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posted by LaminatorX on Wednesday April 30 2014, @01:04PM   Printer-friendly [Skip to comment(s)]
from the The-House-Always-Wins dept.

US Securities and Exchange Commission Chair Mary Jo White told a US House of Representatives panel that she flatly rejected claims that retail investors are being fleeced by high-frequency traders who can use their speed to jump ahead with buy and sell orders that fetch better prices. "The markets are not rigged," says White. "The U.S. markets are the strongest and most reliable in the world." White's comments to the House Financial Services Committee mark the first time she has directly responded to allegations in Michael Lewis' new book "Flash Boys: A Wall Street Revolt" that high-speed traders are engaged in a form of front-running, in which the firms are able to quickly identify an investor's desire to buy a stock, rush to buy it first and then sell it back at a higher price. The SEC has been reviewing equity market structure issues, particularly following the May 6, 2010 flash crash incident when the Dow Jones Industrial Average sharply plunged before quickly rebounding. Although staff at SEC are considering whether to launch some pilot studies to test different regulatory proposals, there are no immediate plans to issue rules to crack down on high-speed trading or trading in unlit markets. "I want to be very clear that the market metrics suggest that the retail investor is very well-served by the current market structure."

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  • (Score: 2) by Geezer on Wednesday April 30 2014, @01:12PM

    by Geezer (511) on Wednesday April 30 2014, @01:12PM (#38079)

    You fill in the blank.

    • (Score: 5, Funny) by JeanCroix on Wednesday April 30 2014, @02:15PM

      by JeanCroix (573) on Wednesday April 30 2014, @02:15PM (#38108)
      I'm going with "Clapper."
    • (Score: 2) by bugamn on Wednesday April 30 2014, @02:16PM

      by bugamn (1017) on Wednesday April 30 2014, @02:16PM (#38109)

      Potatoes?

    • (Score: 1) by Daiv on Wednesday April 30 2014, @03:03PM

      by Daiv (3940) on Wednesday April 30 2014, @03:03PM (#38137)

      I'll take The Rapists for 200

    • (Score: 2) by Tork on Wednesday April 30 2014, @07:51PM

      by Tork (3914) on Wednesday April 30 2014, @07:51PM (#38231)
      Profit?
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    • (Score: 1) by timbim on Wednesday April 30 2014, @09:40PM

      by timbim (907) on Wednesday April 30 2014, @09:40PM (#38263)

      Nagger?

    • (Score: 2) by davester666 on Thursday May 01 2014, @04:11AM

      by davester666 (155) on Thursday May 01 2014, @04:11AM (#38350)

      The markets are not 'rigged' because they are working at the people who designed them intended.

      • (Score: 3, Interesting) by davester666 on Thursday May 01 2014, @04:14AM

        by davester666 (155) on Thursday May 01 2014, @04:14AM (#38351)

        Doh

        The markets are not 'rigged' because they are working AS the people who designed them intended.

  • (Score: 5, Insightful) by Anonymous Coward on Wednesday April 30 2014, @01:13PM

    by Anonymous Coward on Wednesday April 30 2014, @01:13PM (#38080)

    The people who are supposed to be profiting are doing well and the people who are supposed to be fleeced are producing excellent wool.

    Move along, nothing to see here.

  • (Score: 3, Interesting) by VLM on Wednesday April 30 2014, @01:24PM

    by VLM (445) Subscriber Badge on Wednesday April 30 2014, @01:24PM (#38082)

    Enormous amount of spin. The headline fails to mention the specific claim of retail investor. The quote is fairly meaningless anyway. One way to make money in HFT is to figure out when a huge institutional investor (hedge fund speculator, etc) is making a major move by buying and selling small chunks of stock. Nobody buys/sells 100M shares in one transaction, you typically get a better price by making 1M hundred share transactions over the course of days. You can "front run" those by figuring out some speculator is in the process of buying 100M shares and then F with them. You can do this just as well by hand, you just make more money faster with HFT. Lets say a institutional investor saves 5% on purchase price by doing something stupid with their orders, well, properly run HFTs can mess with them to eat maybe 4.9% of that gain. So all that screwing around by the dinosaurs isn't making them the money it used to, and they're not happy about competition, so like good little welfare queens they want the .gov to reimburse them or otherwise guarantee their revenue stream.

    IF as the retail investor I am, I carried out a net "buy 100 shares WiscEng" by entering 10000 orders for a hundredth of a share over the next week, then you could psuedo-front run me by messing with my known purchasing pattern once you figure it out. But I tend to "sell 100 GLD" or "buy 100 SLV" in one order. So its pretty hard to detect a pattern at transaction #2523 and then screw me over in subsequent transactions if my entire process began and ended with transaction #1.

    Then the spin's even worse in that someone dumb enough to let the market know their pattern and then keep carrying out their dumb pattern while other people take advantage of their predictability, rather than wising up and not being morons, whine about how its "front running" (which it obviously isn't, but it sounds bad). Its a big display of bad sportsmanship, hey I'm an idiot and its all your fault for taking advantage of me so Big Brother should kick your butts to teach you a lesson, blah blah blah.

    Even worse the markets are rigged and centrally controlled in that all investment and speculation decisions are decided based on massive govt control of interest rates and the money supply and taxation law. Saying they're not rigged almost implies they're unregulated and completely uncontrolled, which is of course fairly idiotic.

    Finally the only reason this rather esoteric and frankly irrelevant financial news ever hits "popular news" is so people who know nothing about the topic at all can express deeply held and meaningless beliefs about economic systems they don't understand, etc.

    • (Score: 3, Informative) by tibman on Wednesday April 30 2014, @01:31PM

      by tibman (134) Subscriber Badge on Wednesday April 30 2014, @01:31PM (#38085)

      I thought there was another component to this as well. It isn't just pattern matching but a race as well. If someone is selling the stock you want for 100$ and you place a buy order for 100$ the HFT will buy up the stock you want and sell it for 101$. Now you get to buy it at 101$. Somehow this is an improvement to the stock market.

