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SEC Chair On HFT: 'The Markets Are Not Rigged'

Soulskill posted about 7 months ago | from the everyone's-equal-once-they-invest-a-billion-dollars dept.

The Almighty Buck 303

Hugh Pickens DOT Com writes "Reuters reports that U.S. Securities and Exchange Commission Chair Mary Jo White told a U.S. House of Representatives panel that she flatly rejected claims that retail investors are being fleeced by high-frequency traders who can use their speed to jump ahead with buy and sell orders that fetch better prices. 'The markets are not rigged,' says White. 'The U.S. markets are the strongest and most reliable in the world.' White's comments to the House Financial Services Committee mark the first time she has directly responded to allegations in Michael Lewis' new book Flash Boys: A Wall Street Revolt. The book alleges that high-speed traders are engaged in a form of front-running, in which the firms are able to quickly identify an investor's desire to buy a stock, rush to buy it first and then sell it back at a higher price. The SEC has been reviewing equity market structure issues, particularly following the May 6, 2010 flash crash incident when the Dow Jones Industrial Average sharply plunged before quickly rebounding. Although staff at SEC are considering whether to launch some pilot studies to test different regulatory proposals, there are no immediate plans to issue rules to crack down on high-speed trading or trading in unlit markets. 'I want to be very clear that the market metrics suggest that the retail investor is very well-served by the current market structure.'"

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Not a surprise (5, Insightful)

cHiphead (17854) | about 7 months ago | (#46877211)

Looks like she's bought and paid for.

It's insanity, we are watching real life crazy people.

Re:Not a surprise (4, Interesting)

TemperedAlchemist (2045966) | about 7 months ago | (#46877355)

The cute part is that she thinks she can get away with it. She's not screwing over your average American household, she's screwing over investors who have money and power.

Re:Not a surprise (5, Informative)

Anonymous Coward | about 7 months ago | (#46877651)

She's screwing YOUR retirement/pension plans. These are the folks who are getting fleeced by HFT.

Re:Not a surprise (2)

NotDrWho (3543773) | about 7 months ago | (#46877447)

Not just her, but also the members of the House Financial Services Committee who she's testifying before. They're putting on a nice dog-and-pony show of looking like they give a shit. But at the end of the day--they're going to do nothing, go home, and collect nice fat campaign contributions from the very crooks that the SEC is supposed to be stopping (and fat high-paying jobs from them when they leave Congress too).

All part of the circus to convince the gullible American people that Congress represents *them*, and not just the oligarchy.

Re:Not a surprise (4, Insightful)

FriendlyLurker (50431) | about 7 months ago | (#46877681)

All part of the circus to convince the gullible American people that Congress represents *them*, and not just the oligarchy.

A circus that we the people have no say in whatsoever [slashdot.org] . Akin to serfdom of old, only with some modern conveniences.

"Researchers from Princeton University and Northwestern University have concluded, after extensive analysis of 1,779 policy issues [commondreams.org] , that the U.S. is in fact an oligarchy [wikipedia.org] and not a democracy [wikipedia.org] . What this means is that, although 'Americans do enjoy many features central to democratic governance,' 'majorities of the American public actually have little influence over the policies our government adopts.' Their study [princeton.edu] (PDF), to be published in Perspectives on Politics, found that 'When the preferences of economic elites and the stands of organized interest groups are controlled for, the preferences of the average American appear to have only a minuscule, near-zero, statistically non-significant impact upon public policy.'"

Re:Not a surprise (0)

Anonymous Coward | about 7 months ago | (#46877483)

Or the SEC have shit for brains just like the bought and paid for politicians [what I'm I saying the SEC are politicians] AKA, their completely clueless when it comes to how this or any tech works. And I don't see Frontline [maybe they did do a report on this] or the press investigating those that are 'experts' in this tech to see how out of control this abuse is.

I read and heard rumors of it going on, but I have yet to see anything in depth from numerous people associated with the tech saying anything on record.

Re:Not a surprise (1)

TheDarkMaster (1292526) | about 7 months ago | (#46877855)

Yep. And what makes me even more surprised is these bought and paid people wanting us to believe in them.

Re:Not a surprise (-1)

Anonymous Coward | about 7 months ago | (#46878015)

I really don't understand why it is a problem. Say they are stealing pennies per share, a thousand shares is 10 dollars and they would lose money or break even with commissions. This plan only works on hedge funds or rich people otherwise it is unprofitable. Also if i place a limit order for 5 dollars a share it doesn't matter if my broker makes the spread or a HFT. I still get the stock at 5 dollars.

