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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."
(Score: 2, Funny) by infodragon on Thursday May 01 2014, @10:33AM
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.
Don't settle for shampoo, demand real poo!
(Score: 2) by TK on Thursday May 01 2014, @05:48PM
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
The fleas have smaller fleas, upon their backs to bite them, and those fleas have lesser fleas, and so ad infinitum
(Score: 1) by infodragon on Thursday May 01 2014, @06:00PM
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.
Don't settle for shampoo, demand real poo!
(Score: 1) by infodragon on Friday May 02 2014, @10:43AM
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]m ents/webasset/con_035928.pdf [nyu.edu]
http://www.stern.nyu.edu/cons/groups/content/docu
Don't settle for shampoo, demand real poo!
(Score: 2) by sjames on Friday May 02 2014, @09:11AM
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
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)
Don't settle for shampoo, demand real poo!
(Score: 2) by sjames on Friday May 02 2014, @05:41PM
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
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.
Don't settle for shampoo, demand real poo!
(Score: 2) by sjames on Friday May 02 2014, @07:23PM
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
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 crashm ents/webasset/con_035928.pdf [nyu.edu]
http://www.stern.nyu.edu/cons/groups/content/docu
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!
Don't settle for shampoo, demand real poo!
(Score: 2) by sjames on Thursday May 08 2014, @09:35AM
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.