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      • (Score: 1) by infodragon on Wednesday April 30 2014, @01:40PM

        by infodragon (3509) on Wednesday April 30 2014, @01:40PM (#38092)

        Explain how this works exactly! Nobody has ever been able to explain how HFT "sees" your order and gets in front of it on an exchange. Read carefully, on AN exchange, not across the 80 or so securities exchanges.

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        • (Score: 1) by RandomSchmoe on Wednesday April 30 2014, @02:04PM

          by RandomSchmoe (4058) on Wednesday April 30 2014, @02:04PM (#38106) Homepage

          HFT servers are sitting physically at the exchanges and have immediate access to exchange data that is not available at the same time to anyone outside the exchange. HFT servers can see orders before retailer systems. I've read that in some rare cases they have access to orders sent in before they are actually placed on the exchange.

          • (Score: 1) by infodragon on Wednesday April 30 2014, @02:08PM

            by infodragon (3509) on Wednesday April 30 2014, @02:08PM (#38107)

            The latter is illegal if intentional and I know of a couple of cases it was a technical issue that was resolved very quickly. HFT can see market data before retail because they are co-located, light can only go so fast. How can HFT see YOUR order and get in front of it? This is a critical point in the debate that nobody has answered however it is constantly propagated.

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            • (Score: 1) by cyxs on Wednesday April 30 2014, @04:49PM

              by cyxs (124) on Wednesday April 30 2014, @04:49PM (#38171)

              If you use a broker that broker routes the orders to a processing house and that processing house sees your order before placing it. That is how they see your order. Also they can then place your order via a slower connection to the market and give the order details to someone else and they have a faster connection to the market. 300ms vs 100ms makes all the difference in this case as they have bought the stock you were going to buy in the extra 200ms that your order takes to get to the market.

              Another thing about multiple markets is that big traders have bought the old microwave radio relays between NY/NJ and Chicago to make it so they can place orders faster to those markets because those relays are a fraction of a second faster then via cabling.

              • (Score: 2, Insightful) by infodragon on Wednesday April 30 2014, @04:53PM

                by infodragon (3509) on Wednesday April 30 2014, @04:53PM (#38173)

                The former is illegal. If someone is caught there are heavy penalties. Please point to an example of this happening on a regular basis.

                And with microwave towers, how do they SEE your order FIRST and then beat you to it?

                I keep seeing a lot of theory but nobody actually presents evidence or concrete examples. Been waiting for quite some time now (about 7 years) It's like a urban legend that just won't die.

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                • (Score: 1) by cyxs on Wednesday April 30 2014, @05:02PM

                  by cyxs (124) on Wednesday April 30 2014, @05:02PM (#38178)

                  The order placed quicker isn't the broker that is doing the placing but they are selling the market flow data to another party which has a faster access to the market via radio towers or other methods.

                  Also the use of radio towers is used to jump in front of you on the other exchange if someone sees that someone is buying a stock via the liquidity of that stock going down or that more market orders are being placed via the market flow data. Why do big trading houses spend lots of money buying market flow data from brokers if its not to see where everyone else is doing?

                  • (Score: 1) by infodragon on Wednesday April 30 2014, @05:07PM

                    by infodragon (3509) on Wednesday April 30 2014, @05:07PM (#38180)

                    Illegal for a party to send your order differently then their own or another party, in which the order is triggered based on another order (in this case your order).

                    Again hypothetical situation without concrete example or technical detail and reference to broker/ECN practices.

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                    • (Score: 1) by cyxs on Wednesday April 30 2014, @05:23PM

                      by cyxs (124) on Wednesday April 30 2014, @05:23PM (#38182)

                      They don't place the other order they sell the market data to another party that is right next to them server wise so nearly no delay. That other party then places their own order via the market and if they have a quicker backend to get to the market then the broker its not violating any laws because the broker isn't trading your or another orders differently they are selling the market data.

                      • (Score: 1) by infodragon on Wednesday April 30 2014, @05:29PM

                        by infodragon (3509) on Wednesday April 30 2014, @05:29PM (#38188)

                        I've asked again and again but nobody will provide concrete examples of this being done. When making a statement such as this in which an industry, company, group or individual is demonized it should be backed up with examples/fact.

                        I.E. completely unlawful behavior of Enron, manipulation of credit ratings by the industry that helped propagate the MBS fisaco, Goldman Sachs/Bank of America/... selling MBS garbage rated AAA. There is corruption in the industry for sure, with concrete examples. So far none have been provided to demonstrate YOUR order being front run by HFT.

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                        • (Score: 1) by cyxs on Wednesday April 30 2014, @05:53PM

                          by cyxs (124) on Wednesday April 30 2014, @05:53PM (#38194)

                          This could be shown to be true if you had lots of money and time. I recently read about the IEX where they delay the market orders 300ms or something like that and alot of investors are happy with that because it delays or makes HFT harder.

                          Also another thing that your saying is if order is placed on an exchange that HFT can't jump in front of it. Yes this is true but a standard person can't place orders directly on exchanges. They have to place an order via a broker. That is where dark pools and HFT come into play. A broker sells the market flow data which is all the orders they are processing to 3rd parties and those are the ones that use HFT to jack up the price.

                          • (Score: 1) by infodragon on Wednesday April 30 2014, @05:56PM

                            by infodragon (3509) on Wednesday April 30 2014, @05:56PM (#38196)

                            A broker has a fiduciary responsibility to get you the best price possible. If they do not do this either by matching against their dark pool or sending your order down one pipe and their order down another they have failed in that responsibility and is illegal.

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          • (Score: 2) by VLM on Wednesday April 30 2014, @02:46PM

            by VLM (445) Subscriber Badge on Wednesday April 30 2014, @02:46PM (#38130)

            The former doesn't matter to retail investors. Retail order hits, is executed, HFT finds out before anyone else finds out, and ... crickets? The order is already executed, so theres not much to do about it...

            They're only entering one order not a hundred, hundredth size orders over a period of time.

            Furthermore an investor buys when value is higher than price, so as long as they enter a properly formatted limit order at a price lower than their idea of the value, then even if they were front run on a future order that doesn't exist, which is impossible for a single order executed in the past, they'd still be "OK" just not quite as profitable.