Pull the other one ... (0)

Anonymous Coward | about 7 months ago | (#46877213)

Pull the other one, its got bells on!

Either she's a fool or complicit (5, Insightful)

Andover Chick (1859494) | about 7 months ago | (#46877219)

Of course the markets are rigged. It has always been that way all the way back to the 1920s. Most often the regulators where former insiders themselves, in which case they were complicit in the buddy-buddy world of Wall Street. This woman, however, just seems to be an imbecile. [I'm a 30 year veteran of Wall St and have worked on the trading floors in most of the major firms.]

Re:Either she's a fool or complicit (5, Insightful)

Anonymous Coward | about 7 months ago | (#46877395)

There's also no way SEC can make the claim, since until CAT ( http://catnmsplan.com/ ) shows up, there's really no data to verify whether markets are rigged or not in the way described in the Flash Boys book. A more sensible answer would have been ``we lack the means to verify claims of a rigged markets, but indications point towards minimal or no impact to the retail investor'' (at least that would have been the optimistic truth). Flat out saying that markets are not rigged is just a lie, since they can't even do a study they're claiming to have done.

Re:Either she's a fool or complicit (-1, Flamebait)

CrimsonAvenger (580665) | about 7 months ago | (#46877407)

[I'm a 30 year veteran of Wall St and have worked on the trading floors in most of the major firms.]

Most often the regulators where former insiders themselves

And yet you can't spell "were"....

Re:Either she's a fool or complicit (1, Troll)

Andover Chick (1859494) | about 7 months ago | (#46877761)

@CrimsonAvenger: I'm writing on Slashdot, not composing a legal document. If you're at all familiar w/electronic communication over the past 30 years then you may know people often don't spell check online forums, email, facebook, text msg, or other text considered casual communication. You're remark is petty and indicative of a compulsive, abrasive temperament.

Re:Either she's a fool or complicit (-1, Troll)

Anonymous Coward | about 7 months ago | (#46878097)

You're remark is petty and indicative of a compulsive, abrasive temperament.

Like you said, you're writing on Slashdot ...

Re:Either she's a fool or complicit (1)

rmdingler (1955220) | about 7 months ago | (#46877559)

Of course they are. In the markets, there exists the same revolving door between governmental oversight posts and lucrative private industry jobs that has made the segue from government insider to lobbyist virtually seamless.

And it's not illegal. Although the whole system is tainted by the appearance of impropriety, it could be legislated out of existence with the stroke of a pen.

Give me control of a nation's money supply, and I care not who makes its laws.. Rothschild

Re:Either she's a fool or complicit (1, Insightful)

Charliemopps (1157495) | about 7 months ago | (#46877643)

This is the fundamental problem with federal regulation. If the government controls how you can make money, those with money will seek to control the government. I'm not suggesting a solution, I don't have one. But understanding that "more regulation" will likely do just as much harm as it does good is important to this debate.

Re:Either she's a fool or complicit (1)

Drethon (1445051) | about 7 months ago | (#46877957)

I lean toward it takes money to make money and money is power. A pure market still favors the rich and only a market rigged against the rich would allow the less than rich to have even footing.

Fucking Casuals. (0, Flamebait)

N3tRunner (164483) | about 7 months ago | (#46877231)

If you're just pressing the "buy" button without checking the bid/ask prices and putting in an actual share value you want to purchase at, then you get what you deserve.

Re:Fucking Casuals. (3, Informative)

Anonymous Coward | about 7 months ago | (#46877413)

the book actually talks about large investors getting screwed. Not the casual wanna be day traders, but hedge fund managers who have to take massive losses on those couple of pennies as they are buying many shares at a time.

Re:Fucking Casuals. (4, Informative)

JeffSh (71237) | about 7 months ago | (#46877425)

Even if you check the bid/ask price, without HFT there's a conceivable chance for your buy order to be filled for less than your limit, but with HFT the cheaper stock is exhausted and your order filled at the buy price.

Sounds silly, but pennies matter to these people due to volume and that's what's occurring.

Re:Fucking Casuals. (5, Interesting)

Anonymous Coward | about 7 months ago | (#46877743)

Someone did a study on this and proved it. I think the study showed that if the bid/ask is $1.00/$1.01 and you offer $1.01, all of a sudden the bid ask goes to $1.01/$1.02.

I've seen this myself. Just watching the stock price go up a penny every time I put an order in. The study showed that HFT can step in before my order is filled and get the transaction that I wanted.

