Posts tagged 'HFT'

Come with me if you want to trade

The fallout (or wholesome debate, depending on which side you’re on) from Michael Lewis’ new book “Flash Boyscontinues.

We’ve not read the book, so we shan’t be commenting about its relative merits or weaknesses specifically, but we shall propose that the relentless march of technology into finance is unlikely to be slowed or reversed any time soon. Read more

Full circle idealism, the HFT story

What with the Michael Lewis furore building up, here’s some Scott Patterson:

Because as Levine sponged up the technical details of the market’s plumbing, he had begun to cobble together a revolutionary vision: a vision of how the market could work — and should work — if run by computers.

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About all that trading after the bell…

High-speed traders may no longer be able to count on Warren Buffett’s Business Wire for direct feeds to market-moving information. But that doesn’t mean the problem of trades taking place with after-market press releases but before the US market is officially closed has been solved.

Take the case of Acacia Research Corp, which trades as ACTG. According to Nanex, the market data company, a batch of suspicious trades began to take place 127 milliseconds after 4pm on Thursday. Those trades are highlighted in yellow here. Click to enlarge. Read more

Frequent batch auctions and the last, slow, bleeding second of the day

Business Wire, part of the Berkshire Hathaway empire, has decided that it has been doing nothing wrong but will stop sending corporate press releases direct to the machines of high frequency trading houses.

Another win for cage rattling by Eric Schneiderman, New York attorney-general, but a line from the FT story jumps out: Read more

Reuters/UMich, and ‘the public interest’

A big tip of the hat to James Politi, the FT’s man in Washington, for tracking down the letter below…

Chuck Grassley, the high-ranking Senate Republican from Iowa, has a hunch that those exclusive two seconds of early Thomson Reuters/University of Michigan consumer sentiment data might not have been, well, in the public interest, given the involvement of a public university. Read more

HFT woes Down Under

Australian authorities have been considering how to deal with algorithmic and high-speed trading since 2010. Long story short; the local Australian Financial Review says that the federal Treasury has decided that fees on high frequency trades orders are the way to go.

This prompted protests from the chief of Chi-X Australia, Peter Fowler, that market makers should be treated differently: Read more

The geopolitics of computer trading

You can’t accuse Her Majesty’s Government’s Office of Science computer trading review of failing to think ahead…

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Happy Black Monday Friday to you!

Here’s a tip — if you’re naming a memorable event, try not to put the day of the week in it. It’s awkward when it comes to anniversaries. Let us nonetheless take a moment to pause and reflect, with Deutsche Bank’s Jim Reid:

25 years ago today the financial world went into paralysis as Black Monday struck stock markets around the globe. For context the DOW dropped 22.61% that day (the biggest % down day in history) or 508 points to 1738.74. I wish I’d have invested my paper-round money in the market at the close. Instead I was saving up for a new shiny Walkman

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Flash Gordon’s alive?!

Gordon Brown is set to ring the opening bell at the New York Stock Exchange on Tuesday.

Which makes it an almost perfect day to reveal that the Flash crash of May 6, 2010 may have had a European angle. Read more

The SEC and the milliseconds

SEC slams NYSE for sending market data to proprietary customer feeds before the one for the wider public (“the disparities ranged from single-digit milliseconds to, on occasion, multiple seconds”).

And it does a diagram. Read more

Spooks on the payrolls

The attack diagram is shown in Figure 2. The diagram shows the various high-level attack paths an adversary might use to achieve the nightmare consequences. The adversary is assumed to be an external attacker (non-insider) for all the attacks considered in this assessment (as per the red team constraints and ROE)…

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The NBBO flutter

Oh the weird and wonderful charts of Nanex.

