S3 Analysis Shows High-Frequency Trading Has No Impact on Retail Equity Prices

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ASusilovic

AUSTIN, TX--(Marketwire - July 30, 2009) - According to a market data analysis conducted by S3, the belief that High Frequency Trading (HFT) is creating an unfair advantage for large volume brokerages is unfounded. A study by S3 analysts, which examined data from September of 2008 to July 28, 2009 indicates that the increase of HFT has not had a negative impact on retail traders and 98 percent of all recent trades executed in the market were filled at or better than the NBBO price.

"We realize there's a lot of concern that individual investors are being disadvantaged by these super computers," said John Standerfer, Executive Vice President of S3. "But we look at these numbers in great detail every day and the so-called 'flash' orders aren't causing significant price changes. If they were, our NBBO numbers would reflect that and they aren't."

Critics of HFT's, and the flash orders they employ, argue that big trading systems conducting business in milliseconds are influencing prices and delivering unfair profits to companies with advanced technology. The information from S3's Execution Quality Analysis platform, however, shows that prices tend not to vary greatly from investor to investor and that investors are overwhelmingly receiving the best available price at the time their order was placed. There is also new technology available for individuals to confirm quality and price.

"We've created a new application that allows individuals to check their own trade quality, if they have concerns," Standerfer added. "We're using Twitter to hook up individual traders to the same system we use to run execution quality analysis for some of the biggest names on Wall Street."


S3_CheckMyTrade (http://www.s3.com/checkmytrade-twitter-tool.aspx) uses the buy or sell information provided by the Twitter user and then analyzes the performance against all available market data at the time the trade was executed. A single "tweet" will tell a user if they got the best possible deal available in the market at that specific time. Results returned include Marketable Time, Bid Price/Ask Price, and our overall analysis of good or bad, if you included the Trade Price. The S3_CheckMyTrade service is available from 9:30AM - 12:00AM EST every day the New York Stock Exchange is open for requests on orders/trades that occurred on that day. S3 developers are also finalizing the launch of an iPhone application of Check My Trade.

As shown in the attached chart, as program trading (High Frequency Trading) has increased as a percentage of volume on the New York Stock Exchange, the percentage of retail orders that did not receive an execution price at or better than the NBBO has decreased. This leads us to conclude that the increase in program trading is not negatively impacting the execution quality of retail traders and in fact the average retail trader's execution quality has actually improved as program trading has increased as a percent of total New York Stock Exchange Volume.

About S3 Matching Technologies (www.S3.com)

S3 is an Austin, Texas based company focused on providing business crisis solutions for network outsourcers, financial services, and healthcare industries. S3's software is deployed as a managed solution to solve time-sensitive business crises.

http://www.marketwire.com/press-release/S3-1023779.html

Check it out !
 
LOL, and do you think the current administration will give a crap? They are on a witch hunt and will make up another study to say just the opposite, just like with the oil speculator study. That clown from Oregon will end up getting his 0.25% transaction tax the way things are going unless more people publish real studies like this one and push the results out there to the public.
 
The studies done is trivial.

HFT / Algos DO affect the market. I was under a similar discussion with a few guys deep in the operation (Buy-side) a few months back... The conclusion is:

Decimalization affected the Equities Market. It changed the intraday market and took along a few firms who couldn't keep up to the change. HFT is just as similar, the only difference is that the cause is time, not the price increment. I don't have a direct reference, meaning my memory is shady... but I remember reading this somewhere, that Peter Lynch, Warren Buffet, and other top manager during the time of the decimalization was up for the changes mentioning it helps their operation...

In another words, a lot of us have adapted. Top trader/managers find ways to change and utilize them. Complaining done by losers never go away, just like people people complaining about ET...
 
Quote from TSGannGalt:
Decimalization........ I remember reading this somewhere, that Peter Lynch, Warren Buffet, and other top manager during the time of the decimalization was up for the changes mentioning it helps their operation.....
More...
Confirmation of the obvious-----Smaller spreads are good for "customers" and bad for "professional traders". :cool:
 
$%^ these morons.

The whole issue of trade quality is bullshit as reported by these clowns.

A mutual fund can be frontrun all day and the spread will still be 1 cent, and the 'retail' customer can still get price improvement. If he's on the wrong side of the pump, he'll overpay just like the fund.
And if he's on the other side he's getting a 'bargain'

They can't rob EVERYONE at the same time. Only GS can do that.
 
Well, if they aren't, I'm sure they or their front guys paid for the 'study' 100 times over!

The US has got to be the country with the most 'studies' trying to manipulate dumb public opinion.

Quote from nazzdack:

Aren't Goldman Sachs and Citadel major shareholders of S3? :D
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This S3 application is a joke tool for pikers. This whole debate is such a load of shit! The real heart of the issue isn't High Frequency Trading, it's High Frequency Quoting (HFQ), and High Frequency Front-running (HFF). Flash orders facilitate both. If you are asking yourself wtf is this guy talking about, spend some time actually looking at a level 2 screen and time and sales data.

For a clear example of HFQ take a look at a stock like SPY. All day there are hundreds of thousands of shares up and down the bid/ask and the values change endlessly, for no apparent reason, and you will see levels with a couple of hundred K posted that get flipped with a few thousand maybe 20 K actually printing at that price. What appears to be incredible depth is nothing more than vapor. The vast majority of this quoting is driven by very high powered co-loed boxes operating on fraction of a millisecond timeframes. Does this cause the dreaded 'market manipulation'?Probably not. The prices most likely find thier natural levels, but what it does do is create a very high 'noise' level and a difficulty in getting to the front of the line for execution. I would guess that if the boxes responsible for this quoting were turned off for a day, or even and hour, you would see something dramatically different on stocks like the SPY.

As for the High Frequency Front-running, lol ! Anyone who use EDGE facilites to execute orders against the specialist knows this story all too well. Or for other examples, just take a look at some of the stocks out there where there are huge out-sized EDGE orders posted up and down the bid/ask. The ELP's just fuck with everybody and do what they want with little risk because they get flashed on everything coming through so they can get the hell out of the way in one fuck of a hurry if they need to. Otherwise they just post their size up and down all day jerking everyone off and pushing the stock around with relatively low risk.

If the SEC bans Flash orders, the game won't change, just the tactics. There is too much $$$ invested in serious technology on all sides and too many egg-heads employed figuring out new and creative ways to use it.
 
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