This is what these "smart" people get paid for. It's total BS and not "American"

Re:Fucking Casuals. (1)

Anonymous Coward | about 7 months ago | (#46877759)

Exactly this, it's the Richard Pryor / Superman II scenario where he routed all the fractional cents to his paycheck - but in this case, they're sucking out the margin between your limits and the market - that margin used to be significantly in favor of "the trader," especially in higher risk thinly traded stocks and options, and now that margin is going to the HFT people, in exchange for filling your order a little more quickly. Some people argue that the liquidity is more valuable than the margin, I disagree - the margin was real money that I can spend, the liquidity is so small/short that I can't tell the difference.

Re:Fucking Casuals. (2)

jbmartin6 (1232050) | about 7 months ago | (#46877765)

False. Any competent broker has techniques to avoid the problems described in the book. The major gist of which is, don't dump huge orders across multiple exchanges within a few seconds of each other.

Re:Fucking Casuals. (4, Informative)

laird (2705) | about 7 months ago | (#46877461)

Perhaps you don't understand "front running".

The actual buy/sell price of a transaction isn't the number either part put in, but is a dynamic number based on the market, within the constraints of the buy/sell orders. So if you say "buy at up to 8" for a stock selling at 7, you'll end up paying somewhere below 8 depending on available sell orders.

What is happening is that a company has tapped into the front-line routers to the trading systems with extremely high performance systems that can see and execute and deliver an incoming buy/sell order faster than the real buy/sell orders so they execute first, and injecting their own order AHEAD of your order. This requires their hardware being tapped into the network, and having extremely high performance systems and networking, so it's an option only open to an extremely small number of companies. So if the stock is selling at 7, you say you'll buy at 8, and the third part injects an order to buy at 8 that executes before your buy order, to you end up buying at 8 instead of at 7. The actual differences are smaller, of course, but the volume is infinite, so it generates plenty of cash. Because it requires specialized gear running inside the exchange's network, it's an option only available to a very small number of well-connected companies (one that's been reported), and the collusion of the exchange to arrange for the trader to have better access to the exchange's data feeds than the exchange itself. Other than being highly profitable, I can't see how this can possibly be legal, since it's a clear corruption of the exchange giving one party an unfair advantage.

The is different from high frequency trading, which is programmed trading of rapid transactions, which can be done from anywhere - that doesn't require special network access, etc., just huge piles of cash and an algorithm.

Re:Fucking Casuals. (4, Informative)

jbmartin6 (1232050) | about 7 months ago | (#46877807)

What is happening is that a company has tapped into the front-line routers to the trading systems with extremely high performance systems that can see and execute and deliver an incoming buy/sell order faster than the real buy/sell orders so they execute first, and injecting their own order AHEAD of your order

Completely false. This does indeed describe front running, which is illegal. There is no mechanism provided by any exchange which would allow any market maker to observe orders entering the exchange and then enter an order ahead of them. When an order enter the exchange, it is matched with offers that already exist in the system and that is the first time any market participant has an opportunity to react directly to it. What the book talks about is order placed across multiple exchanges, where one party would observe heavy activity in one exchange and *guess* that it is likely to be quickly repeated on other exchanges and try to get to the *other* exchange before the original party.

Re:Fucking Casuals. (1)

msauve (701917) | about 7 months ago | (#46878027)

tl;dr

This is much simpler. HF traders are making money. That money comes out of the pockets of people who aren't doing HFT, and don't have access to the needed resources even if they wanted to. The simple solution is to put a 1 second delay on all orders.

Re:Fucking Casuals. (0)

Anonymous Coward | about 7 months ago | (#46877521)

Oh? Want to let us in on which brokerage promises to execute at exactly the price you've entered? Pretty much every single one I've traded with (well, that's 3 total, so it's entirely ) states that limit orders only set the limit price/stop price at which the broker will try to execute the order and if the market's moving, you're going to get what the market's paying whenever it gets around to actually executing.

The best scottrade has is limit+stop on quote orders, I guess if you put the same price for both, either it will buy/sell at exactly that price or it does nothing at all.

Re:Fucking Casuals. (4, Insightful)

cHiphead (17854) | about 7 months ago | (#46877551)

You don't understand the issue or you are making money from the technique and have fully disconnected yourself from the ethical implications of HFT scamming.

I'll use plain english terms to describe it since I'm not in that industry and never remember the fancy facade of names used to obfuscate investing practices and technical points from non-industry people.