        • (Score: 3, Informative) by tynin on Wednesday April 30 2014, @04:08PM

          by tynin (2013) on Wednesday April 30 2014, @04:08PM (#38161) Journal

          Party A puts stocks for sale. It specifies initial and minimum selling price.
          Party B wants to buy stock that A sells. It puts a buy offer for stock, with initial and maximum buying price.

          Party A and B find each other, and if sale and buy order sums match, trade happens.

          What low latency trader C does is abuse the fact that he has a supercomputer with extremely low latency on the trading floor, rather then a system connected from outside. C sees that both A and B are interested seconds before A and B find each other, first tests how low A will sell by buying 1 piece of stock at a time for lower and lower until the sale no longer happens. Then C places an offer for amount of stock that B wants to buy at lowest possible price that A will sell for. At the same time, C goes through similar process with B, only selling stocks little by little to find maximum buying price.

          Then C simply sells all the stock it bought from A to B and pockets the difference. All this is possible because of latency before searches for trade made by A and B find each other that C doesn't suffer from.

          • (Score: 1) by infodragon on Wednesday April 30 2014, @04:30PM

            by infodragon (3509) on Wednesday April 30 2014, @04:30PM (#38168)

            Hypothetically This scenario is only true for illiquid products. Which in that case what liquidity is there is due to HFT and typically retail does not participate in this. Secondly your scenario assumes there are only three participants, there are many more than that. Thirdly please describe what types of orders are used to achieve this. I'm not going to do the work for you! You have presented a scenario with hypothetical situation with no technical explanation. So far in the years I have been discussing this nobody has been able to present to me how this scenario can happen using technical precision of what ACTUALLY happens.

            Also describe the process of a party able to dictate market behavior by buying lower and lower at will. No amount of super computing and sub-light speeds can achieve this.

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            • (Score: 2) by tynin on Wednesday April 30 2014, @06:43PM

              by tynin (2013) on Wednesday April 30 2014, @06:43PM (#38207) Journal

              Fair enough, I suppose I'd like to see a fully technical explanation as well. It took me a while to even understand it to the point I gave you, which of course is couched in its simpleness.

              • (Score: 0) by infodragon on Wednesday April 30 2014, @07:18PM

                by infodragon (3509) on Wednesday April 30 2014, @07:18PM (#38221)

                It's incredibly complex and that is where I believe the rigging is. Over regulation has allowed so much complexity that nobody can account for the unintended consequences. However none of this really impacts the retail investor. It's all institutional money which indirectly impacts individuals as pension funds and mutual funds are institutional.

                Listen carefully to what is said about retail investors, NEVER is the individual mentioned. Beware smoke and mirrors for it is easy to be duped!

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                • (Score: 1) by infodragon on Wednesday April 30 2014, @07:20PM

                  by infodragon (3509) on Wednesday April 30 2014, @07:20PM (#38222)

                  Replying to myself here, 401k is another institutional vehicle that I forgot to mention that impacts many individuals.

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            • (Score: 2) by sjames on Thursday May 01 2014, @06:44AM

              by sjames (2882) on Thursday May 01 2014, @06:44AM (#38386) Journal

              I hear the liquidity excuse often enough, but I don't think it takes much imagination to conclude that if A is selling and B is buying and that there is any hope for a profit acting as a middleman, they will over the next several minutes find the middle ground where a trade happens. Sure, it may take minutes rather than seconds, but so what? Given the free choice, I'm fairly sure A and B would prefer to take a few minutes in exchange for the better deal each potentially gets.

              Nobody is going to fire up a supercomputer to give you a simulation involving thousands or millions of traders. You need to at least meet the example half way. You'll likely find most examples involve the minimalist 3 party scenario.

              • (Score: 2, Funny) by infodragon on Thursday May 01 2014, @10:33AM

                by infodragon (3509) on Thursday May 01 2014, @10:33AM (#38427)

                Sigh... imagination has been the beginning of many great ideas that proved terrible, many wonderful sounding theories that ended up debunked.

                I have run scenarios with clusters and have participated, and continue to participate, in research to protect against predatory HFT crap. The first step is to ask a lot of critical questions, challenge assumptions and that is where imagination comes into play. Once you have those you build tests in an attempt to disprove the hypotheseesesseseses (plural of hypothesis) that have been created. It is incredibly complex, requiring tremendous time and resources which the general population does not have (this includes most geeks)

                Most geeks have above average intelligence, extrapolate conclusions and are quite often right and implement concrete results based on the extrapolation. This is a wonderful process in most cases but when requiring real results out of research extrapolation is not enough, at minimum you must interpolate the results from real data. Because they are quite often right, or easily modify extrapolated conclusions to become right we arrogantly believe all problems are like this and thus in extremely complicated problems the war drums are beat about scenarios such as this and the masses present an ignorant and foolish argument.

                I have answers, I'm not arrogant to believe they are the right answers, to the questions I have been asking. In 7 years I have been refining those answers and asking everybody who challenges them to provide proof, tests, examples that I can come back and test against my conclusions. Nobody has, in 7 years NOBODY has been able to respond intelligently and effectively to these questions that has not been involved in the actual research. So to sooth our wounded pride, fight against terrible injustice the masses (of geeks) proudly proclaim the evils of HFT (there are some) but are fundamentally wrong in assumptions and facts. The real issue is the overly complex regulation allowing for over 100 types of orders for securities that can NEVER account or deal with the unintended consequences.

                So please, consider your assumptions and research, at the very minimum google, to discover real examples. I haven't found any there were not illegal.

                If it's legal then your beef should not be with those participating but those that make the rules, i.e. your representatives. Otherwise all energies spent are in vein. But that would require real action on the part of the participants, truly being informed and active at the polls. Sadly this will never happen.

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                • (Score: 2) by TK on Thursday May 01 2014, @05:48PM

                  by TK (2760) on Thursday May 01 2014, @05:48PM (#38575)

                  hypotheseesesseseses

                  After a few insightful mods, I had to mod this comment of yours as funny.

                  Don't worry, at least one person learned something from your comments, and is thankful that SN can have comments of this caliber. I guess I'll stick around.