Here’s the latest one from the market data analytics firm (click to enlarge): Read more

Europe to tackle HFTs

European regulators are to crack down on automated trading because they believe high frequency traders tend to pull out of markets at signs of stress, contributing to a sudden loss of liquidity. The FT reports the high frequency firms would be forced to post prices in key markets “on a regular and ongoing basis” even in times of extreme volatility, under draft proposals to be unveiled by the European Commission next week. There are large market-making firms that make markets and use algorithms to do so, such as Getco of the US and Optiver of the Netherlands. But they are unlikely to be affected by the proposals as they already post bids and offers throughout the day. The proposals are likely to provoke an outcry from some traders. They make no distinction between marketmakers, such as Getco, which routinely use algorithms to post prices continuously, and certain firms that use algorithms to carry out sophisticated trading strategies, or even asset managers that use algorithms to carry out trades over specific periods.

Confusion over SEC market access rule

Broker-dealers are attacking each other over interpretations of the SEC’s market access rule ahead of its coming into force in November, reports Reuters. Some have accused their rivals of not doing enough to prevent clients from gaining “naked” access to exchange trading, which might increase the risk of trading errors caused by bad algorithms or fat fingers. Dealers have rushed to acquire software to regulate pre-trade oversight ahead of the rule, in the teeth of customer complaints that the software slows down high-frequency trading positions. The market access rule among the SEC’s responses to the Flash Crash of May 2010.

FX bots make fairweather friends…

BIS is joining the HFT scrutiny party with a paper (PDF) on high frequency trading bots in foreign exchange markets.

It’s a comprehensive study of automated trading in forex, although we’ve already seen several incidents that could be attributed to high volume trades. Read more

Beware the market spam

In light of the news that Goldman Sachs’ Global Alpha — le quant fund extraordinaire –  has started “liquidating” its holdings, and that other algorithmically minded unwinds have probably been stalking the markets, we bring you the following chart from Nanex’s Eric Scott Hunsader:

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SEC probes the role of ETFs in market turmoil

The US Securities and Exchange Commission has added exchange-traded funds (ETFs) to its inquiry into what amplified August’s topsy-turvy swings in the stock market, the Wall Street Journal reports. As part of the investigations regulators will be talking to firms that trade ETFs, asking questions about whether they added to the market’s volatility, the WSJ’s sources say. Exchange-traded funds have surged in popularity and now generate as much as 40 per cent of exchange trading volume in the United States, according to data from Morningstar. They are particularly loved by high-frequency traders who utilise them for index arbitrage strategies. The SEC inquiry, which is likely to focus on the role of leveraged ETFs in particular, is also part of a broader look by regulators into exotic trading vehicles and high-frequency trading. According to the WSJ, the SEC voted last week to open up a public dialogue about the use of derivatives by mutual funds and ETFs, among other things.

US regulators order HFT codes to be handed over

The Financial Industry Regulatory Authority (Finra) has asked some high-frequency trading firms to supply details of their strategies and their trading algorithms, reports Reuters.  Tom Gira, executive vice president of FINRA’s market regulation unit told the news agency that there is something worrying him about the industry. ”It’s not a fishing expedition or educational exercise. It’s because there’s something that’s troubling us in the marketplace,” he said. The Securities and Exchange Commission, meanwhile, has also requested HFT data and algorithms according to agency officials and outside lawyers, says Reuters.

Algos & Demons

Spoof Wars continues.

The Financial Services Authority (FSA) has obtained an interim High Court injunction preventing a number of companies and individuals from manipulating the market in UK-listed shares. The injunction also freezes the assets of the companies. Read more

28 Day-Traders Later

Games of spoof can be very expensive. Just ask Mike Ashley, who reportedly lost £200,000 when playing against his advisors at Merrill Lynch. Or ask Peter Beck, the Canadian day-trading evangelist who has lost £8m to the FSA.

These are, of course, different types of spoof. While Mr Ashley used the drinking game to settle a legal bill, Mr Beck’s SwiftTrade equities trading network was — in the FSA’s judgement — spoofing the market: Read more

August volatility drives HFT profits

High-frequency traders made a record profit of $60m on August 8, during a 635-point Dow plunge and the NYSE’s fourth-busiest ever trading day, the WSJ reports. If this level of profit could be repeated across 2011, the figure would be $15bn, compared to $7.2bn made by HFT firms in 2009, according to Tabb data. While high volumes led to rick picking for profit, traders said that statistical arbitrage funds and HFT firms specialising in market-making had done especially well. A pair of funds run by Renaissance Technologies have racked up $200m of gains in August, leaving them up 5.9 per cent for the month so far.