You can check the bid/ask prices, the type of HFT process that screws you happens entirely AFTER you press the buy button, they see your buy at one data exchange location and literally outrun your network packets to remaining exchange points to buy up what you just clicked 'buy' on. You end up with a portion of what your lowest bid was, but suddenly the other locations that have the product to fill the order are all priced higher from the HFT gamer. This requires special high speed access and high speed API access to the data exchange points.

It's rigging the system. It's a great hack if you are making money for yourself but it's more than just unethical, it utterly destroys any usefulness of financial investment markets, and also leads to caustic disruption of real world economic data.

Cheers.

Re:Fucking Casuals. (0)

Anonymous Coward | about 7 months ago | (#46877825)

You are crazy. Being charged a fraction of a penny more per share is the most you could claim the effect is. The only problem with that argument is it ignores the liquidity and spread reduction produced just by having HFT in the market.

This is the classic bullshit the liberals pull all day - find something that can be described as unjust but ignore the secondary effects. They ignore that while HFT may "screw over people" in a technical sense, people would be WORSE OFF without it because they would be paying a larger spread. So, who really loses? Anyone previously earning the previously larger spread. The people previously earning the larger spread WAS WALL STREET. Specifically a different arm of wall street than those now earning the profits. These are the big banks getting pissed that new companies like Tradebot, located in the midwest, are stealing their profits.

This is just wall street fighting itself and idiots at home think they are getting screwed because of the media circus put on BY WALL STREET. You are not getting screwed!

Re:Fucking Casuals. (4, Insightful)

delt0r (999393) | about 7 months ago | (#46878007)

The only problem with that argument is it ignores the liquidity and spread reduction produced just by having HFT in the market.

God i am sick of this BS being trotted out every time someone wants to defend HFT. Liquidity as a useful metric is *never* measured in milliseconds. It could be easily argued that measuring less than a minute is simply not understanding what liquidity even is.

Re:Fucking Casuals. (-1, Flamebait)

Anonymous Coward | about 7 months ago | (#46877609)

Problem with limit orders is that by the time they execute, you're already behind the market. For example, lets say you want to buy company ABC, you checkout their quote, and they're trading at $10.00 x $10.02, so being very clever, you place your bid at $9.99 just to get that extra penny.

Lets say you're lucky and your order gets an execution at $9.99---that means that the *market* has moved there to execute your order. Will the market stop at your arbitrary $9.99 and bounce back to over $10? Unlikely. More likely is that by the time you get your $9.99 execution (the one YOU WANTED), the market is already trading at $9.95, so by simply using limit orders, you got a crappier price compared to "the market".

If the situation was reversed and your order didn't execute, then you wouldn't get any shares at all.

So your two likely outcomes with limit orders are: you get no execution, or you get an execution that is *worse* than the market by the time it executes.

If you want to trade "at the market", you really either have to place aggressive limit orders (so they hit the other side), or place market orders (same thing as very aggressive limit orders).

And if you place aggressive limit orders, you very likely will cause a price discrepancy between venues (either your order will be booked and quoted, or you take someone's quote). Either way, that opens up for someone to shave off a few pennies either from you or the followup trader trying to close the spread.

Retail doesn't even have SEC Protection (0)

Anonymous Coward | about 7 months ago | (#46877237)

"'I want to be very clear that the market metrics suggest that the retail investor is very well-served by the current market structure.'"

That would be that the metrics indicate retail investors get fleeced and the big banks make earn from that. Yeap, based on past history, the retail investors are once again being well done and served up to Wall Street interests.

Re:Retail doesn't even have SEC Protection (3, Interesting)

alexander_686 (957440) | about 7 months ago | (#46877283)

She has a point – a weak one but still a point. I have read the book and it seems to me that the system is not gammed for small retail orders – those are harder to front run. And even if the HFT trades scalp a penny or three per share that is still better than the $.125 spread 20 years ago. Not saying that the system can’t be improved – Flash Boys did change my mind on that – but let’s realize the magnitude and who it affects.

Re:Retail doesn't even have SEC Protection (2)

BonThomme (239873) | about 7 months ago | (#46878115)

those same people fought the move to decimals tooth and nail. it would destroy liquidity, blah, blah, blah...

Re:Retail doesn't even have SEC Protection (1)

BonThomme (239873) | about 7 months ago | (#46878093)

...as evidenced by the retail investors' yachts...