                  Also, /s/vein/vain

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                  • (Score: 1) by infodragon on Thursday May 01 2014, @06:00PM

                    by infodragon (3509) on Thursday May 01 2014, @06:00PM (#38583)

                    Thanks for the comment, at least my effort wasn't in VAIN! I used to be the worlds worst speller, with a lot of work now I am just terrible!

                    I intended to play devils advocate and ask for answers to the implied questions of the comments. I was not holding my breath but am waiting one day for someone, out side my circle of research, to have an intelligent and informed answer to these questions. In the mean time I will continue to ask the uncomfortable questions and occasionally get down modded as did one of my comments in this thread.

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                  • (Score: 1) by infodragon on Friday May 02 2014, @10:43AM

                    by infodragon (3509) on Friday May 02 2014, @10:43AM (#38833)

                    Sorry about posting again, I couldn't find a way to privately message you.

                    You might be intreested in these two papers, I posted them to another commenter below.

                    http://papers.ssrn.com/sol3/papers.cfm?abstract_id =2034858 [ssrn.com]
                    http://www.stern.nyu.edu/cons/groups/content/docum ents/webasset/con_035928.pdf [nyu.edu]

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                • (Score: 2) by sjames on Friday May 02 2014, @09:11AM

                  by sjames (2882) on Friday May 02 2014, @09:11AM (#38813) Journal

                  It is worth noting that a few exchanges are being set up which take various measures to make HFT fail. They seem quite popular. Australia seems to be looking at measures [computerworld.com.au] meant to curb or outright kill HFT. Meanwhile, the market operated quite well for decades without it.

                  Looking at things from a black box, we have groups that do not hold stock for more than an instant somehow coming out ahead in spite of rather large expenses involved. That money isn't just materializing, it comes from somewhere, does it not? Odds are, that somewhere would just as soon keep that cash themselves.

                  Meanwhile, no advocate of HFT has ever managed to explain why the trades wouldn't happen within a reasonable timeframe without HFT or why faster is necessarily better for society and the market as a whole.

                  It's also worth considering the way HF traders spam the market with insincere offers.

                  I certainly do not subscribe to the idea that legal==right. Because of that, I reserve the right to have a beef with someone even if they are acting within the law.

                  • (Score: 1) by infodragon on Friday May 02 2014, @10:12AM

                    by infodragon (3509) on Friday May 02 2014, @10:12AM (#38829)

                    There is the spirit of the law and the letter of the law. If I hear you right you are speaking in regards to the spirit of the law. I have a beef with those in violation of the spirit of the law as well, however I do my utmost to devote any energy into those creating the law rather than those in violation of the spirit of the law. The utter stupidity of many of the finance laws is incalculable. It irks me to no end that the law is created without the consultation of true experts rather than those who have the expertise of lining their pockets with the manipulations of legal systems (lobbyists)

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                    • (Score: 2) by sjames on Friday May 02 2014, @05:41PM

                      by sjames (2882) on Friday May 02 2014, @05:41PM (#38989) Journal

                      Yes, I speak of the spirit of the law. I believe we are in agreement on this point. Finance needs to be regulated, but those regulations need to be sensible. They are not sensible today.

                      • (Score: 1) by infodragon on Friday May 02 2014, @05:53PM

                        by infodragon (3509) on Friday May 02 2014, @05:53PM (#38995)

                        That is an understatement! The more complexity the more unintended consequences. Introduce simplicity then it is easier to enforce the law, meaning current resources for prosecution become much more effective.

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                        • (Score: 2) by sjames on Friday May 02 2014, @07:23PM

                          by sjames (2882) on Friday May 02 2014, @07:23PM (#39048) Journal

                          I believe the complexity is deliberate and driven by the large players. They WANT complex regulations that small players and newcomers can't afford to figure out how to comply with that at the same time present loopholes than an established player with a large legal department can play in.

                  • (Score: 1) by infodragon on Friday May 02 2014, @10:24AM

                    by infodragon (3509) on Friday May 02 2014, @10:24AM (#38830)

                    I just remembered this paper

                    http://papers.ssrn.com/sol3/papers.cfm?abstract_id =2034858 [ssrn.com]

                    Some basic research into detecting and avoiding issues such as the flash crash
                    http://www.stern.nyu.edu/cons/groups/content/docum ents/webasset/con_035928.pdf [nyu.edu]

                    An excerpt

                    THE GREAT DIVIDE
                    Legend holds that Nathan Mayer Rothschild used racing pigeons to front run his
                    competitors and trade on the news of Napoleon’s defeat at Waterloo a full day ahead of His
                    Majesty’s official messengers (Gray and Aspey [2004]). Whether this story is true or not, it is unquestionable that there have always been faster traders. Leinweber [2009] relates many
                    instances in which technological breakthroughs have been used to most investors’ disadvantage.

                    The telegraph gave an enormous edge to some investors over others in the 1850s, perhaps to a
                    greater extent than the advantages enjoyed today by high frequency traders. The same could be said of telephone traders in the 1875s, radio traders in the 1915s, screen traders in 1986, to cite only a few known examples. Since there have always been faster traders … what is new this time around? If there is something truly novel about high frequency trading (HFT), it cannot be only speed.

                    I did not want to provide information in the beginning of the discussion because I wanted to provoke discussion, I was, as expected, disappointed...

                    Enjoy!

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                    • (Score: 2) by sjames on Thursday May 08 2014, @09:35AM

                      by sjames (2882) on Thursday May 08 2014, @09:35AM (#40851) Journal

                      Sorry fopr the late reply.

                      One significant difference is the use of false offers and various tricks to keep the queues stuffed. The possability to completely crash the market faster than any human overseer can even blink is new. It's become more about metagaming the market to make it leak money.

      • (Score: 4, Interesting) by VLM on Wednesday April 30 2014, @02:00PM

        by VLM (445) Subscriber Badge on Wednesday April 30 2014, @02:00PM (#38104)

        You're incredibly close to what happens to institutional investors but not quite. Its not like that at all for retail (aka "us")

        Say you want to buy a million shares and you're not willing to pay more than 103 million. It "usually" trades around $100 so a buffer of 3% sounds OK.

