Anybody catch the Michael Lewis segment on 60 Minutes?

[Benny Profane]

http://www.cbsnews.com/news/is-the-u...market-rigged/


Interesting stuff. Lewis fails to bore me, and backs his shit up well with these kinds of man on the street stories.

Here's an "adaptation" from the book.

http://www.nytimes.com/2014/04/06/ma...-lewis.html?hp

[Tippster]

That story (front running) was something my company has been working on for a long time. I've covered numerous hearings at the SEC and FDIC on the subject and Flash Trading in general. I hope that guy's exchange goes huge, and it seems it might.

The whole show was fascinating. The blind Jazz pianist was strong, and the Tesla/SpaceX segment really surprised me, especially how emotional Elon Musk got.

[up an down]

old news but lewis and 60 minutes have a high profile so there might be some regulators that will respond with a few platitudes instead of ignoring it.
read scott pattersons books.." the quants" and "dark pools"

[Benny Profane]

Yeah, that piano player was something. Never heard of him.


But I wish some reporter would ask Mr. Musk how things would be in his life without taxpayer support.

[H0G]

I remember reading a few years ago that hedge funds were buying up buildings closer to th exchanges to beat people by the millisecond. Those funds should be closed and the people at the top thrown in jail.

That is why I moved away from the market and more into real estate.

I thought Elon musk was a quadrillionaire. Didn't know he banked everything on tesla and space x and almost lost it all. Respect.

[4matic]

For a person trading 100 or 1000 shares HFT has made spreads tighter and provided more liquidity. HFT is a problem for large block traders which ultimately is our pensions and funds. More importantly, I believe, is the HFT ability to keep the current uptrend in tact. If you look at a weekly chart of SP500 the symmetry of the advance is not a coincidence.

[Skistack]

Interesting that Musk was basically broke before Telsa and SpaceX took off. I had always thought he had billions from selling PayPal, but he walked out of that deal with "only" $180 million.

[4matic]

In retrospect they gave Paypal away. It probably wasn't challenging enough for a guy like Musk. Doing compliance and Banking regulation has to be pretty boring for him.

[iceman]

clifs notes version: Irish guy saves the day.

[Benny Profane]

Looks Asian to me.

[DBdude]

For a person trading 100 or 1000 shares HFT has made spreads tighter and provided more liquidity. HFT is a problem for large block traders which ultimately is our pensions and funds. More importantly, I believe, is the HFT ability to keep the current uptrend in tact. If you look at a weekly chart of SP500 the symmetry of the advance is not a coincidence.

4matic has it. i am not in the industry but transactional costs have decreased so much for the retail investor, this includes buying stocks based on decimal prices versus on the 1/8, and hft keep the markets liquid which decreases volitility. if you are a buy and hold investor does .25/share make that much of a difference when you take the advantages into consideration?

[DBdude]

Looks Asian to me.

the networking guy who helped him understand was irish

[DasBlunt]

More ways to make people not believe in the stock market….

glad somebody is trying to beat the house at their own tricks.

[DBdude]

so what is the problem if people don't believe in the stock market? seriously, lottery tickets are fine

[DBdude]

the guys solution is not beating the house...

[4matic]

The large block traders need to engage the public to get support from the SEC and CFTC.

Note that Fed goal is to get asset prices higher and it is HFT that helps drive the asset prices artificially up. Just look at this weekly chart of SPY. By every measure there is far too much symmetry in support and length of chart cycles:

http://bigcharts.marketwatch.com/adv...=false&state=8

[philth]

Having been a participant of the Reg NMS, Reg ATS and HFT clusterfuck I think I will lurk in this thread and enjoy.

[up an down]

decimalization occurred before the HFT tsunami... not because of it.... there was plenty of liquidity before HFT and if it's outlawed, there will still be plenty of liquidity.

[DasBlunt]

the guys solution is not beating the house...

It certainly is.
He slows down the trades, and the "house" cannot raise the price before the order is filled. Before, he would get halfway done, and the price would have risen. classic bait and switch….(from the article, they say bait and switch)

[OldLarry]

Full disclosure: I know the iex guys and think they have a start, but their are issues with their model which will become more apparent once they become a lit market.