HFT has passed the tipping point (5, Informative)

Anonymous Coward | about 7 months ago | (#46877245)

I highly recommend reading Flash Boys [amazon.com] , mentioned in the Slashdot summary here. While advocates of HFT have always claimed that it provides liquidity, and it did fulfill that role usefully for a long time, we've passed a point where the gains of liquidity are overcome by the overall detriment to the economy: transactions that would have occurred anyway are penalized with what is essentially an extra tax because they came a few seconds later, and people with arcane and specialized equipment jumped the gun.

Re:HFT has passed the tipping point (2)

GrumpySteen (1250194) | about 7 months ago | (#46877427)

The whole point of HFT is to jump in and buy a stock when someone else is trying to buy it and resell it to them at a slightly higher price. Without HFT, that someone else would still buy the stock.

HFT has never intentionally provided liquidity to the market. Buying something that has no other buyers is exactly the opposite of what they're trying to do.

Re:HFT has passed the tipping point (0)

Anonymous Coward | about 7 months ago | (#46877667)

I'm just throwing this out there, but what if you don't actually understand HFT correctly? Did you know that market making (providing liquidity on both sides of the market) is literally buying stock at one price and trying to sell it at another slightly higher price, even though you end the day flat? Some HFTs are passive, some are more active, at the very least don't assume they all do the same things...

Re:HFT has passed the tipping point (1)

BonThomme (239873) | about 7 months ago | (#46878139)

end the day flat. that's funny. sounds like the Pope has more saints to canonize...

Re:HFT has passed the tipping point (2)

dslbrian (318993) | about 7 months ago | (#46877979)

Indeed. In this article [businessinsider.com] (talking about the same interview), there was this interesting quote:


Some Congressmen had a looser grasp on the specifics of the issue, but had no problem making their discomfort known.

Take Massachusetts' *Stephen Lynch for instance.

"Virtual financial said in 5 years they had one day of trading losses," Lynch said incredulously, "...there seems to be a definite advantage for a firm that can operate for 5 years without any trading losses."

He meant Virtu, the high-frequency trading firm that has delayed its IPO indefinitely because of the fallout from Lewis' book.

I'm sure there is a statistician out there who could tell us the odds of running 5 years of trading with only one day of losses, in a system which was not rigged.

SEC Chair Mary Jo White is full of shit, and quite the opposite of reassuring us all that the markets are indeed not rigged, it just verifies that the SEC is complicit in this whole system.

bullshit (4, Insightful)

O('_')O_Bush (1162487) | about 7 months ago | (#46877265)

Yea, somehow banks are using HFT to magically pull money out of thin air, definitely not at the expense of traders, because traders are being so well served.

That definitely makes sense and doesn't sound like complete bullshit at all.

Then why... (1)

Anonymous Coward | about 7 months ago | (#46877267)

Can the market drop 10% in the matter of half an hour?

Put your money where your mouth is, M.J. White, and tax HFT already! Curb this damn insanity!

Re:Then why... (1)

Time_Ngler (564671) | about 7 months ago | (#46877485)

How would taxing help? The regular investors would still getting screwed, the profits just now being split by the HFTs and the government.

Re:Then why... (1)

alexander_686 (957440) | about 7 months ago | (#46877553)

In the old days? Yes - and it would take much longer to correct. I remember the time when George H. W. Bush (senior) was shot. That rumor tanked the FX markets for 4 hours. Markets go down a little faster today, but they recover much much faster.

By the way, when France taxed the HFT, spreads and volatility increased. The issue is not the speed of the system but that the system can be gammed. Fix the root cause, not the symptoms.

That's how it has always been ... (1)

evanh (627108) | about 7 months ago | (#46877269)

for Joe plebb investor. There's just another level nowadays.

Of course not (3, Insightful)

beamin (23709) | about 7 months ago | (#46877289)

Nothing to see here, people. Move along. And could you put that Social Security Trust Fund money here before you go?

Front running (5, Insightful)

countach (534280) | about 7 months ago | (#46877317)

Either people are being front run, or they are not being front run. Can't the SEC grow a pair and actually say definitively whether people are being front run or not? I don't think the concept of front running is an obscure concept that is up for debate. Come on SEC, investigate and pass judgement. Don't give us these weasel words.

Re:Front running (4, Interesting)

abies (607076) | about 7 months ago | (#46877411)

don't think the concept of front running is an obscure concept that is up for debate.

Front running 30 years ago was a simple concept. These days concept is really blurring. From wikipedia
"Front running is the illegal practice of a stockbroker executing orders on a security for its own account while taking advantage of advance knowledge of pending orders from its customers"
Please note - 'its' customers. HFT are often 'front running' somebody else customers. They don't know the orders up-front - they observe market and block/execute on other markets fractionally faster.

