Posts tagged 'HFT'

The dealer-trader distinction and Treasury market regulation

If it walks like a dealer and talks like a dealer… apparently, it’s not always a dealer.

Sometimes it’s an unregulated trader.

Bear with us here.

First, some background.

On Monday, there was a Treasury market-structure conference at the New York Fed, where regulators said in no uncertain terms that the no-oversight party is over. They’ve put rules in place requiring transaction reporting for banks, as well as broker-dealers registered with the Financial Industry Regulatory Authority. But there’s more work to be done, which we’ll get to shortly. Read more

Sorry, but the FX market can simply be gappy too

Remember the flash crash?

Screen Shot 2016-10-09 at 10.35.18

Well, it (as opposed to the overall Brexit-inspired fall in GBP) was very probably also a market structure thing. Read more

Guest post: Small-cap trading revamp is no more than a costly distraction

The US equity market is about to start a two-year programme testing changes for small-cap equity trading. This guest post from Richard Johnson, a market-structure and technology strategist with Greenwich Associates, argues that the costs of the programme may outweigh the benefits.

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Imagine there’s no HFT…

“So – what is the value of a liquidity provider?”

A question asked by Credit Suisse’s Ana Avramovic and another judgement call on high frequency trading’s most often cited benefit — namely, do HFT’s actually provide a benefit in the form of liquidity/market making? Or is all the volume they create just noise, signifying nothing of real use.

From Avramovic, relying on a counterfactual argument and with our emphasis: Read more

Artificial Intelligence on trial

A couple of weeks ago I received this in the post:

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Imagineering markets in our quantum computing future

A company called Cambridge Quantum Computing, which is developing qubit algos for commercial applications, has just received £50m worth of investment from private equity firm Grupo Arcano, a.k.a this man:

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The belated Michael Lewis effect?

The five and a half months since this book was published have not been an easy one for the high frequency trading community, certainly in the US…

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HFTs dark materials

Fans of schadenfreude may enjoy the following press release from Barclays, dated February 26, 2013, to publicise that …

Barclays LX now #2 US dark pool

LX is what Eric Schneiderman, the US state attorney-general, describes as a “dark pool full of predators – there at Barclays’ invitation”. His lawsuit alleges that Barclays was putting high-frequency traders in front of institutional investors, while sending bumf to the institutions that claimed the HFTs were being weeded out. Read more

Blockchains vs stock exchanges

Since we just spent a good while arguing against the idea of blockchain society, we thought we’d quickly follow up with a post explaining why that doesn’t necessarily mean we’re against blockchain innovation itself.

It’s very likely that the blockchain might one day be usefully incorporated into existing services to make them better and fairer. We’re just not convinced this will necessarily democratise the world the way Matthew Sparkes at the Telegraph envisions or make it cheaper to process information. If anything, it’s likely to de-risk markets (the sort that feature real goods and services) through improved information gathering, sharing and transparency — something which limits the need for currencies, not increases it. Read more

I see blockchains

The Telegraph’s Matthew Sparkes, just like Neo in the Matrix, has fallen down the blockchain rabbit hole. Everywhere he looks he sees blockchains.

Blockchains for automated self-driving car-fleet management. Blockchains for money. Blockchains for stock. Blockchains for votes. It’s cybernetic blockchain utopia!

Or as he puts it: Read more

HFT, bitcoin and the path towards mouse designed meta-experimentation

We’ve been wondering about the consequences of paradoxical markets here at FT Alphaville, especially as financial information systems run into the laws of physics. (How does an HFT trader, for example, gain an advantage when he’s already approaching the speed of light, which presumably counts as the universal circuit breaker?)

Might markets inadvertently replace the Large Hadron Collider as the world’s largest physics experiment? You know, like in Hitchhiker’s Guide to the Galaxy where the greatest computer of all time was in fact a computational matrix designed to calculate the ultimate question to life, the universe, and everything but which happened to incorporate unwitting living beings in the experiment. It was also programmed by mice and better known as the EarthRead more

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.

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