Posts tagged 'market structure'

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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Revising the taxonomy of trading venues

People love to use the word “evolution” when discussing market structure, because it’s a living system.

So we’ll extend the metaphor of the living system, and point out a change in the membership of the groups laid out in our cheesy exceptionally well-rendered taxonomy of Treasury-trading platforms (click to enlarge):

We apologize for this, dear readers, we just couldn't resist.

LiquidityEdge, a venue that started last year, is planning a new centralised platform where investors, banks and high-speed trading firms can trade anonymously, according to a letter from the platform to its clients. It’ll also allow traders to select which types of counterparties he or she wants, or doesn’t want. The platform is expected to start operating in September, according to people familiar. Read more

Are traders allowed to front-run customer orders in the Treasury market?

The Securities and Exchange Commission wants to know.

In a letter to the Financial Industry Regulatory Authority, the SEC’s markets division draws attention to a handful of trading rules that either don’t apply to Treasuries, or aren’t clear about whether they do. The group requested that Finra review its rulebook, and then either justify or remove any exemptions for US government debt.

See, if you’re a logical person who doesn’t know much about Treasuries, you’d assume the exemptions and unclear rules would be about minor stuff. But what’s truly bewildering is how serious the rules on that list are.  Read more

A would-be disruptor hits a Treasury-market-shaped wall

To those who don’t follow Treasury markets, Direct Match might sound like a ruthlessly efficient dating website. Go on one date with a partner meticulously chosen by high-powered algorithms, and end up married within a week.

In reality, Direct Match was a trading platform attempting to upend the way investors buy and sell U.S. government securities.

It also appears to be closing down, according to a Business Insider post from Jim Greco, the company’s founder. Read more

The establishment is still winning (in the bond market)

It’s been a tough year for The Establishment, what with all the disrupting and the Brexiting and the Trumping.

But in the bond market, the incumbents are hanging on. Read more

The Porsche 911 R pump and flip

Markets run into inefficiencies for technical reasons all the time. But every now and then inefficiencies are purposefully engineered into markets, for profit.

Financial market regulators are charged with policing shenanigans to keep markets fair and transparent. When caught, market manipulators are fined to discourage others from trying.

But the remit of financial regulators only extends so far. They can’t, for example, influence the world of tangible goods, products and collectibles nearly as easily.

This matters because negative interest rates are making investments in everything from super-cars to art and collectibles increasingly appealing. As speculators pile in, those markets are getting financialised, which increases the potential profit gained from obstructing the ordinary flow of operation. Read more

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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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

Paradoxical markets: HFT edition

One doesn’t need Michael Lewis to point out that the world of order flow (and asset transfer) is murky. Purposefully so.

Getting data on the sector, somewhat unsurprisingly, is not that easy. One of the few companies that does assess the market and shares those findings with journalists is Rosenblatt Securities (albeit, with conditionality). But even this, to some extent, is only an estimate because not all market participants share their data with Rosenblatt. In Europe, meanwhile, there is also the problem of double counting amidst the consolidated OTC figures, which means the figures against which dark pool activity is compared against can be unfairly drowned out. Read more

Everything is rigged, art edition

John Gapper has an excellent column on Thursday about art auctions, focusing on the degree to which they are fixed or obfuscated by insiders and long-standing established practices.

As he notes, the auction market is a duopoly geared towards protecting and serving vested interests through a system of guaranteed bids and sales incentives, which to some degree obscure public price discovery.

Herein lies the similarity with modern market structure more generally. By providing the means to disguise the hands of “informed” players, the duopoly of Sotheby’s and Christie’s behaves like a dark pool system within a wider market which has no public alternative to cross check prices against. Read 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


The full Citigroup blast against Nasdaq’s handling of the Facebook IPO is well worth a read. (Big hat-tip to NYT Dealbook, click to enlarge)

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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

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

The Sensex is bipolar

Joe Saluzzi of Themis Trading has spotted a sharp almost flash-crash like move in India’s Sensex index on Monday:

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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

SEC probes electronic platform failures

The Securities and Exchange Commission is investigating computer system failures at electronic marketplaces including Nasdaq to determine whether internal controls are sufficient, according to people familiar with the matter, the FT reports. The investigation is being handled by the enforcement division’s market abuse unit and is part of a broader regulatory review of stock exchanges following last year’s “flash crash”, recent hacking attempts and trading glitches. Mary Schapiro, SEC chairman, signalled in March that exchanges could face new rules governing their technology policies, which would formalise guidance issued following the 1987 stock market crash. The guidance, known as Automation Review Policies, advises exchanges to “acquire appropriate technology and assure its functionality”.

Battle lines drawn over fresh TMX bidder

Battle lines are being drawn in Canada between supporters and opponents of a C$3.6bn ($3.7bn) bid by nine domestic banks and pension funds for TMX Group, operator of the Toronto and Montreal stock exchanges, the FT reports. The bid consortium, Maple Group Acquisition, announced on Sunday that it would offer cash and shares valued at C$48 per TMX share, about 20 per cent above the value of an all-share deal between TMX and the London Stock Exchange agreed in February. Reaction to the Maple bid has been divided. Supporters see it as a vehicle for the creation of a Canadian “national champion” and an affirmation of the strength and stability of Canada’s financial system. Critics contend that a takeover of TMX will severely restrict competition in securities trading and exacerbate conflicts of interest.

Do banks see ETFs as inexpensive funding for illiquid securities? – Part I

Recent trends in Exchange Traded Funds (ETFs) could create “potential financial stability issues” says the Financial Stability Board.

We say: about time someone stated the obvious. Read more

S&P 500 curiosity, du jour

Given Monday’s mini flash crash in the SPY S&P 500 ETF — one of the most traded securities in the United States –we thought the following datapoint might be worth flagging up.

Via LPL Financial: Read more

Norwegians convicted for outwitting algo

Two Norwegian day traders have been handed suspended prison sentences for market manipulation after outwitting the automated trading system of a big US broker, the FT reports. The two men worked out how the computerised system would react to certain trading patterns – allowing them to influence the price of low-volume stocks. The case, involving Timber Hill, a unit of US-based Interactive Brokers, comes amid ­growing scrutiny of automated trading systems after the so-called “flash crash” in May, when a single algorithm triggered a plunge in US stocks. Svend Egil Larsen and Peder Veiby had won admiration from many Norwegians ahead of the court case for their apparent victory for man over machine. But prosecutors said Mr Larsen and Mr Veiby “gave false and misleading signals about supply, demand and prices” by manipulating several Norwegian stocks through Timber Hill’s online trading platform.

The non-role of internalisers during the flash crash

Themis Trading’s Sal Arnuk picks up on a really important point from the SEC-CFTC’s joint flash crash report published last Friday.

That being: the clear and demonstrable non-role played by broker-dealer/large market maker internalisation desks on May 6. Read more

Paint by algos

Zero Hedge draws attention to a remarkable little study by a group called Nanex.

The datafeed company’s research shows that high frequency players approach trading in an almost ‘paint by numbers‘ way. That is to say, when broken apart and analysed, their algorithmic order sequencing displays patterns which verge on cyber art. Read more