I'm not saying it is morally valid - just challenging the statement that 'front running' is a clear concept.

Re:Front running (0)

Anonymous Coward | about 7 months ago | (#46877901)

Mr. Clinton, did you have sex with Monica Lewenski?

No sir, I did not.

Re:Front running (1)

countach (534280) | about 7 months ago | (#46878047)

I see no reason whatsoever why the concept of front-running should be restricted to a broker and their client. It doesn't make it different just because some other person is front-running.

Re:Front running (0)

Anonymous Coward | about 7 months ago | (#46877523)

By the exact wording of "frontrunning", they are not being front run. Frontrunning means you have a customer order and you run off and trade at better prices ahead of it---this is looked for, easily checked for and does not happen (at least not intentionally). The scenarios described in Flash Boys book are not "frontrunning", they're more accurately termed speed arbitrage---they know there is a price discrepancy between different venues and take advantage of it before anyone even notices the price discrepancy.

That is not illegal, but it does mean that whoever lacks the said speed is getting a shorter end of the stick every time they trade. You probably wouldn't care for a few cents on your 100 share order, but an institutional investor (e.g your retirement plan manager) would care quite a bit if such behavior costs them (and therefore YOUR retirement money) say 1% value on their 1000000 share order. Yes they can avoid this by selling the whole block to someone, but then they're discounting and getting a crappier price anyway.

High Frequency Theft ... (4, Interesting)

gstoddart (321705) | about 7 months ago | (#46877319)

I'm largely of the opinion that HFT is a chance for the banks and trading houses to skim off the top of the stock market, at the expense of the 'normal' investors, and using information and access we couldn't possibly have.

I don't believe at all that the "retail investor is very well-served by the current market structure". In fact, I believe the retail investor gets fleeced by these trading programs.

And since there are several well known examples, including the one in the summary, in which these trading programs themselves distort the market and significantly changes the valuations of the stocks.

HFT is the large trading houses using the money of investors (their own and everyone else in the market) like a Vegas casino slot machine.

Basically, HFT is vigorish [wikipedia.org] .

Re:High Frequency Theft ... (1)

loonycyborg (1262242) | about 7 months ago | (#46877445)

HFT looks like taxation levied by private entities to me. No contribution from those traders other than them taking some cut from all deals they piggy-back on.

Re:High Frequency Theft ... (2)

MadKeithV (102058) | about 7 months ago | (#46877697)

I don't believe at all that the "retail investor is very well-served by the current market structure". In fact, I believe the retail investor gets fleeced by these trading programs.

My interpretation on the first reading of that quote was "dear retail investor, you should be happy you're getting what we've decided to allow you, and now shut up", or in Darth Vader terms "We are altering the deal, pray we don't alter it any further".

Re:High Frequency Theft ... (1)

nine-times (778537) | about 7 months ago | (#46877785)

Basically, HFT is vigorish [wikipedia.org].

But if that's the case, wouldn't we still be better off letting those entities take their cut, and avoiding the waste of building these HFT systems?

Re:High Frequency Theft ... (1)

gstoddart (321705) | about 7 months ago | (#46878005)

But if that's the case, wouldn't we still be better off letting those entities take their cut, and avoiding the waste of building these HFT systems?

What, exactly, entitles them to a cut? I would say nothing entitles them to a cut.

You're suggesting we just fork over a fraction of all trades to spare the large banks and trading houses the expense of building the HFT systems to rip us off?

Hell no.

I have a better solution, and it doesn't involve keeping HFT or the trading houses getting a guaranteed cut.

If they want to make money on the stock market, they can do it by buying low and selling high based on the same kind of information available to me. Not by sitting in the middle skimming off money from the market by executing a zillion trades on a computer.

The market doesn't exist to guarantee profits for large trading houses. And if we're supposed to believe it does, the market is completely fucked, unfair, and dishonest.

But then, many of us already knew that.

Re:High Frequency Theft ... (1)

Anonymous Coward | about 7 months ago | (#46878109)

All of this skimming is orders of magnitude less than the fee charged on your 401k, but no one's bitching about that. Also if you want to buy size X from a single exchange Y, and that exchange can fulfill your whole order, no one can front run you. It's only when you want a really large order that can't be fulfilled in a single spot that they can get to the other exchanges before you. Also keep in mind that there are many primary market makers out there offering liquidity at all times through quotes. If they see a huge sweep going out at one exchange, where their quote just got taken, they're going to assume their current price is bad and raise it on their other exchanges.