        If you slammed a giant limit order "1M shares @ $103" that would smash the market temporarily, probably wipe out all liquidity, it would suck for everyone. Probably have severe issues filling it. You'd be lucky, in the end, to pull it off at only 103 million total cost. The order would probably barf and fail and maybe you'd make the financial news as a hopeless noob who screwed up the market for a couple hours.

        So enter 1M orders thru hours, days, weeks (months?) all limit orders "1 share @ $103". The market has enough liquidity to slowly, gradually soak that up, and there's no way in heck you'll get all 1M shares at the usual $100 but Maybe it'll dollar cost average to $101 across all 1M shares. Ta Da you just "saved" or "made" $2. You were willing to pay $103 million for those shares but you only had to pay $101M, awesome. Or you paid a pro trader $103M to do it for you, and he keeps whatever profit is left over. Whatever.

        What happens with a smart HFT operator is he figures out one way or another that you haven't admitted it, but in practice, obviously someone is running a "1M shares @ $103" even if no one admits it, so he screws around with them and the market to sell you your 1M (or so) shares at like $102.99. So when you're not buying, he's buying around $100, and when you're buying, he's selling at $102.99.

        So that's 1M times $2.99 profit or about 3 million bucks profit for the HFT operator Woo hoo free money. You thought all this ridiculous foolishness with entering 1M tiny orders would save you 2 million bucks but now its only saving you $0.01 times a million or ten grand, wtf all this paper shuffling for only saving ten grand?

        Next up, I'm sure you've never heard this before, entrenched interest starts whining to .gov and journalists about how .gov needs to legally guarantee them a profit in their former business which dried up and blew away because of innovation and anyone who interferes with a historical stream of big business profit is by definition a criminal blah blah meaningless propaganda.

        There's another aspect where you can play games with HFT where you may only legally trade down to cents denominated prices, but if you offer a ton of trades, then the "longer term average price" is actually a ratio. So over a 10 ms period, in the old days if you had one trade at $100 that meant the price was $100, but now, over a 10 ms period, 57 trades at $100 and 43 trades at $100.01 means the "real price" is not $100 or $100.01 but really $100.0057. And non HFT players are not allowed into the pool because retail investors can only legally trade in "cents" denomination. So the HFT players can spec the price to $100.0057 and fight amongst themselves for a profit whereas we're frozen out and can only trade at $100 or $100.01 and we're not going to make nearly as much money as they can. Solution is obvious, either increase the denomination to full dollars making no one wealthy enough to play HFT, or go floating point for prices, where trading a trillion shares at a 1e-38 profit for each isn't going to pay very well.

        • (Score: 2) by VLM on Wednesday April 30 2014, @02:20PM

          by VLM (445) Subscriber Badge on Wednesday April 30 2014, @02:20PM (#38114)

          typo...

          "all limit orders "1 share @ $103""

          should read something like

          "all limit orders "1 share @ less than $103""

          And because it usually trades around $100 even though you're slowly flooding the market over the course of hours/days/weeks it'll probably execute just about $100 like maybe $101 average. Much better than paying $102 or $103 or more!

    • (Score: 5, Interesting) by metamonkey on Wednesday April 30 2014, @01:42PM

      by metamonkey (3174) on Wednesday April 30 2014, @01:42PM (#38093)

      There's more to it than that. There's a race condition, essentially, where they can see a security being traded in Chicago, zap that to their New York servers sitting next door to the NYSE via microwave communications faster than the order can get there via fiber/internet and then buy the stock microseconds before the buy order hits New York, and then sell it to the trader. I don't see how that kind of circumstance doesn't count as "rigged."

      That said, I do have the deeply held beliefs that the market is rigged, and I'm expressing them.

      --
      Okay 3, 2, 1, let's jam.
      • (Score: 3, Informative) by VLM on Wednesday April 30 2014, @02:33PM

        by VLM (445) Subscriber Badge on Wednesday April 30 2014, @02:33PM (#38122)

        What you're describing is called "arbitrage" and has been around since the dawn of civilization, at least since the SECOND marketplace was opened. Nothing directly to do with HFT.

        The only thing that makes HFT special is making arbitrage a bit faster and more efficient than it was. Its actually a good thing to have a market wide single price. Assuming you have an actual use for your new asset or are investing at a value as opposed to speculating at a price, the smaller the spread in prices between markets, the less you inherently lose in the process of obtaining your assets.

        An analogy you can play with gas stations is if you have to burn a gallon of gas to drive to a lower priced station, then price differences of $10/gallon during a hurricane would make it worthwhile, however in normal life a price difference of a couple cents due to the arbs makes life a lot easier, just fill up anywhere for roughly the same price. If you drive by 3 on the way to work, the price of arbitration is lower so you "force" the stations to price identically, more or less.

        There is a non-geographic game you can play where not just the location but refining facilities have a impact WRT Brent crude oil (aka north sea by UK) or USA produced WTI crude. The refining costs are variable so you can arb across those refining costs in some cases depending on short term costs of refining. Crazy stuff, eh? 24kt gold or a generic commodity share of GOOG is much more boring in comparison to crude oil.

        In your specific example, you could simply execute your trade directly in NYC if you wanted to avoid a middleman.

        Arb trading is incredibly dangerous when volatility exists (which it often does). Picking up nickels from in front of the steamroller. You have to pick up an unholy number of pennies on a consistent basis to run a net profit when occasionally the market shifts locally and you lose entire dollars or more at a time. So that's why its not a popular activity, or its kinda white knuckle all the way anyway.

    • (Score: 4, Interesting) by Sir Garlon on Wednesday April 30 2014, @01:53PM

      by Sir Garlon (1264) on Wednesday April 30 2014, @01:53PM (#38099)

      So its pretty hard to detect a pattern at transaction #2523 and then screw me over in subsequent transactions if my entire process began and ended with transaction #1.

      That is not how front-running works. From the second link in TFS:

      "Someone out there was using the fact that stock market orders arrived at different times at different exchanges to front-run [orders]," writes Lewis. It was a side-effect of automated trading ...

      So as a matter of fact, the HFT folks do not need to detect a pattern in your trading. They just detect the fact that you've submitted an order, manipulate the price so you get fewer shares for your money, and skim the profit -- all in the fraction of a second it takes your trade to complete.

