Banning Some HFT Strategies Helped This Market Grow: Chart

http://www.bloomberg.com/news/articles/2016-03-08/banning-some-hft-strategies-helped-this-market-grow-chart

by randomname2 • 10 years ago

39 64 10 years ago

chollida1• 10 years ago

Really, the article is one paragraph.

It quotes Doug Cifu, the head of the largest HFT firm in the world.

I don't know much about Aquis strategy for growing their exchange but if its anything like the aequitas exchange that has just opened in Canada then they get inflated numbers by begin the exchange off record where some banks get paid to report their large block trades.

randomname23• 10 years ago

The article argues it doubled its share of public European stock trading since Feb. 8, when it banned what it considers a problematic high-frequency-trading strategy, just wanting to limit proprietary traders to passively providing price quotes, i.e. banning HFT firms which are parasitic orderflow frontrunners not market makers, and take zero risk which is about 99% of them.

andylei• 10 years ago

great chart bloomberg

http://tylervigen.com/spurious-correlations

ryporter• 10 years ago

It links to a slightly longer article [1], which provides a bit of detail, but doesn't elucidate.

First of all, how do you only allow passive orders? If an order is marketable when it arrives at the exchange, then is it rejected?

Second, how does this resemble IEX's speed bump? I'm very confused.

[1] http://www.bloomberg.com/news/articles/2016-02-03/this-upsta...

randomname23• 10 years ago

Well for one it explains why some HFT actors are so vehemently opposed to IEX's HFT-limiting exchange application, as investors leave any venue that still permits HFTs, and go to alternatives such as Aquis and, if its application is granted, IEX.

minimax2• 10 years ago

Comments like these... they just show you have no idea what you're talking about. Investors are perfectly free to trade on the IEX ATS all day long in its current incarnation.

minimax2• 10 years ago

Basically in their rulebook it says that all prop (as opposed to agency) flow must be passive, and if they find aggressive prop flow from a member they can terminate the membership.

The tie in to IEX is tenuous at best.

randomname23• 10 years ago

Good explanation of IEX here: https://www.fastcompany.com/3031242/a-no-nonsense-explanatio...

jakozaur3• 10 years ago

What if all stock market would adopt a strategy that orders are processed one per minute. Same way it works during opening/closing market.

Some advantages:

1. All assets will be as liquid as they are now. Still got opportunity to buy/sell 8 * 60 = 480 times per day.

2. Most of the HFT industry will be redundant. Instead of allocating super smart people on made up problem, they can solve more important social problems (e.g. robotics, curing cancer, aging, space exploration, high growth tech companies).

3. Less day trading, encourage long term perspective.

JupiterMoon• 10 years ago

4. Competing stock markets grow (maybe in another jurisdiction) that allows faster order processing

cdetrio3• 10 years ago

But faster (continuous-time) order processing results in wider bid/ask spreads; slower (discrete-time) batch processing results in narrower spreads. At least that's what the models show. Follow-up papers even analyze a multi-exchange model (competing continuous-time and discrete-time exchanges), and concluded that investors and retail traders would prefer the discrete-time exchange because it would have narrower spreads (i.e. lower transaction costs).

cdetrio3• 10 years ago

Yeah yeah, its called frequent batch auctions. obligatory mention in every hft discussion: http://faculty.chicagobooth.edu/eric.budish/research/HFT-Fre...

pc86• 10 years ago

0. Why once a minute? Why not twice? Why not once every 5 minutes? 15? 60? You can still buy or sell eight times a day so once an hour should be plenty.

1. Putting "high growth tech companies" (we know you mean startups) in the "important social problem" bucket, especially in the same group as aging, cancer, space exploration, is tenuous at best.

2. Until any of the above pay half a million a year plus huge bonus potential, I seriously doubt anyone going into HFT would give them more than a passing glance.

jakozaur3• 10 years ago

0. Just to be fair I think any discrete time auction would reduce HFT. No matters less if it will be 100ms or 15 minutes. Just a parameter that you can optimize based on your market.

1. Not all startups are equal, but quite a few will create some lasting value.

2. Unsure if most of this career alternatives will ever give that sort of gains. The question is where the gains come from? Inefficiencies in trading strategies of your retirement fund? Maybe those inefficiencies are always present if humans type orders? Maybe we should design stock market with human first approach, not HFT exploitable?

vostok4• 10 years ago

For what it's worth, I am a trader at an HFT firm and my pay is comparable to what my friends in similarly competitive tech roles make. We are talking about the levels of compensation that are always mentioned here and generate discussion about how they do not exist.

I have not heard of similar comp levels in the aging/cancer/rocket space. My suspicion is that this is the result of cultural differences where management takes a much bigger piece of the pie. I would be happy to change fields once this is fixed.

harryh6• 10 years ago

This doesn't have the advantages you think it has.

1) Speed is still critically important as you have every incentive to wait until the very last microsecond before the end of the 1 minute window to submit any orders.

