High Frequency Trading Is A Scam
Market tickerIn less than half a second, high-frequency traders gained a valuable insight: the hunger for Broadcom was growing. Their computers began buying up Broadcom shares and then reselling them to the slower investors at higher prices. The overall price of Broadcom began to rise.
Soon, thousands of orders began flooding the markets as high-frequency software went into high gear. Automatic programs began issuing and canceling tiny orders within milliseconds to determine how much the slower traders were willing to pay. The high-frequency computers quickly determined that some investors’ upper limit was $26.40. The price shot to $26.39, and high-frequency programs began offering to sell hundreds of thousands of shares.
But then the NY Times gets the bottom line wrong:
The result is that the slower-moving investors paid $1.4 million for about 56,000 shares, or $7,800 more than if they had been able to move as quickly as the high-frequency traders.
cops?
I think it would better to place sales tax on all stock trades.
It would be better if the taxpayers got a slice of the financial sector they bailed out of bankruptcy than the traders pocketing all as fees (much of which are secret and not itemized).
try reading next timecops?
I wonder if he ever mentions his crackpot friend that spends all day rambling on SpursTalk.
I didn't pay attention to the tactics, but restoring the short sale rule eliminated a few years ago will help. Maybe not this specific type of manipulation, but others.
One more think. To make profits like this, someone has to be buying and selling too.
Wall St is unethical, criminal, sociopathic, rigged, and you guys want to hand SS $Ts to Wall St banksters.
The banksters have been drooling over SS $Ts so you know reflexively the pensioners will be screwed hard, fast, and deep.
Interesting TED talk on same subject
http://www.ted.com/talks/kevin_slavi...our_world.html
interesting link.
thanks for posting.
http://qz.com/162943/wall-street-is-...n-its-own-way/But for the big banks and brokerage houses, self-regulation is vastly preferable to onerous and costly government regulation. That’s why Wall Street’s own self-appointed regulator, the Financial Industry Regulatory Authority (FINRA), is keen to show that it is alert to any new risks that might threaten the financial system. FINRA released its regulatory priorities for 2014 yesterday (Jan. 2), and it’s keeping an eye on everything you’d expect it to: insider trading, complex structured products, funds investing in opaque and politically unstable “frontier” markets, and brokerages staffed by people who have already been busted by authorities.
But one area of focus that piqued our interest was FINRA’s concern about the abuse of algorithmic and high-frequency trading. FINRA highlighted the use of “momentum ignition strategies,” also known as “spoofing” or “layering.” Essentially, these are when a high-frequency trading system floods the market with buy orders above the current price or sell orders below it, in an attempt to make it look like there is buying or selling interest and induce others to trade at the artificially high or low prices. When the market price accordingly moves up or down, the trader quickly takes the other side of the spoof order, at a (slightly) better price than it would otherwise have achieved.
There has been a lot of concern about spoofing among traders. The practice is, of course, illegal, but FINRA said it continues to see variations of spoofing strategies, with different prices and sizes of fake orders, which is worrying in itself. The Commodity Futures Trading Commission laid its first charges for the activity in June last year, and the Securities and Exchange Commission also clamped down on the practice in 2012.
FINRA, keeping the "self-regulated" financial industry prim and proper!
http://www.cbsnews.com/news/is-the-u...market-rigged/This month marks the fifth anniversary of the current bull market on Wall Street, making it one of the longest and strongest in history. Yet U.S. stock ownership is at a record low and less than half of Americans trust banks and financial services. And in the last two weeks, the New York attorney general and the Commodities Futures Trading Commission in Washington have both launched investigations into high-frequency computerized stock trading that now controls more than half the market.
The probes were announced just ahead of a much anticipated book on the subject by best-selling author Michael Lewis called "Flash Boys." In it, Lewis argues that the stock market is now rigged to benefit a group of insiders that have made tens of billions of dollars exploiting computerized trading. The story is told through an unlikely cast of characters who figured out what was going on and have devised a plan to correct it. It could have a huge impact on Wall Street. Tonight, Michael Lewis talks about it for the first time.
Steve Kroft: What's the headline here?
Michael Lewis: Stock market's rigged. The United States stock market, the most iconic market in global capitalism is rigged.
Steve Kroft: By whom?
Michael Lewis: By a combination of these stock exchanges, the big Wall Street banks and high-frequency traders.
Steve Kroft: Who are the victims?
