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 High Frequency Trading & Flash orders-Must Read
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A little vidoe explaining what REALLY goes on with HFT
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BATS Invites Nasdaq, DirectEdge And CBSX To Withdraw Flash Orders
BATS Invites Nasdaq, DirectEdge And CBSX To Withdraw Flash Orders
Submitted by Tyler Durden on 07/30/2009 10:25 -0500
BATS CBSX CEO Charles Schumer Direct Edge Flash Flash Orders Nasdaq New York Stock Exchange NYSE REAL Sigma X
A very informative letter by Joe Ratterman, Chairman and CEO of BATS, in which he advocates a rational examination of the usefullness of Flash orders.
"To be absolutely clear – BATS would support a ban on flashed orders based on the rational concerns listed in our July 7th newsletter. If a ban would relieve pressure and give our industry the pause necessary to review and reconsider flashed order functionality, then let’s collectively go that route. Nasdaq, DirectEdge, CBSX … are you open to a coordinated approach to withdrawing flashed orders? We are."
The bluff by the Nasdaq (and the NYSE) has been called. The real question then becomes what remaining advance look conduits remain to some of the biggest market participants. Zero Hedge would suggest that dark pools methods of operations should be immediately examined in the follow through of any imposed or adopted ban on flashed orders.
Senator Schumer, we are, as we noted yesterday, at your disposal to discuss Dark Pools.
BATS Invites Nasdaq, DirectEdge And CBSX To Withdraw Flash Orders | zero hedge
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Americans are angry at Wall Street, and rightly so.
Rewarding Bad Actors
BuzzPermalinkBy PAUL KRUGMAN
Published: August 2, 2009
Americans are angry at Wall Street, and rightly so. First the financial industry plunged us into economic crisis, then it was bailed out at taxpayer expense. And now, with the economy still deeply depressed, the industry is paying itself gigantic bonuses. If you aren’t outraged, you haven’t been paying attention.
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Fred R. Conrad/The New York Times
Paul Krugman
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But crashing the economy and fleecing the taxpayer aren’t Wall Street’s only sins. Even before the crisis and the bailouts, many financial-industry high-fliers made fortunes through activities that were worthless if not destructive from a social point of view.
And they’re still at it. Consider two recent news stories.
One involves the rise of high-speed trading: some institutions, including Goldman Sachs, have been using superfast computers to get the jump on other investors, buying or selling stocks a tiny fraction of a second before anyone else can react. Profits from high-frequency trading are one reason Goldman is earning record profits and likely to pay record bonuses.
On a seemingly different front, Sunday’s Times reported on the case of Andrew J. Hall, who leads an arm of Citigroup that speculates on oil and other commodities. His operation has made a lot of money recently, and according to his contract Mr. Hall is owed $100 million.
What do these stories have in common?
The politically salient answer, for now at least, is that in both cases we’re looking at huge payouts by firms that were major recipients of federal aid. Citi has received around $45 billion from taxpayers; Goldman has repaid the $10 billion it received in direct aid, but it has benefited enormously both from federal guarantees and from bailouts of other financial institutions. What are taxpayers supposed to think when these welfare cases cut nine-figure paychecks?
But suppose we grant that both Goldman and Mr. Hall are very good at what they do, and might have earned huge profits even without all that aid. Even so, what they do is bad for America.
Just to be clear: financial speculation can serve a useful purpose. It’s good, for example, that futures markets provide an incentive to stockpile heating oil before the weather gets cold and stockpile gasoline ahead of the summer driving season.
But speculation based on information not available to the public at large is a very different matter. As the U.C.L.A. economist Jack Hirshleifer showed back in 1971, such speculation often combines “private profitability” with “social uselessness.”
It’s hard to imagine a better illustration than high-frequency trading. The stock market is supposed to allocate capital to its most productive uses, for example by helping companies with good ideas raise money. But it’s hard to see how traders who place their orders one-thirtieth of a second faster than anyone else do anything to improve that social function.
What about Mr. Hall? The Times report suggests that he makes money mainly by outsmarting other investors, rather than by directing resources to where they’re needed. Again, it’s hard to see the social value of what he does.
And there’s a good case that such activities are actually harmful. For example, high-frequency trading probably degrades the stock market’s function, because it’s a kind of tax on investors who lack access to those superfast computers — which means that the money Goldman spends on those computers has a negative effect on national wealth. As the great Stanford economist Kenneth Arrow put it in 1973, speculation based on private information imposes a “double social loss”: it uses up resources and undermines markets.
Now, you might be tempted to dismiss destructive speculation as a minor issue — and 30 years ago you would have been right. Since then, however, high finance — securities and commodity trading, as opposed to run-of-the-mill banking — has become a vastly more important part of our economy, increasing its share of G.D.P. by a factor of six. And soaring incomes in the financial industry have played a large role in sharply rising income inequality.