This piece and what I have read of Lewis' book is entirely one sided, overly simplistic, sensationalist, and actually does more harm than good in addressing the issues it brings up.

Trading has never been cheaper and access to markets has never been greater, both in therms of commission cost or market impact of trades.

Colocation has been around for quite some time (at least since 2005 or so) and is used by every broker worth his salt. It is also not very expensive.

Direct feeds are also available to anyone willing to pay for them, and are used by the majority of brokers.

What he is describing in terms of front running is not accurate. They do not know for sure that there is an order coming and do not get an advance look at it. They detect patterns and anticipate orders- this is nothing new AT ALL, is not illegal and is not without risk.

While at RBC, brad finally caught up to what people had been doing for years in terms of routing practices to various exchanges according to latency. Very good institutional execution algorithms are readily available to the buyside and have been for quite some time. They are also very inexpensive to use and are well supported by sales people more than willing to explain how they work and how to use them effectively. Any institution who has not taken the time to use these tools properly simply isn't doing their fucking job.

HFT has incorrectly become a catch all terms for many different kinds of trading practices, most of which are perfectly legitimate and beneficial to the market, particularly market making, which was not mentioned or covered.

The vast majority of retail order flow (your orders at schwad, td ameritrade, etrade, etc.) is routed to electronic market makers (in fact, about 4 or five of them: citadel, UBS, ATD (citi), and KCG (knight capital group/getco merged). These market makers either take the other side of your trade or route it to where it can be executed. Their executed/quoted numbers, hit rates/fill rates, etc are better than and Nasdaq market maker or NYSE specialist has ever provided. The fact that they pay for order flow is nothing new and is not necessarily detrimental to your execution quality.

The market has never been more transparent- all trades are reported to the consolidated tape faster than they ever have been. Full depth of book is readily available and often free and many brokerages.

Order routing disclosure(where your order is sent for execution and whether your broker was paid for it) is very transparent as well- these are called 605 and 606 reports and can be found on most brokers websites easily.

Granted, the current market structure is not perfect now but it has never been better for the retail, or institutional investor ( assuming the institutional guy has been paying attention and has kept up with the times).

Yes the market has become fragmented, and there is a lot of complexity that goes with that, but nothing that is so complicated your average maggot cannot understand it. In fact, I think there is something patronizing about Lewis's tone, that things have to be dumbed down.

The people railing against this all have agendas. Lewis is trying to sell books. Regulators are trying to save face. Professionals who have not kept up are complaining it is unfair when in reality they just suck.

[OldLarry]

Having been a participant of the Reg NMS, Reg ATS and HFT clusterfuck I think I will lurk in this thread and enjoy.

This was my first instinct but I simply could not resist

[philth]

This was my first instinct but I simply could not resist

Was wondering when you were going to jump in here Larry!

[OldLarry]

Was wondering when you were going to jump in here Larry!

Again, this is far from perfect, but it is better than retail brokers charging .125/share commissions on everything and paying .50 on top of that in the spreads for shit that trades like water.

They liquidity providers have just changed names. They are no long ther kelloggs, labranches, Meehans, Hendersons. They are the violas, the martins, and countless others competing for the right to make markets. They do so by keeping spreads tight (driving down market impact) and paying for order flow (driving down commissions).

The exchanges and technology are enabling them to do so at scale. That's all.

[Brock Landers]

I thought about OldLarry while watching this last night...appreciate the less sensationalistic version

Elon though is a good story. And his 22 year old wife is a fucking smokeshow

[4matic]

I work for an HFT colocation provider fwiw. I agree with Cuban on this one. It is not the penny skimming that is the risk:

"The risk isn't so much about the small investor," he said. "The risk is all these different high-frequency traders playing a game with their algorithms, trying to trick each other, to get in front of each other to make that trade.

"And because we don't know all the algorithms, because we don't know the end factorial, all of the different ways they may interact and the negative consequences that occur as a result. That introduces a market risk. That market risk has an unquantifiable cost."

"There's so many problems with where the market is today because the market doesn't know what business it's in," he said. "It literally is no longer in the business of providing capital for companies to grow, and that's a huge problem."