Reaction to Michael Lewis's book and "60 Minutes" interview

sprstpd said:
Yes, you may be correct in one sense. But "your" market is not a "functional" one in the sense that the National Best Bid and National Best Offer are illusory then. ..........
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I have explained these ideas years ago, but this is certainly true. NBBO must be accurately time-stamped and distributed to all parties equally, or there is no such objective finite concept. Who here wouldn't trade a 100 shares if we knew for sure that we could sell/buy later to an latent order arriving after we bought/sold it for a arbitrage profit?

Also, the imbalance between liquidity providers and suppliers is an issue since it promotes potential order imbalances over trading. A flat fee on both sides doesn't favor either side. A lower fee for volume is fine as long as it doesn't promote either buying or selling.

Finally, instability potentially arises in real world systems (vs theoretical systems) when discrete time system states don't exist. The digital computer jumps discrete state to discrete state no matter how fast it does it. (As has been pointed out in this thread earlier - that is what the latency delay is for. IEX simply guarantees that data is equal for all market participants. Something that has been promised by wall street for decades - wink wink, nudge nudge.)
 
Dark pools aren't inherently a bad thing, I use them all the time. Problems only arise when the dark pool is abused. The real problem imo is internalization. A huge percent of retail orders never make it to market. This disrupts the nature of the market by removing incentive to provide liquidity. Remember, the market functions normally 99% of the time...it's the other 1% that everyone should be concerned with.
 
StarDust9182 said:
Could you explain what is bad about dark pools and internalization? (I have no position on these items.) Didn't both arise because of the same front running issue we are talking about here - just done by humans originally?
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Yes dark pools are not inherently bad, but the way they are operated now is open for abuse, it is the internalization that allows for front running (although it does not happen in all cases). This is a problem because most dark pools are owned by sell side banks. If they made it so that the exchanges and ECM/ats could not be owned and definitely not operated by the banks , hedge, prop or anyone with conflicts of interest then there would be less opportunity for abuse and criticism.
 
baglunch said:
Yes dark pools are not inherently bad, but the way they are operated now is open for abuse, it is the internalization that allows for front running (although it does not happen in all cases). This is a problem because most dark pools are owned by sell side banks. If they made it so that the exchanges and ECM/ats could not be owned and definitely not operated by the banks , hedge, prop or anyone with conflicts of interest then there would be less opportunity for abuse and criticism.
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So to clarify: Dark pools aren't bad but if front-running of customers (or other abuses) goes on in the unregulated dark pool, then this is bad.
 
 
StarDust9182 said:
At the 2 minute mark of the CNBC tape between Katsuyama and Lewis there is an odd exchange (IMO) to a basic question - how do you price trades in your price matching engine. (That is where the market exists, not on the tape.)There are two answers given to the same question and one answer is avoided strangely. It seems to be the heart of the argument although I don't understand precisely what was said or implied. Can someone else explain it better?

There is a SIP and a direct feed as different entities. So is that a slow price tape (US) and a fast price tape (HFT, colocaters)? If so, then the latency matching is clearly a kind of front running isn't it? And couldn't the slow tape re-write time since only the results appear without intermediate steps shown?

I really liked the point that liquidity is not the same thing as huge volume. The hardest thing about the whole discussion is that terms are bantered about and misused. It is hard to follow the heart of the argument.
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Zerohedge reports at http://www.zerohedge.com/news/2014-04-03/bats-admits-ceo-lied-about-hft-cnbc " .... O'Brien stated that BATS priced its trades off 'high-speed' data feeds when in fact they price their trades off a much slower feed (and therefore 'enable' the exact HFT-front-running that is in question)....."

Perhaps he should purchase a book and read it a few times. I was amazed to see any CEO take on a technical field expert in that fellow's home field (unless he came through that area), so I gave him the benefit of the doubt. That was a mistake on my part - fool me me once .......

Doesn't this open him and the firm up to enormous liability? He has just buried his firm IMO with his emotional outbursts. Now, where was he on Feb 5 2013? - was he honestly able positively certify that two people did not visit the new york BATS exchange and thus were having a rare simultaneous delusion that day?

This illustrates the main problem with HFT - even the people talking don't speak using the same terms. That has to be a new low in corporate governance.
 
In a port city I was in, the unions went on strike for higher wages. One of changes was that much of the cargo was now containerized and was harder to get into by villains. The newspapers then called it a demand for "pilfer pay".

So far the main argument is that in the old market making days "they" used to ripoff more people for more money, so it is only fair we thank HFTs heartily for ripping people off less now. It sounds much like the "pilfer pay" argument to me.
 
sprstpd said:
What a joke. This guy sweeps under the rug every technical accusation brought up in the book. The fact that I have a 1,000 share order (as a retail investor), and there is 1,000 shares to be taken and yet I only get filled on 100 shares and the other 900 disappears is not a problem? This guy is a shill for HFTs.
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BATS business model counts on HFT. If HFT disappears so does BATS. It's basically the same thing as insider trading just in microseconds.
 
sprstpd said:
What a joke. This guy sweeps under the rug every technical accusation brought up in the book. The fact that I have a 1,000 share order (as a retail investor), and there is 1,000 shares to be taken and yet I only get filled on 100 shares and the other 900 disappears is not a problem? This guy is a shill for HFTs.
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Yep. Lots of shills in print and TV media. Bloomberg TV news anchors acted incredulous with Lewis yesterday and defended HFT. Follow the money; who are Bloombergs biggest advertisers? The exchanges, that reap huge volume off HFT..... Yellow journalism abounds.
 
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