What should be done? Last week the House passed a bill setting rules for pay packages at a wide range of financial institutions. That would be a step in the right direction. But it really should be accompanied by much broader regulation of financial practices — and, I would argue, by higher tax rates on supersized incomes.
Unfortunately, the House measure is opposed by the Obama administration, which still seems to operate on the principle that what’s good for Wall Street is good for America.
Neither the administration, nor our political system in general, is ready to face up to the fact that we’ve become a society in which the big bucks go to bad actors, a society that lavishly rewards those who make us poorer.
http://www.nytimes.com/2009/08/03/op...trading&st=cse
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Weekend Reading: End Of Flash Orders
Before the SEC could make their move, BATS and Nasdaq decided to ‘voluntarily’ stop flash orders. As alluded to before, this is a good development because it returns us to a state where all participants on the exchange have equal access to information, without any heavy handed regulatory action.
http://www.tradersnarrative.com/week...ders-2835.html
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Listen to the blonds accent, LMAO sounds European to me, ISEG comes to mind,,,,,,,,,,,,,,,,,
Listen to the blonds accent, LMAO sounds European to me, ISEG comes to mind,,,,,,,,,,,,,,,,,
http://www.tradersnarrative.com/deba...ders-2801.html LMAO sounds European to me, ISEG comes to mind,,,,,,,,,,,,,,,,,
EDITTTTTTTTT Man I couldn't listen to this deadhead blond anymore!!! CHEZZZZZZZZ the corrupt really think they do no worng, Kinda reminds me of this airline pilot who TRIED suing me for 12 years HAAAAAAAAAAA He thought I wronged him,He lost his worthless A$$ bigtime, These HFT really think they are providing a service, YIKESSSSSSSSS
Last edited by captnemoo; 08-22-2009 at 07:12 PM.
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O,,,,,,,,,,,M,,,,,,,,,,,,,,,G SEC doesnt have a clue on this,
AUGUST 20, 2009 SEC Plays Keep-Up in High-Tech Race
Article Comments (2) more in Markets Main »
BY TOM MCGINTY AND KARA SCANNELL
The Securities and Exchange Commission says it is taking a close look at flash quotes, high-frequency trading and other dark corners of the stock markets.
But by many accounts, the agency is outmatched by the traders and market venues with technology that is remaking the trading world.
The agency lacks its own traders with knowledge about cutting-edge strategies and how the markets operate. It long ago ceded the daily surveillance of trading to self-regulatory organizations, like NYSE Regulation and the Financial Industry Regulatory Authority. And it takes a lawyerly approach to regulation and rule making that rarely employs deep analyses ...
Pay article..................
SEC Plays Keep-Up in High-Tech Race - WSJ.com
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High Frequency Trading Roundtable
High Frequency Trading Roundtable
Submitted by Tyler Durden on 08/22/2009 15:21 -0500
Algorithmic Trading CBSX CEO Commodities Equities Flash Hedge Funds HFT High Frequency Trading Lime Brokerage Program Trading Risk Management Trade Trading Strategies US
Yet another good introduction for the novices in the field. Keep in mind the various participants have extensive interests so read between the lines.
The presentation, courtesy of Streambase, can be found here. In the link below, I couldn't take anymore of these errrrrrrrrrrr agenda traders.....
Panel participants include:
Bernard Donefer - Associate Director, Baruch College, CUNY
Professor Bernard Donefer is Associate Director at the Subotnick Financial Services Center of Baruch College, CUNY. Professor Donefer is a distinguished lecturer and previous SVP and Head of Capital Markets Systems at Fidelity Investments.
David Harris - CEO, CBOE Stock Exchange (CBSX)
David Harris is CEO of the CBOE Stock Exchange (CBSX). Before CBSX, Mr. Harris served as The American Stock Exchange's SVP of Business Planning and Strategy.
Eric Pritchett - CEO, PhaseCapital
Eric Pritchett is a founding partner of PhaseCapital LP, where he serves as CEO and co-Portfolio Manager. PhaseCapital is a Boston-based systematic high frequency investment firm. Mr. Pritchett is responsible for development of overall high frequency investment process including portfolio strategies, risk management, and trade execution.
Deborah Mittelman - Director of Product for US Equities, Lime Brokerage
Deborah Mittelman is Director of Product for US Equities at Lime Brokerage, a technologically advanced brokerage firm that caters to a sophisticated customer base including professional traders, hedge funds, asset managers and other broker-dealers. She oversees the US Equities product offerings that specialize in automated and high-volume electronic trading strategies.
Paul Zubulake - Senior Analyst, Aite Group
Paul Zubulake is a senior analyst at Aite Group, specializing in financial, energy and commodities futures and options markets. His expertise includes how the application of algorithmic trading is playing an ever-increasing role in futures and options trading.