      You're playing in a game where you don't even understand what the other players are doing, calling other people morons while you do it. It also looks like you're railing against the author of a book you haven't read, or even read a short article about.

      If I were Goldman Sachs, I would love the fact that people like you are investing.

      --
      [Sir Garlon] is the marvellest knight that is now living, for he destroyeth many good knights, for he goeth invisible.
      • (Score: 2) by VLM on Wednesday April 30 2014, @02:58PM

        by VLM (445) Subscriber Badge on Wednesday April 30 2014, @02:58PM (#38135)

        Its all an argument of definitions.

        If I do this: "arrived at different times at different exchanges" I'm not a retail investor, I'm a hedge fund speculator.

        If as a retail investor I "buy 100 WiscEng limit $103 NYSE" I can't be front runned. Once an isolated individual trade executes in the past, how do you front run trade #2 that doesn't exist and never will in the future? No matter how quickly you find out about my trade having hit the market, its already in the past, and being isolated, there's no way to use my buying pattern to rip me off in the future because no pattern exists.

        "Front running" doesn't mean you're pissed off that someone has better faster arbs that you so the .gov should guarantee your profit stream into the future or you'll call them a name you don't understand. "Front running" actually exists as a crime which boils down to non-personalized insider trading by delaying the execution of a valid order (more or less, there's a reason legalese is longer and more precise).

    • (Score: 4, Interesting) by wantkitteh on Wednesday April 30 2014, @02:22PM

      by wantkitteh (3362) on Wednesday April 30 2014, @02:22PM (#38116) Homepage Journal

      tl;dr version:

      "Stock market metagame got new rules, deal with it."

      If the metagame didn't interfere with the running of the stock market, I'd agree that this is a non-issue and the dinosaurs can go regulate themselves in a corner where no-one can see and deservedly so. However, the concern that many people have is that HFT is effectively a transaction rake and drains value from the stock market without actually participating in it's intended functions.

      I think the language used in reporting the possible issues with HFT has been largely incorrect with people using words like "rigged" and "cheating" and "unfair" when what they actually mean is that the principle function of the market has been demonstratably broken by a small by significant minority following centuries of technological advances and that a rethink of the rules might be a good idea to preserve the original purpose and function if deemed necessary.

      Important bit there - "if deemed necessary". It would seem that the people currently doing the deeming are awfully close to be people who did the breaking and will make a fortune as long as the status quo continues. I wouldn't be at all surprised if HFT caused the next Big Crash (TM) without warning and so quickly that no-one would know it had happened until it was all over.

      • (Score: 2) by edIII on Thursday May 01 2014, @02:41AM

        by edIII (791) on Thursday May 01 2014, @02:41AM (#38328)

        It is a rake. I don't see it as any different than a poker room assessing 10%/$4max per hand.

        Except, I get free drinks, cute waitresses, $1 extra in the rake gives high hands and jackpots that routinely pay out.

        What do I get as a member of Main Street allowing this private rake against transactions that are supposed to benefit me at some point in the form of 401ks and pensions?

        How do those greedy corrupt bastards taking a rake make my life better again? How about anybody's except their own? Just how wealthy and well connected to do you have be to participate in the rake?

        I see a lot of people purportedly smart enough to explain this, but they never explain how it benefits anybody. There's a constant claim about how they provide a more stable price for a stock, but I remain unconvinced.

        There is no reason for HFT to even exist at all, and all stock trades regardless of source should be queued till the start of the hour, effectively ensuring that no single trade can be faster than 1 hour. Period. Run all the transactions, collect all the results, notify all the parties. Wait till the next hour when everybody can act again. It doesn't make a difference that we could create a nanosecond stock market. It's 1 hour, and that creates a level playing field all the way to the soccer mom doing a trade while baking apple pie.

        That's real equality. When the Ketterings and super elites can't effect a trade any faster than the janitors and housemaids that make their lives possible.

        If people think HFT is the only way the Stock Market is rigged against Main Street, they are incredibly naive. It's run by people that fundamentally don't believe in equality, and as evidenced by recent legislation, don't believe they should suffer consequences either. I know one instance should not reflect upon the entire stock market, but dear lord, how many instances are there? They even nailed Martha Fucking Stewart.

        Getting rid of HFT would be a nice start too unwinding all the corruption and theft going on against Main Street every single second.

        --
        Technically, lunchtime is at any moment. It's just a wave function.
    • (Score: 2, Informative) by Anonymous Coward on Wednesday April 30 2014, @09:41PM

      by Anonymous Coward on Wednesday April 30 2014, @09:41PM (#38264)
      • (Score: 1) by infodragon on Thursday May 01 2014, @10:42AM

        by infodragon (3509) on Thursday May 01 2014, @10:42AM (#38428)

        Link spam of allegations and suspicions. If you actually listen to Michael Lewis then you discover he doesn't call anything illegal, it's just "unfair" which is a subjective conclusion. Why are we fighting so hard against the symptoms of a what so many believe is a rigged environment? If you are so passionate about it then the SYSTEM must be changed, otherwise you fight a hydra or play the game of whack a mole. As long as it is LEGAL someone will do it!

        We rail and fight against the "perpetrators" either because we are ignorant of the fact that they are following the law or it just makes us feel better as we hide from the personal responsibility of getting involved and fighting to change the law.

        --
        Don't settle for shampoo, demand real poo!
  • (Score: 1) by Horse With Stripes on Wednesday April 30 2014, @01:29PM

    by Horse With Stripes (577) on Wednesday April 30 2014, @01:29PM (#38083)

    News at 11.

    • (Score: 2) by bob_super on Wednesday April 30 2014, @03:56PM

      by bob_super (1357) on Wednesday April 30 2014, @03:56PM (#38159)

      Worse: Banker says "my safe is the best"
      .
      The fox would just protect his turf. These people want you to invest your cash with them.