Michael Lewis: Everybody who has an investment in the stock market.
claims HFT allows brokerages to front run your trade:
same"Fast" is the operative word. Machines with secret programs are now trading stocks in tiny fractions of a second, way too fast to be seen or recorded on a stock ticker or computer screen. Faster than the market itself. High-frequency traders, big Wall Street firms and stock exchanges have spent billions to gain an advantage of a millisecond for themselves and their customers, just to get a peek at stock market prices and orders a flash before everyone else, along with the opportunity to act on it.
Michael Lewis: The insiders are able to move faster than you. They're able to see your order and play it against other orders in ways that you don't understand. They're able to front run your order.
Steve Kroft: What do you mean front run?
Michael Lewis: Means they're able to identify your desire to, to buy shares in Microsoft and buy 'em in front of you and sell 'em back to you at a higher price. It all happens in infinitesimally small periods of time. There's speed advantage that the faster traders have is milliseconds, some of it is fractions of milliseconds. But it''s enough for them to identify what you're gonna do and do it before you do it at your expense.
Steve Kroft: So it drives the price up.
Michael Lewis: So it drives the price up, and in turn you pay a higher price.
but it's too long, don't read it
The Wolf Hunters of Wall Street
http://mobile.nytimes.com/2014/04/06/magazine/flash-boys-michael-lewis.html?from=homepage
the financial sector is totally corrupt, is the best working assumption
sameBack in 2008, Katsuyama was 30 years old and running the Royal Bank of Canada's stock desk in New York with 25 traders working for him. Every time one of them tried to buy a large block of stock for a client their order would only be partially filled and the price of the stock would go up. It kept happening over and over again.
Brad Katsuyama: The best analogy I think is that your family wants to go to a concert. You go onto StubHub, there's four tickets all next to each other for 20 bucks each. You put in an order to buy four tickets, 20 bucks each and it says, "You've bought two tickets at 20 bucks each." And you go back and those same two seats that are sitting there have now gone up to $25.
Steve Kroft: What'd you think the problem was?
Brad Katsuyama: I had no idea. I couldn't get answers.
At first, Katsuyama thought the technology at RBC was slow, until he went to Stamford, Conn., and paid a visit to one of the largest hedge funds in the world.
Brad Katsuyama: The same thing that I was experiencing as a trader, one of the most sophisticated hedge funds in the world was also having the same problem. Then the light bulb goes off. You say, "Holy cow, this is, this is a huge problem."
Steve Kroft: You were determined to get to the bottom of it?
Brad Katsuyama: Yeah.
Steve Kroft: Why?
Brad Katsuyama: 'Cause it just didn't feel right. It didn't feel right that people who are investing on behalf of pension funds and retirement funds are getting bait and switched every single day in the market.
Katsuyama suspected that the problem had something to do with plumbing, the way the trades were routed through fiber optic cables from his trading desk in lower Manhattan to the 13 public exchanges in northern New Jersey. But no one would tell him exactly what happened to his orders once he hit the buy or sell button. So he put together a team of technical experts, traders and most importantly, an Irish telecom guy named Ronan Ryan, who was an expert on high-speed fiber optic networks.
Ronan Ryan: I knew nothing about trading until my first day at RBC when I sat in that three hour meeting on algorithms. I called my wife afterwards. And I'm like, "Holy crap, I have no idea what they just said."
Ryan had done work for the high-frequency traders. He knew what they were building and he knew about the colossal amounts of money they were prepared to spend. He told Brad about a company called Spread Networks that had laid a high-speed fiber optic cable from the futures market in Chicago to the exchanges in New Jersey. They spent $300 million just to shave three milliseconds off the fastest route and were leasing access to high-frequency traders at $10 million a pop.
http://qz.com/138388/how-the-navy-se...datory-robots/Although the many of the US’s 13 stock exchanges are nominally based in New York, they really live in New Jersey, where their servers occupy nondescript data centers.
Servers for BATS, the closest exchange by distance to New York City, live in a data center in Weehawken, right across the Hudson River from downtown Manhattan. DirectEdge—another electronic exchange—stores its servers 4.6 miles away in Secaucus. Nasdaq’s servers are in Carteret, and those of the New York Stock Exchange (NYSE) are, ironically, the farthest away, in Mahwah. An order placed at the same time in New York will arrive at each of these in sequence (see above).