High Frequency Trading Roundtable | zero hedge
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The Great American Bank Robbery
Watch+Listen - Hammer Museum
Very good listen!!!!!!!!!!!!
Last edited by captnemoo; 08-22-2009 at 11:54 PM.
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Next Flash Point: Sweeping Change in Options Markets
I can see where this is all going. And with the new 3X short etfs coming in and mega fast flash orders, IF they want to take the markets down, It could happen in hours!!!!!!!! Sad where this market is heading, IMHO as always!!!!
Next Flash Point: Sweeping Change in Options Markets
Printer Friendly Email Reprints Reader Comments August 17, 2009
John Hintze
Flash orders have become a hot-button issue in the trading of stocks. And now that options exchanges are moving to become more like equity exchanges, concern is rising that not just flash orders, but the introduction of intermarket sweep orders, could be abused when the structure of the options market changes beginning August 31.
Then all seven U.S. options exchanges will handle sending orders to one another to ensure investors' executions are at the national best bid or offer (NBBO), instead of sending them through a central hub.
Inter-market linkage introduces elements of Regulation NMS, a Securities and Exchange Commission rule that governs trades in the equity market. Embedded in the new linkage will be inter-market sweep orders (ISOs)--already common in the equity market--that will serve as the mechanism to link the exchanges.
The exchanges are in the process of tapping broker-dealers to route ISO-based orders to other exchanges. Since those routing firms also tend to have market making and proprietary trading businesses, concerns have emerged that they could use the information gleaned from routing to benefit those trading efforts.
"There's the potential for mischief there, so one of our major concerns is how will this activity be surveyed and measured. What are the rules going to be?" says Joseph Corona, director of strategic planning at LiquidPoint, which helps execute options.
The Securities Industry and Financial Markets Association has asked the exchanges about their approaches to handling similar issues (see box), according to Peter Bottini, a vice president at optionsXpress and vice chairman of Sifma's options committee.
"The exchanges are each doing their own implementations and introducing different order types, but there are not concrete rules in the options markets to deal with some of the anticipated issues that come with the new intermarket linkage," Bottini says.
The inter-market linkage plan replaces the existing centralized linkage hub operated by the Options Clearing Corp. with one in which linkage is coordinated by the exchanges.
The International Securities Exchange (ISE) has tapped its existing primary market makers to send out ISOs to sweep the market, while most exchanges will send the orders themselves. Those exchanges are using third-party broker-dealers to route orders, and those broker-dealers also tend to trade for their own accounts.
As a result, there is concern the information they glean from routing could be used to their other businesses' advantage. "Nobody is pointing the finger, but there's no language in place about how to monitor this activity," says Corona.
The Securities and Exchange Commission is currently facing pressure in Washington to prohibit equity-market flash orders, Bottini notes. Those orders occur when an exchange flashes them to a limited group of market participants for brief periods before routing them to the national best bid or offer (NBBO) at another exchange. This raises concerns about whether more sophisticated investors can take advantage of the broader market.
"The SEC is under political pressure to deal with flash-order issues, and we fear this kind of witch hunt could spill over into the options marketplace," Bottini says.
The Chicago Board Options Exchange (CBOE) initiated flash orders, known as step ups in the options business, several years ago, and the International Securities Exchange (ISE) and Boston Options Exchange (BOX) also offer the functionality. SEC Chairman Mary Schapiro recently said the agency's review of equity flash orders will be expanded to options.
New York Senator Charles E. Schumer also threatened legislation to ban equity flash orders.. Nasdaq and BATS Exchange have voluntarily agreed to suspend equity flash-order programs. Direct Edge, which originated the strategy, continues to offer flash orders on its electronic communications network, but not on its exchange application.
The three market centers technically offered the service to all customers, but practically it is available only to those who receive their direct feeds and employ the necessary trading technology, giving those participants' high-speed electronic trading systems an edge over the rest of the market.
That edge, or perception of one, is what concerns market participants about the role of order routers on options exchanges when intermarket sweep orders arrive.
Edward Boyle, who heads options at NYSE Arca, says his exchange already has a regulatory group watching for problematic trading, and that existing rules successfully address issues such as broker-dealers' in-house systems for separating proprietary trading activities from trading done on behalf of customers.
NYSE Arca, however, also trades equities and has experience with Reg NMS, and so has systems in place to deal with similar options issues. Boyle says NYSE Arca currently uses Merrill Lynch, Citigroup, Penson Worldwide and Newedge to route trades.
The ISE, according to a spokeswoman, is making changes to address the differences between the current linkage rules and the new ones, and the "changes will be in effect when the new linkage rules are implemented."