Tax based on holding period (4, Interesting)

rlp (11898) | about 7 months ago | (#46877333)

Simply tax profits on all equities held for less than 5 minutes at 100%. Problem solved.

Re:Tax based on holding period (1)

DoofusOfDeath (636671) | about 7 months ago | (#46877429)

Simply tax profits on all equities held for less than 5 minutes at 100%. Problem solved.

No problem is "simply solved" within our tax system. GE would still find a way to get around rules like this.

When megacorps by the rule-making system, they will never lose.

Re:Tax based on holding period (2)

swb (14022) | about 7 months ago | (#46877569)

I think this is a sound idea.

I'm not sure the 100% idea would ever happen, but I know the notion of varying capital gains taxes based on the duration they have been held has been discussed a lot as means to discourage risky, short-term bet-making, market churn and encourage investment.

So what did you expect the SEC Chair to say? (2, Insightful)

Anonymous Coward | about 7 months ago | (#46877335)

Officer I was not speeding. Yea, that's what they all say. So, what did you expect the SEC Chairperson to say. Anything but "the markets are not rigged" would gave caused a panic. Congress took away her option to say nothing. Of course the markets are rigged in favor of the HS traders. Why else would you do HS trading but to gain an 'unfair' advantage? Let's have a regulation that requires investors to keep what they buy for 30 days before they can sell. No penalties for early sale. You just can't sell it for 30 days.

Re:So what did you expect the SEC Chair to say? (1)

Bing Tsher E (943915) | about 7 months ago | (#46877913)

30 days is excessive. 3 minutes would be fine, though.

Net Neutrality (4, Insightful)

nickmalthus (972450) | about 7 months ago | (#46877359)

HFT is another sound argument for Network Neutrality. Fair open markets can not exist on top of a network where superior bandwidth and latency decide market winners instead of legitimate market forces.

Re:Net Neutrality (1)

nine-times (778537) | about 7 months ago | (#46877869)

Does net neutrality fix the problem, though? Even with net neutrality, there's still the possibility of someone buying more bandwidth or lower latency. Though I'd agree that getting rid of net neutrality would open the doors for further abuse, but I'd think you'd need some additional measure to solve the problem.

Not rocket science (5, Insightful)

Anonymous Coward | about 7 months ago | (#46877383)

So, if the market's not rigged and HFT is a feature, what's wrong with introducing random delays of tens of milliseconds into their data streams? Robustness testing, don't ya know. Since there's no way to guarantee flawless links you need to stress the system to locate problems.

The likely outcome would be that the markets would continue to perform as expected while a number of HFT firms would go belly up. Who would miss them?

FYI (0)

Anonymous Coward | about 7 months ago | (#46877673)

You know what, a savvy PC technician that has access to the switch, could offer to move somebody elses server plug closer to the server plug...for a price.

It would shave a few miliseconds off.

Just remember, I came up with it so you pay me 50% of whatever you get out of the deal.

Umm, what's the difference between (1)

OneSmartFellow (716217) | about 7 months ago | (#46877387)

Front running and adding a spread ?

Ummmm, aside from it sounds like something different, not much.

Re:Umm, what's the difference between (1)

abies (607076) | about 7 months ago | (#46877711)

Transparency. If you are a broker and say to the client "You can buy from market for 101, but if you try, I'll charge you extra 2 each time" it is adding spread (or broker fee actually). If you are a broker and say "You can buy from market for 101 and I'll do my best to do that" and then you are doing side deals buying all the orders between 101 and 103, then selling them to your client for 103 realizing immediate profits and pretending "somebody else bought cheap ones" - then it is front running.

Of course, HFT is not front running in classic sense.

Re:Umm, what's the difference between (0)

Anonymous Coward | about 7 months ago | (#46877889)

Not to mention the spread reduction is definitely greater than the speed arbitrage profit (now being referred to as front running to scare people).

Markets are not rigged... (0)

Anonymous Coward | about 7 months ago | (#46877409)

scientists got it all wrong.

Sensitive information should not made public until certain hour of certain day happens to be transmitted faster than speed of light. But as we all know people working in finance is extremely honest, so it must be a flaw on modern physics theories.

Of course.

Re:Markets are not rigged... (0)

Anonymous Coward | about 7 months ago | (#46877641)

Or maybe clocks are not synchronized perfectly?

