Tradeworx' defense of their HFT strategies

M

MGB

The SEC is asking for public comments as they explore market structure issues including high-frequency trading, colocation and dark pools. You'll find several letters from many HFT firms, mutual funds (Vanguard, T. Rowe Price), Bright Trading, etc.

http://sec.gov/comments/s7-02-10/s70210.shtml

Tradeworx, an HFT shop in Redbank, N.J., submitted a letter with in-depth examples of many HFT strategies, including how profits are earned through rebates. I found it to be educational.

http://sec.gov/comments/s7-02-10/s70210-129.pdf
 
This is a really good article. Well spoken.

Looks like he might be Rishi's brother (author of inside the black box, good intro to how black boxes typically work)

Wonder what Bright will have to say about this :)
 
According to their comments, Tradeworx agrees that "Jumping ahead of an order that was placed earlier at the same price by another trader is an UNFAIR practice, because it undermines the principle of PRICE-TIME priority on which our equity markets are premised" (pg. 17)

The ability to jump ahead by submitting ISO orders is permitted due to a deficiency in Rule 611 of Regulation NMS.

Tradeworx, a HFT firm, is advocating that the SEC correct this deficiency in Rule 611 of Regulation NMS asap.
 
Quote from jagadish:

Stock markets should give priority for investors over traders.
More...

What's your definition of investor versus trader? That would be very hard to define and hard to enforce.

To me, I would prefer that PRICE-TIME be enforced regardless of who sends the order.

There should be no order that can jump ahead of the ordering queue.

There should be no API that allows anyone to peak at the order flow and submit their orders ahead of the order flow.
 
Quote from MGB:

According to their comments, Tradeworx agrees that "Jumping ahead of an order that was placed earlier at the same price by another trader is an UNFAIR practice, because it undermines the principle of PRICE-TIME priority on which our equity markets are premised" (pg. 17)

The ability to jump ahead by submitting ISO orders is permitted due to a deficiency in Rule 611 of Regulation NMS.

Tradeworx, a HFT firm, is advocating that the SEC correct this deficiency in Rule 611 of Regulation NMS asap.
More...

on top of that sub penny orders must be prohibited. it is unfair,when i, as a retailer can't place such and somebody else can. i place an order to buy 100@ 50.00 and later somebody jump with order to buy same 100 shares, but @ 50.001-he get the fill. in my retail platform both orders will looks same.not fair. first-price,then size then time. this is the way it's should be.
2 decimal points and that's it. some exemptions for low priced stocks. fuck dark pools too.
 
Quote from Bob111:

on top of that sub penny orders must be prohibited. it is unfair,when i, as a retailer can't place such and somebody else can. i place an order to buy 100@ 50.00 and later somebody jump with order to buy same 100 shares, but @ 50.001-he get the fill. in my retail platform both orders will looks same.not fair. first-price,then size then time. this is the way it's should be.
2 decimal points and that's it. some exemptions for low priced stocks. fuck dark pools too.
More...

Agree +100
 
Quote from Bob111:

on top of that sub penny orders must be prohibited. it is unfair,when i, as a retailer can't place such and somebody else can. i place an order to buy 100@ 50.00 and later somebody jump with order to buy same 100 shares, but @ 50.001-he get the fill. in my retail platform both orders will looks same.not fair. first-price,then size then time. this is the way it's should be.
2 decimal points and that's it. some exemptions for low priced stocks. fuck dark pools too.
More...

Amen. Time for these darkpools to go. If I want to use intelligent routing or choose between hitting a specific ECN, I have no idea what the best choice in that split second is because the darkpool doesn't so much as tell me. My broker just sends it off to wherever.
 
Quote from MGB:
... Tradeworx, an HFT shop in Redbank, N.J., submitted a letter with in-depth examples of many HFT strategies, including how profits are earned through rebates...
http://sec.gov/comments/s7-02-10/s70210-129.pdf
More...
Sorry, but the start of this letter must be one of the most self-serving and misleading documents I have ever seen; I am only on page 4, and here’s a selection of what I have come across already ...

On Page 3
HFTs use technology to compete with each other, not with long-term investors
Oh, yeah? Just with “each other”? What about HFT also competing with other non-HFT short-term traders?

On Page 4
DEFINITION OF HFT:
- a strategy which trades for investment horizons of less than one day
- a strategy which seeks to unwind all positions before the end of each trading day
Sorry, don’t insult me; by my book that defines a daytrading strategy, not HFT. Is Traderworx trying to pretend it is just another short-term/daytrader? Honestly ...

I would suggest that following are much better (and more honest) definitions of HFT:
Wikipedia: A special class of algorithmic trading is "high-frequency trading" (HFT), in which computers make elaborate decisions to initiate orders based on information that is received electronically, before human traders are capable of processing the information they observe, in addition to which they can reduce costs of trading and improve shareholder returns.
Investopedia: What Does High-Frequency Trading - HFT Mean? A program trading platform that uses powerful computers to transact a large number of orders at very fast speeds. High-frequency trading uses complex algorithms to analyze multiple markets and execute orders based on market conditions. Typically, the traders with the fastest execution speeds will be more profitable than traders with slower execution speeds. As of 2009, it is estimated more than 50% of exchange volume comes from high-frequency trading orders.

More on Page 4
Does HFT cause volatility?
- no - HFTs benefit from volatility, so they can not cause it (otherwise they could make infinite amounts of money!)
Hmmm … I think we’ll let the regulators looking at yesterday’s “plunge” decide on that one!

And I am only on page 4 ...

Seriously, I hope that folks at the SEC won’t be taken in by this condescending crap…
 
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