When Ronan Ryan, now IEX’s chief strategy officer, joined RBC Capital in 2009, it took a signal from RBC’s Manhattan router about three milliseconds to travel to NYSE. He and his colleagues soon discovered the reason for Katsuyama’s frustrations.
If a client wanted to buy 10,000 shares of Netflix, Katsuyama might send an order out to all these exchanges to buy shares at $330.00. Some of these orders would be filled almost immediately at BATS. But servers belonging to HFT firms “co-located” (housed in the same data center) with each exchange, registering that Netflix was trading for this price, would send a blast of orders ahead to DirectEdge, Nasdaq, and NYSE, and beat Katsuyama’s trade to the punch; despite heavy investments in hardware, RBC’s infrastructure was still slower than that of the HFTs. These new orders would boost the price of Netflix shares to $330.01, and Katsuyama’s order would come back only partly fulfilled. He’d send the order back out to buy at $330.01, knowing that high-frequency firms were likely making a pretty penny by boosting the share price.
+
The team at RBC Capital soon developed a solution—a new trading technology dubbed THOR. To prevent high-frequency firms from jumping ahead of their trades, they staggered the timing of their orders to different exchanges. An order sent to NYSE, the farthest exchange, would go out without a lag, but the same order to a nearer exchange like BATS would be timed to go out microseconds later, so that they would arrive at all the exchanges simultaneously. The technology, launched in January 2011 (paywall), effectively neutralized the HFTs’ faster wiring.
THOR was an immediate success. “We took on 450 new clients in just those first 18 months,” recalls Ronan, who joined RBC Capital in 2009. “That’s unheard-of.” Katsuyama says he returned to fulfilling almost 100% of his orders. “We were explaining to [clients] why they had been getting screwed. It was really easy to sell [RBC's services],” he told Quartz.
sameIEX’s solution for keeping HFTs at bay is remarkably elegant. It doesn’t ban them. It merely slows them down a tiny bit.
Most exchanges allow broker-dealers and HFTs to house their servers right next to the exchange’s own servers that carry out the trades. The result is an almost instantaneous transmission of information about what trades are executing. That gives HFTs a momentary advantage that they combine with raw processing power to get an edge over other players.
IEX has space for broker-dealers and HFTs to store their servers too. But not next to the trading servers; farther away, in another building. This adds a crucial delay. It takes orders 350 microseconds to travel from one building to the other, 250 microseconds to execute, and another 350 microseconds to send back confirmation. All told, that’s 950 microseconds, or just under one millisecond. IEX thinks it’s enough to stop HFTs from peppering the exchange with orders that can help it predict investor behavior.
IEX also eliminated all but four of the hundreds of order types exchanges offer brokers.
“We’re trying to put the greatest number of people on equal footing,” says Katsuyama. “There’s a huge swath of participants that these [950] microseconds is meaningless to but it has huge meaning to a very small group [the HFTs],” he adds. The point is not to prevent HFTs from doing a lot of the things they normally do—such as trading on small differences between a gold exchange-traded fund and gold futures, for example. It’s just to stop the predatory strategies that make them money at the expense of real investors.
Katsuyama's IEX to become an exchange?
http://www.ins utionalinvestor.com...#/.Vt26QObW7DU
Nasdaq threatens to sue the SEC over the speedbump (350 microseconds) and the IEX application to become an exchange:
http://www.businessinsider.com/nasda...iex-sec-2016-5
Similar theme, the investigation started under Trump
https://www.ft.com/content/da23c81e-...f-ff9116dddd8eA slow-burning regulatory probe of big share sales on Wall Street has kicked up a notch as watchdogs examine whether banks and hedge fund traders are improperly profiting at the expense of ins utional sellers and retail traders.
The US Securities and Exchange Commission first started asking banks with large equity trading arms about “block trades” during the Trump administration, according to two people with direct knowledge of the probe.
Since then, Morgan Stanley, which is a leading provider of block trade services, has received multiple requests for information. The regulator has also contacted other market participants including hedge funds that trade equities.
The SEC probe is looking at whether other traders are getting advance word of these large sales — either directly from the banks or in some other way — and improperly profiting by shorting the shares in expectation that prices will fall.
No enforcement action is imminent, and it not clear that any will result, the people said…
Under chair Gary Gensler, the SEC is making a push to prevent large traders from unfairly benefiting from information that is not available to ordinary investors. While much of this comes in the form of new disclosure proposals, the SEC enforcement arm is also part of the drive.
https://www.wsj.com/articles/regulat...ms-11644875448
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