The Boston Options Exchange's legal counsel, Wayne Pastone, says the exchange will accept ISOs starting Aug. 31 but won't begin sending them until the end of September. Before then, says Pastone, it plans to initiate order-routing rules that "will look similar to what's already out there."
The CBOE "does have surveillance systems in place to detect activities that would suggest any improprieties relating to our linkage order flow, including front-running," says Tim Thompson, chief regulatory officer, adding, "The linkage providers will not use the CBOE ISO routing data for any purpose other than for linkage."
Corona says the exchanges should log transactions, preferably in the shortest time increments possible, to illustrate that routers are not improperly using information. He adds that the exchanges have only vaguely described those increments.
Representatives at BOX and ISE, however, say that's intentional. "Some firms want to make sure we're looking at the data in fine-enough increments, and others want to know how fine the increments are so they (can) game it," Pastone says.
Intermarket linkage also permits market participants to execute orders away from the national best bid and offer, "provided the participant simultaneously sweeps all protected quotations using an ISO," according to the March joint industry plan. Unlike the equity market, which allows anonymous trades away from exchanges as long as they are printed to the consolidated tape, options must be executed over exchanges. So if a buy order is submitted to the CBOE at 54 when the best offer is currently 50, a small portion could be executed at the NBBO at another exchange and the remainder at the CBOE at 54, even though offers of 53 and 52 are clearly displayed elsewhere.
Bottini says that's likely to increase trade-throughs, when customers see options traded at lower prices than their bids and the opposite for sell orders. "How do I protect my customer to minimize trade-throughs?" says Bottini, whose firm caters to retail investors. "You're faced with a best execution dilemma."
That scenario could be particularly problematic at the exchanges with crossing mechanism--BOX, CBOE and the ISE. Corona notes they have proposed connecting their "electronic auctions" to ISOs, allowing broker dealers to execute large trades at prices well outside the NBBO. "Other participants could only participate in the portion executed at the NBBO," Corona says.
Market participants generally agree that Reg NMS has benefited retail equity investors by narrowing spreads and ensuring them best price, and those benefits should shift to options as well. Kevin Fischer, head of options block trading at Greenwich, Conn.-based Interactive Brokers, says the new market structure should encourage broker-dealers to send orders directly to the NBBO.
Today, he adds, some broker-dealers catering especially to less sophisticated retail investors send orders to one of the exchanges that charge market makers and use that revenue to pay brokers for order flow, even if that exchange is not displaying the NBBO. They also avoid paying the fee other exchanges charge to take liquidity rather than post it, even when orders must be routed to them at the NBBO, since the first exchange's specialist routing the order ends up paying the fee.
Those broker-dealers would prefer the status quo, Fischer says, but "they disenfranchise customers because they're not sending orders directly to the market with the best price, and if the order is not rerouted on a timely enough basis the customer can miss a fill."
Today, issues suggesting favoritism may become unwanted thorns. Trade-throughs, for example, are easy to spot when all executions occur over exchanges. Boyle agrees trade-throughs are likely to increase with the introduction of ISOs, so "the interesting part" will be when the customers question why they did not get the NBBO. "Will the exchange take all the risk and satisfy the customer with the price he or she is entitled to?"
He adds that exchanges don't have a fiduciary responsibility to investors, so it becomes a more of a customer service issue. "There's no legal requirement to say what should happen. It's something the industry is going to have to resolve," he says.
An SEC spokesman said the agency will scrutinize the exchanges' policies and procedures addressing these issues, to make sure they're adequate and enforced.
Clearer guidelines may better calm concerns, however. Bottini notes the exchanges recently introducing complex option-order types that mix displayed and un-displayed liquidity, aimed at sophisticated trading firms.
"I'd like to see the SEC set clear guidelines on what order types are permissible in options," Bottini says.
Sweeping In Front Of Customers
When intermarket sweep orders arrive on options exchanges at the end of this month, routing broker-dealers could glean privileged information to benefit their trading affiliates. Here's a theoretical example:
One broker-dealer could place an order at the Boston Options Exchange to buy 5,000 contracts at 25. The BOX sends out an order to sweep the market and finds the International Securities Exchange in New York has the best offer at 22, but only for 300 contracts. So the BOX routes that portion of the order through one of its own routing broker-dealers to execute at the ISE. The router doesn't know the full order, but its algorithms could glean that a larger order at a higher bid is behind the portion it routed. That broker-dealer potentially could use that information to then benefit its own market-making or proprietary trading operations, even though it would be illegal under current regulatory rules.
This, in effect, could allow that routing broker-dealer to step in front of the rest of the market to get the better price, a maneuver sometimes called "front-running."
Next Flash Point: Sweeping Change in Options Markets
Last edited by captnemoo; 08-30-2009 at 07:35 PM.
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