That seems an overly general and unfair accusation. Most liquidity is provided by "high frequency trading" of one sort or another. Yet that's not to say that reforms wouldn't be a good thing (e.g., banning internalization/PFOF, and requiring orders to be live for at least 1 second if they want to be given BBO status).
High speed trading under fire
- Thread starter weezy
- Start date
That seems an overly general and unfair accusation. Most liquidity is provided by "high frequency trading" of one sort or another. Yet that's not to say that reforms wouldn't be a good thing (e.g., banning internalization/PFOF, and requiring orders to be live for at least 1 second if they want to be given BBO status).
That's essentially equivalent to being internalized to the first exchange on the route.
Ahah I see your point -- I didn't express that too well -- what I really meant is to support the idea (which I first saw at Nanex) that orders that wish to post to BBO must be of a type that is guaranteed to exist for some period of time. The BBO itself would update "instantaneously". I'd say that IOC/FOK orders should remain as they are.
That's a recipe for wide spreads.
If I quote, I'll be effectively selling an option for zero, expiring in 1s.
Quoters being exposed to FOK'ers.
It seems to me that would require "price improvement" from the exchange, possibly in the way of better rates for longer-lived orders.
I really don't see the point in having the time scale be "1 second", though, IMO it should be much longer, on the order of minutes. Otherwise it's just a means of tilting the field between two different groups of non-investors.
I really don't see the point in having the time scale be "1 second", though, IMO it should be much longer, on the order of minutes. Otherwise it's just a means of tilting the field between two different groups of non-investors.
Investors? 
..
I think there will be a gradual return to more of a market maker model, as in, you have to be assigned mm status to do certain things. And, that designation can be taken away if you don't play nice.
..
I think there will be a gradual return to more of a market maker model, as in, you have to be assigned mm status to do certain things. And, that designation can be taken away if you don't play nice.
Quote from Rationalize:
Investors?
Exactly.
So that optionality is the cost of providing liquidity -- and the benefit is the spread.
I doubt a 1s minimum would widen spreads much -- and to the extent that it would, who cares about a spread that was narrower for 1/100 of a second? No human end user of the system can react that quickly. From the perspective of the purpose of capital markets, IMO it's pointless.
The increase in spread would be very small. On the other hand, if Knight etc. have their way, we'll be having a mandatory 5c spread (so of course their payment-for-order-flow deals with the large retail brokers becomes much more profitable, and the markets get even more fragmented, increasing the adverse selection experienced by whoever's left to post a NBBO, which in turn widens spreads still further). Much nastier.
bot went crazy on russian exchange. 4.3 M loss(somebody's gain)in 2 min..all trades stands
http://www.newsru.com/finance/22jun2012/robot.html
http://www.newsru.com/finance/22jun2012/robot.html