HFT firms receive subpoenas over flash crash

US regulators investigating last year’s ‘flash crash’ and other market swings have sent subpoenas to firms that do high-frequency trading, the Wall Street Journal reports. In high-frequency trading, companies use computer algorithms to identify opportunities which can allow them to profit through rapid-fire trades often measured in milliseconds.  Some market participants believe these trading practices may have contributed to the May 6, 2010 flash crash, which saw the Dow Jones Industrial Average plunge 700 points in minutes. According to the WSJ, a report last year by the Securities and Exchange Commission and the Commodity Futures Trading Commission on the flash crash said, amid other factors, these traders’ moves helped fuel the day’s rapid selloff.  The WSJ says that at least some of the subpoenas have been sent since the start of the summer, though it isn’t known whether the subpoenas will result in any enforcement actions, since a subpoena doesn’t necessarily reflect a suspicion of wrongdoing. For more on how HFT traders are impacting the markets see FT Alphaville.

‘HFT is killing the emini’, says Nanex

Nanex’s Eric Scott Hunsader  — the guy who likes to dig through trading data to unearth weirdly fascinating algorithmic patterns — is out with quite a chart on Monday:

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Subpoenas issued to HFT firms

US regulators have subpoenaed several companies over their high frequency trading, the WSJ says, citing unnamed sources. Practices such as generating huge volumes of orders to buy or sell stocks, only to quickly cancel them, are being looked at by regulators. The investigation reportedly relates to the ”flash crash” of May 2010, which the SEC and CFTC said may have been exacerbated in part by high frequency trades. The companies and regulators involved were not identified.

Haldane on HFT’s market-making problem

Sharp thoughts on Friday from Andrew Haldane, executive director for financial stability at the Bank of England, on the changing topology of the market — including the rise of high-frequency trading.

Haldane — champion of the “we may have become too impatient” philosophy — wonders in a speech to the International Economic Association in Beijing, about a number of issues connected to the above. Read more

HFT trading adding risk, says Haldane

High-frequency trading is creating systemic risk and markets may need a “redesign”, a top official at the Bank of England said in prepared remarks. The FT reports that in a policy speech to be given in Beijing, Andrew Haldane, executive director for financial stability at the Bank of England, said the “race to zero” in the amount of time it takes to make a trade is increasing volatility and “tail risk” in global markets. It is the strongest statement of concern about market structure by a central bank official and echoes the sentiments of securities and futures regulators in the US and Europe. It is also unusual in that it ties the issue to broader efforts to reduce systemic risk and generate growth

 

CFTC reveals day traders’ role in oil markets

The Commodity Futures Trading Commission has for the first time revealed that almost 95 per cent of US crude oil futures volume is generated by day trading or betting on arcane price relationships, the FT reports, suggesting long-term bets on whether prices will rise or fall have little effect on energy price volatility. The US regulator released data showing that only 5.5 per cent of crude trading volume on the New York Mercantile Exchange involved net changes in large traders’ stance on price direction, with similar patterns in other commodities and in financial futures markets. The day traders making up the balance include high frequency traders. The new volume data from the CFTC’s trader reporting system followed a review of the “flash crash” of May 6 2010, when stock and other markets momentarily plummeted.

No leaks, just algo trading

Everybody loves it when a high frequency trading strategy is exposed. So, here’s a new one courtesy of the guys at Nanex — algo analysts extraordinaire.

It’s connected to stories like this.  Read more

Who’s been trading natgas futures on the curve?

The natgas mystery continues!

Let’s start first with the following flashes from the CME via Reuters on Friday: Read more

The future is all about cross-asset arbitrage

What happens when computer-driven trading reaches a high-speed saturation point?

That is, when high frequency trading reaches its natural limit — it simply cannot get any faster? Read more