    • (Score: 3, Informative) by Thexalon on Wednesday April 30 2014, @04:41PM

      by Thexalon (636) on Wednesday April 30 2014, @04:41PM (#38170)

      More true than you can possibly imagine: Mary Jo White had a reputation for being a very bank-favorable lawyer [rollingstone.com] before becoming SEC chair. It's clear that the Obama administration asked the banks who they wanted in the post of SEC chair (which to me makes about as much sense as asking Pablo Escobar how the FBI Narcotics squad should operate), and the Senate took their nice hefty campaign checks and voted her in easy-peasy.

      --
      The inverse of "I told you so" is "Nobody could have predicted"
  • (Score: 4, Insightful) by wantkitteh on Wednesday April 30 2014, @01:34PM

    by wantkitteh (3362) on Wednesday April 30 2014, @01:34PM (#38087) Homepage Journal

    By dictionary definition, she's absolutely correct. At no point is anyone breaking the rules of the system to gain an unfair advantage unobtainable by anyone else without also breaking those rules.

    By common sense, she's lying through her teeth. At no point could the 99.9999% of traders on the market get together the skills and resources to duplicate this advantage.

    It's the letter of the law versus the spirit of the law once again. Considering how far from it's original purpose the stock market has already gone and who's in charge of the related policies right now, I have no doubt in my mind which will win out.

    "Rigged". "Skewed".
    "Poh-TAY-toe". "Poh-TAH-toe".

    • (Score: 2, Insightful) by Ethanol-fueled on Wednesday April 30 2014, @01:39PM

      by Ethanol-fueled (2792) on Wednesday April 30 2014, @01:39PM (#38091) Homepage

      You know the shit's rigged when people create a new stock exchange [forbes.com] just to sidestep the existing stock exchange's cheated bullshit.

      • (Score: 3, Insightful) by wantkitteh on Wednesday April 30 2014, @02:33PM

        by wantkitteh (3362) on Wednesday April 30 2014, @02:33PM (#38121) Homepage Journal

        It's not rigged, it's broken. The HFT'ers are still playing by all the rules. What's happened is that a combination of technologies combined with a certain level of resources and skills have combined to cause unintended effects and the original purpose of the stock market is now compromised.

        Analogy: If the stock market was M:TG, HFT would be banned in tournament play.

  • (Score: 0) by Anonymous Coward on Wednesday April 30 2014, @01:50PM

    by Anonymous Coward on Wednesday April 30 2014, @01:50PM (#38097)
    The term "rigged" implies to me that the game is intentionally fixed so that one particular person will win on a consistent basis. This is very different from the structure of the game being such that different participants have particular advantages and disadvantages.

    If bards always win a battle, the game is rigged. If bards, clerics, mages, and paladins all have various advantages and disadvantages in different scenarios and they each occasionally win, this is just the structure of the game. It is not rigged.

    The HFT guys do have advantages in some scenarios. So does grandma. So do the institutional money managers. So do the day traders. So do you.
    • (Score: 2) by c0lo on Wednesday April 30 2014, @02:17PM

      by c0lo (156) Subscriber Badge on Wednesday April 30 2014, @02:17PM (#38111) Journal

      So does grandma. So do the institutional money managers. So do the day traders. So do you.

      [Citation needed]

      --
      https://www.youtube.com/watch?v=aoFiw2jMy-0
      • (Score: 0) by Anonymous Coward on Wednesday April 30 2014, @02:45PM

        by Anonymous Coward on Wednesday April 30 2014, @02:45PM (#38128)

        It's a bit like rock-scissors-paper.

        Grandma beats HFT because she's only selling 100 shares. There's no way to guess her order flow before it happens because of its small size.
        HFT beats institutional because huge size makes oder flow obvious.
        Institutional beats Grandma because they have the resources to do fundamental research that she doesn't.
        Etc...

        • (Score: 1) by aliks on Wednesday April 30 2014, @10:06PM

          by aliks (357) on Wednesday April 30 2014, @10:06PM (#38273)

          The HFT algos will never see Grandma's 100 share order as it will almost certainly be "crossed" in her her broker's pool rather than going to an exchange.

          --
          To err is human, to comment divine
          • (Score: 0) by Anonymous Coward on Wednesday April 30 2014, @11:01PM

            by Anonymous Coward on Wednesday April 30 2014, @11:01PM (#38289)

            Exactly. HFT doesn't hurt Grandma. She flies under everyone's radar.

  • (Score: 2, Insightful) by WizardFusion on Wednesday April 30 2014, @01:53PM

    by WizardFusion (498) Subscriber Badge on Wednesday April 30 2014, @01:53PM (#38100) Journal

    "The U.S. markets are the strongest and most reliable in the world."

    I just don't understand the constant delusional ranting that some/most Americans seem to be doing.
    Everything they do, they think they are the number 1.
    The best of this, the greatest at that. Constantly.

    Once they get their heads out of their arses, and actually realise they are not as great as they think they are, maybe the world will be a better place. /rant over

    • (Score: 0) by Anonymous Coward on Wednesday April 30 2014, @02:23PM

      by Anonymous Coward on Wednesday April 30 2014, @02:23PM (#38117)

      America! Fuck Yeah!!

    • (Score: 2) by mrider on Wednesday April 30 2014, @02:31PM

      by mrider (3252) on Wednesday April 30 2014, @02:31PM (#38120)

      As an USian ("America" includes far more than the U.S.), I agree 100%. It's been a long, long time since the United States was #1 at anything to be proud of. We should be ashamed and mortified at the things we're at either #1 or in the top 10.

      --

      Doctor: "Do you hear voices?"

      Me: "Only when my bluetooth is charged."

    • (Score: 3, Informative) by evilviper on Wednesday April 30 2014, @02:58PM

      by evilviper (1760) on Wednesday April 30 2014, @02:58PM (#38134) Homepage Journal

      Everything they do, they think they are the number 1.
      The best of this, the greatest at that. Constantly.

      Any country is going to be #1 in some things. The US is big and successful, so it's #1 in quite a few things.

      In this specific case, it's pretty hard to deny that the US stock exchanges are the biggest and most trusted in the world.

      If you've got any examples of (important) people indefensibly saying the US is #1 in something it's not, then have at it. A rant against one factually correct remark is pretty silly.

