High Frequency Trading, Wall Street, Rigged for Crisis

This Sociological Theory Explains Why Wall Street Is Rigged for Crisis - Bill Davidow - The Atlantic: " A good place to start would be to reduce the excessive trading volumes that lie at the root of accidents like the Flash Freeze, Flash Cash, and Goldman debacle. There is no valid reason for high frequency trading to make up more than 50 percent of all stock trades, and there is no pressing need for some $4 trillion in daily foreign currency transactions. A Tobin tax on transactions, first suggested by Noble laureate James Tobin in 1972, of as little as 0.1 percent, would significantly reduce these volumes. Smaller transaction volumes would reduce the size of accidents and possibly their frequency." (read more at link above)

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HFT, High Frequency Trading

In Which I Interview an HFT and Ask Him Some Tough Questions: " . . . We have ~13 “lit venues” (exchanges, ATS, ECNs) and something like 60 dark pools. Yet, it’s important to have a unified “best bid / offer” so that investors who are forced, because of choices their broker might make, to deal with just some subset of these 70+ venues aren’t being screwed by bad prices. There are lots of related issues, including what to do, if anything, about dark pools, and how to reduce the latency embedded in the NBBO (national best bid / offer). Also related is the issue of funky order types, against which Haim Bodek has become a very vocal opponent. His concerns aren’t unjustified. But most of these problems would be obviated with a minimally-latent NBBO and/or an end on the ban on locked markets. These issues can get pretty technical, but they do have some far-reaching implications. . . ."

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High frequency trading and dark pools are the new normal

High frequency and dark pools are the ‘new normal’ says ASIC’s Medcraft | news | Trading & Execution | Regulation | thetradenews.com: " . . . ASIC carried out an analysis of equity market trading within ASX and Chi-X from January to September 2012, to try and determine the activity and implications of high frequency trading. They also spoke to both industry participants and regulators abroad to try and spot gaps in existing regulations. "On the whole, we found that some of the public perceptions about high-frequency trading in Australia appear to have been overstated, with no evidence of systematic manipulation by high-frequency traders," said Medcraft. . . .With regard to dark pools, ASIC has suggested a new set of rules about order execution, with the aim of giving investors a measure of choice. "These rules will provide sufficient investor protection from the impact of conflicts of interest and poor transparency that may result from excessive dark trading," said Medcraft. "Excessive dark trading can impact the price investors pay for securities. We have proposed a trigger for a minimum dark order size that will provide an additional safety net for investors." In combination with the new price improvement rule, he thinks this will tackle the risks of excessive dark trading and ultimately provide greater capacity for Australian investors to use dark pools."


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High Frequency Trading video

Computers endlessly engage in high frequency trading--even generating hundreds of thousands of fake orders to fool other computers so that high frequency traders can take advantage of the confusion. (source :Big Think)

1/2 second of trading activity in Johnson & Johnson (symbol JNJ) on May 2, 2013
This video was featured at Wired Business Conference (watch it below)

Notes from Nanex:
The animation tool that created this video was written in "C" using Windows GDI - simple lines, polygons and ellipses. We wrote it to explain to the SEC and CFTC (the regulators) how our markets work. We got the idea after realizing, in face to face meetings with them, they didn't understand market structure or the importance of latency and the consolidated feed. That was several years ago. We still aren't sure if they get it, or are just playing dumb. The bottom box (SIP) shows the National Best Bid and Offer. Watch how much it changes in the blink of an eye.

Watch High Frequency Traders (HFT) at the millisecond level jam thousands of quotes in the stock of Johnson and Johnson (JNJ) through our financial networks on May 2, 2013. Video shows 1/2 second of time. If any of the connections are not running perfectly, High Frequency Traders can profit from the price discrepancies that result. There is no economic justification for this abusive behavior.

Each box represents one exchange. The SIP (CQS in this case) is the box at 6 o'clock. It shows the National Best Bid/Offer. Watch how much it changes in a fraction of a second. The shapes represent quote changes which are the result of a change to the top of the book at each exchange. The time at the bottom of the screen is Eastern Time HH:MM:SS:mmm (mmm = millisecond). We slow time down so you can see what goes on at the millisecond level. A millisecond (ms) is 1/1000th of a second.

Note how every exchange must process every quote from the others -- for proper trade through price protection. This complex web of technology must run flawlessly every millisecond of the trading day, or arbitrage (HFT profit) opportunities will appear. It is easy for HFTs to cause delays in one or more of the connections between each exchange.

http://www.nanex.net/Research/IsNBBOI...


Nanex CEO Eric Hunsader: Flash Trading Detective Work from WIRED on FORA.tv


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