefficiencies (legal btw) and associating it with an entire industry of which only a segment actually participate in. propaganda and scapegoatism at its best. it's a lot easier though, to follow the herd and bash a fall guy then to actually take the time to really understand the issues.
What industry am I demonizing? If your answer is any but politics, then you are mistaken.
I do think that the regulatory and current market structure encourages some very scummy HFT methods, which I feel are driving out those firms that provide actual liquidity to the marketplace. Future May 6th type of events, where most bids/offer disappear during periods of extreme one directional order flow, will be a natural result. Again this is the fault of regulators, rather than the trading companies. The market participants are merely doing what they need to do to stay in business.
so you hft bashers really want to fix it with MORE REGULATION?!
No. I want to fix it with PROPER regulation.
Interesting clip from Bloomberg: http://www.youtube.com/watch?v=thq9Bqw_iuY