      --
      Hydrogen cyanide is a delicious and necessary part of the human diet.
    • (Score: 2) by VLM on Wednesday April 30 2014, @03:17PM

      by VLM (445) Subscriber Badge on Wednesday April 30 2014, @03:17PM (#38141)

      The problem comes from two things:

      1) Confusion of are and were. Were is certainly no question, just pull the historical stats and do some analysis. Are is a little more optimistic. Has ZIRP and corruption completely broken it ... today? Well you can debate that. Everything breaks eventually, and is eventually "now"?

      2) "strongest and most reliable" means nothing. You could throw measurable, comparable statistics out there. Trading volume by numerous measures. Volatility measurements. IPO volume. Liquidity measurements. By actual stats they are correct in spirit, almost accidentally. Its like calling a car or computer or OS the "best". Well, by what criteria? Possibly the guy who wrote it knew nothing about what he was talking about and was just nationalistic, or possibly knew what he was talking about but didn't author it very well. Either way he's more or less currently correct, as conventionally measured and ranked compared to other world class markets.

      If someone said the USA leads the world in large mining dragline machines (those things that look like conveyor belts and cranes that are so large they're measured by acre and fractional mile), they might just be nationalist, but they're also arguably actually correct by many statistics. The Euros know a thing or two about large mining machines but ours are still by some criteria and statistics "better" than theirs. Probably because we "need" more of them than Germany does, so its no great surprise, but whatever.

  • (Score: 4, Interesting) by bootsy on Wednesday April 30 2014, @01:56PM

    by bootsy (3440) on Wednesday April 30 2014, @01:56PM (#38102)

    Having worked in around the Capital Markets and Investment Banking domain since 2000 I have formed the opinion that it helps to be big, very big. An individual investor cannot possibly dedicate the resources that a large investment bank or dedicated Hedge Fund can.

    Even if you ignore insider knowledge or advanced opinion on "Market Colo(u)r/Flavo(u)r", as a small investor you still have at least the following against you:
    1) No expensive uptodate market data feeds ( recent updates are now so fast you need a FPGA to handle the latency, a PC OS turns out to be too slow now!)
    2) You cannot afford a team of developers to build and maintain your risk monitoring and reporting and market scenario systems.
    3) You probably don't have a team of mathematical "Quants" to write you a library
    4) You don't have a team of researchers who plough through all the markets and offer you exclusive advice
    5) You cannot fund your positions as cheaply as an Investment Bank
    6) You don't have cheap loans from the Bank of England and the US Fed
    7) You are not a lead client for anyone on anything and so don't get preferential treatment

    I can think of a few more easily off the top of my head but this reply is already too long.

    The only area where you can beat the banks is if you know a small local business that is starting to do well and is looking for investment. Then you have the edge, but otherwise forget it.

    • (Score: 3, Interesting) by VLM on Wednesday April 30 2014, @03:26PM

      by VLM (445) Subscriber Badge on Wednesday April 30 2014, @03:26PM (#38147)

      One disadvantage the big players have is having a bigger footprint and more journalist / blogger / whatever coverage.

      Look that the Drama, just the Drama, around the recent Herbalife situation. I'm not talking about Herbalife as a MLM or their financials, just the drama about the big investors fighting. The point being everything is hyper public and everyone knows every little detail about what Ackerman said about whatever whenever.

      Another thing in a generic sense is a big player carefully observed around the end of the quarter its a game to predict their behavior. Maybe not well. But its a lot easier to predict when you've got a zillion fawning journalists crawling all over the big guys.

      A small player, unobserved, not rocking the boat to make waves, can get away with certain things.

  • (Score: 3, Interesting) by Sir Garlon on Wednesday April 30 2014, @02:20PM

    by Sir Garlon (1264) on Wednesday April 30 2014, @02:20PM (#38115)

    Like many people, a big chunk of my assets are in mutual funds (I prefer index funds). I don't day-trade. So even though I do not pay the HFT tax on those individual trades I don't make, I pay through the gouging my mutual funds suffer when they trade.

    Therefore I question the SEC chairwoman's assertion that retail investors are well served. Does her definition of "retail investor" exclude mutal-fund shareholders? I would not be surprised if it did.

    --
    [Sir Garlon] is the marvellest knight that is now living, for he destroyeth many good knights, for he goeth invisible.
  • (Score: 2, Interesting) by SplawnDarts on Wednesday April 30 2014, @04:18PM

    by SplawnDarts (3962) on Wednesday April 30 2014, @04:18PM (#38165)

    For anyone who remembers the bad old days pre-digital exchanges, pre-decimalization, and pre-HFT, the retail investors had it MUCH worse. It was not uncommon to cross a $1/8 gap between getting into and out of a position - on stocks that might cost say $20. And then there were commissions on top. So you were paying the "man" maybe $0.15 per round trip or something. That number today is frequently more like $0.03 if you choose an appropriate broker and depending on how liquid the stock is.

    HFT may leave a bad taste in your mouth, but the cold hard facts say the modern ecosystem is FAR better for retail.

    • (Score: 1, Interesting) by Anonymous Coward on Wednesday April 30 2014, @05:25PM

      by Anonymous Coward on Wednesday April 30 2014, @05:25PM (#38184)

      Hell, I remember when retail brokers had a book of commission costs so they could look up what to charge you. The information was "secret" and you wouldn't know your commission on a trade until you placed it. Commissions might cost eighty or a hundred dollars on a 200 share order. In recent years I've paid as little as $8.95 on a 10,000 share block.

  • (Score: 4, Insightful) by SuperCharlie on Wednesday April 30 2014, @04:52PM

    by SuperCharlie (2939) on Wednesday April 30 2014, @04:52PM (#38172)

    If this method was not an advantage, they wouldn't do it. If it is an advantage the system is gamed since not all can participate equally in this method. You can tapdance around it all you want, but thats the bottom line.

  • (Score: 3, Insightful) by Anonymous Coward on Wednesday April 30 2014, @04:54PM

    by Anonymous Coward on Wednesday April 30 2014, @04:54PM (#38174)

    When HFT is sending a buy request in front of another's buy request, BECAUSE of that buy request, that is Insider Trading, period.

    It is not that fact that one site is 1/2 nano second faster than another. It is "knowing" that the other transaction is present, is.