2) What do you do if there are more buy orders than sell orders at a given price for a given batch? Who's orders get filled?

ThomPete15• 10 years ago

2) Wouldn't that sort itself out since you now only get information once a minute?

So it would still be first come first serve. Or am I missing someting?

auntienomen4• 10 years ago

What if every armchair market structure analyst focused their efforts on curing cancer, instead of posting the same poorly researched suggestions in every HFT thread?

ThomPete15• 10 years ago

Why the snarky tone? Why not show how he is wrong so we all can learn something?

fr0sty4• 10 years ago

I really wish someone would make a version of this form letter for HFT: https://craphound.com/spamsolutions.txt

vostok4• 10 years ago

I am an active participant on an exchange that functions in this way.

As others have mentioned, this structure does not negate the benefits of speed.

Someone else already asked what you would do if there are more buyers than sellers (or vice-versa) in auction. If you're going to allocate randomly instead of using time-priority this is equivalent to pro-rata allocation in expectation. There are already pro-rata markets in the US and elsewhere.

This structure does increase transaction costs because I am less willing to make a tight market if I have to hold risk for such a long period of time.

Most of the HFT industry will be redundant. Instead of allocating super smart people on made up problem, they can solve more important social problems (e.g. robotics, curing cancer, aging, space exploration, high growth tech companies).

It seems to me that you are overestimating the profits generated by HFT and the number of people employed in this industry.

The above is just my probably incorrect opinion.

murbard2• 10 years ago

The problem isn't HFT per se it's adverse selection. Large trades are more likely to happen if the exchange discriminates in who participates in the exchange, not how they participate. Regulation NMS destroyed upstairs trading in the US and is effectively making such discrimination illegal/impossible unless you operate a dark pool which cannot openly show prices.

Zenst• 10 years ago

I often wonder, why the need for speed. If stock markets updated once a day, would that really cause a problem?

The whole aspect of making updates faster, transactions faster will always lead to those who can afford it looking for an edge in speed and in most cases - getting it, aided or unaided.

But with such dysnimic speed any misdirection in price rise or fall can and has been in the past exhausebated and when you look at the impact again, wonder why so fast.

I can appreciete the fater exchanges operate the mroe transacitons and brokers just love commision, more transactions more commision and it was and always is a crux in any fiscal market.

Indeed the Llyods crash was due to many brokers factoring (watering down the pools of money in effect) risks (groups of insurance poiceys) so many times that when there was a big claim (asbestos) then the whole thing crashed as the pools of money to cover the insurance were eaten away so much by all this over factoring of the risks about with brokers taking a slice everytime it got passed about and reinsurance became a rererererereinsurance style affair that with so much commision taken out it was a financial timebomb awaiting to happen. Again can look more recently at mortgages and how companies polled those together as they do with insurance and reinsurance in much the same way. Though more case of hiding potentual asbestos risks in with less risker mortgages and the rest we all remember.

So can see why I do question the need for faster and faster stock markets when, too me daily would work and indeed even hourly. Would eliminate HFT and indeed make the whole market more stable and focused upon the companies and not what todays market become based upon somebody famous doing or saying something on twitter more then actual results.

TTPrograms• 10 years ago

I've also wondered the same thing. I've always been replied to with "it provides liquidity to the market" but I still don't see why anybody needs microsecond level liquidity. Seems like it provides marginal benefit over a minute or hourly quantized exchange at tremendous cost (to society).

wdewind2• 10 years ago

TLDR: Compounding effects that add up over time, and extremely dubious use of the words "tremendous cost (to society)."

auntienomen4• 10 years ago

Ordinary traders obviously don't need microsecond level liquidity. But having microsecond level liquidity allows more market makers to compete with each other to provide liquidity. This competition lowers the prices ordinary traders pay for liquidity.

pakled_engineer• 10 years ago

According to this older HN posted article the way to slow down HFT strategies is get rid of the subpenny rule, such as pricing securities in increments of $0.0001

https://www.chrisstucchio.com/blog/2012/hft_whats_broken.htm...

vostok4• 10 years ago

I'm not sure that this would slow down HFT, but it might cut costs for consumers. It would definitely be a good idea to have different tick sizes for different products as it's odd that the most liquid products and the least liquid products might both have a 0.5bps tick size in the US.

If you do reduce the tick size you'll need to make some changes to internalization to reduce the toxicity of lit venues.

ikeboy• 10 years ago

How can that be enforced? Why wouldn't secondary markets just spring up allowing people to sell in between?

epx• 10 years ago

As I commented in another related article, I think it in terms of "nuclear reactors", whose reaction times are crafted to match human reaction times (tens of seconds). Trading could follow the same principle.

Compounding with that, some studies say that trading itself causes most (2/3) of the volatility, so it is expected that µs-scale trading creates even more volatility.

vostok4• 10 years ago

so it is expected that µs-scale trading creates even more volatility.

Could you help me understand why this might be expected?

Banning Some HFT Strategies Helped This Market Grow: Chart

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