What possible value? (0)

Anonymous Coward | about 7 months ago | (#46877419)

What possible value can HFT be to the market? (I know about the liquidity claims, its BS) The trades last microseconds, the entire premise of the stock market is that investors provide money to a business for a time, the business uses that money to expand their operations, hire workers, etc. That doesn't happen in less than a second. HFTs are simply a tax on the market that is put in place by those with the money to purchase the equipment and pay off the regulators for faster network connections (among other things).

The Titanic's owner... (1)

Coditor (2849497) | about 7 months ago | (#46877441)

bragged that the ship was unsinkable and look how well that turned out. Of course the CEO is going to say that but that doesn't mean much.

Skimming is a better word than rigged (1)

voss (52565) | about 7 months ago | (#46877465)

Rigged implies pricing is completely controlled by these HFTs which is not true. It is a skimming
basically these hfts are making pennies per trade but doing so in billions of trades.

Re:Skimming is a better word than rigged (1)

edxwelch (600979) | about 7 months ago | (#46877715)

it is skimming, but if you are paying a penny for every share you buy or sell, you are effectively paying the HFT guys the same amount that you pay your broker

Of course not... (1)

hubang (692671) | about 7 months ago | (#46877473)

In further news, the Nevada Gaming Commission claims that the games at the Vegas Casinos are not rigged in the house's favor.

Film at 11.

Re:Of course not... (1)

jbmartin6 (1232050) | about 7 months ago | (#46877677)

As well they should, since those games are not "rigged". The odds are publicly available for anyone to review and make a decision whether or not they wish to play. It is no secret that the odds are in favor of the house. If the games were rigged, this would not be the case.

Oligarchy (-1)

Anonymous Coward | about 7 months ago | (#46877491)

Benghazi Update for the fucking sheeple -

Anyone who now considers Benghazi a âoefake scandalâ is a either a complete liar or a moron. This new release of emails thanks to Judicial Watch is literally a call to arms. We will now see if there is even a figment of honesty in our mainstream media and if our elected representatives are to be trusted in any way.

Those of you who (TV WATCHERS) who don't see the corruption, blm, epa, irs, fbi, nsa, firearms, electoral college, electronic voting, kill lists, sag/srm op's, agenda 21, banksters, militarized police, destruction of the constitution, undeclared wars, state department corruption (we've missed quite a few felonies and treason) haven't been paying attention because you must first smash your fucking TV sets and break the psychological propaganda programming, the programmers at the network stations have been programming you with.

Here's a nice fact for you, Obamacare + the DSM-5 = roll your ass up, search your home, seize your firearms, and stick you in a mental ward. But guess what, Psychiatry is a FALSE SCIENCE. I could pick something in the DSM-5 for every one of you pieces of shit out there. But it's worse, psychiatrists come in two forms (Greedy/fucking corrupt) and (Honest/GoConsultYourFamily.) Never the less, the doctors in OBAMACARE are going to ask if you own weapons. How you answer or don't answer will be used against you. So if the electronic warfare, the loss of your rights, and money and property isn't enough for you just call 911, I'm certain they'll be happy to send out a few officers to shoot your dogs, and family.
Since they're now killing more of us at home than over there in those undeclaired wars.

It's high time to talk TREASON about these fuckers on the Right and Left who are undermining this country.

AND... that talk when it happens, is ABSOLUTELY NOT OPEN to non-US citizens. So ya socialist fucking europeans can keep your fucking traps shut, that shit might work for linux, but it doesn't work in a motherfucking Constitutional Republic, and ya know what you fucking profit driven fucktards, it's actually in your interest to see the American People e.g. "We The People" fucking revolt and straighten out this corruption shit before our out of control government blows this whole fucking planet up.

Ya stupid fucks. Go eat some nice blue fin tuna

How does it compare to human trading? (1)

tomhath (637240) | about 7 months ago | (#46877495)

As I recall, before computerized trading it was done by human brokers who took a bigger cut than the computerized trades do today. I don't claim to understand either way, but for my occasional trades it doesn't seem any worse, maybe better than the old way.

Re:How does it compare to human trading? (0)

Anonymous Coward | about 7 months ago | (#46877717)

Absolutely, you can claim that things could still be improved but you can't claim it has ever been better... Spreads are way narrower, trading costs are lower, things are better. If nothing else, now the "bad guys" are nerds with some capital and fast computers instead of people who have NYSE seats / went to the right schools / etc. Much more open now, and much less ability to screw over the customer (old-school human brokers were absolutely not saints).

Re:How does it compare to human trading? (0)

Anonymous Coward | about 7 months ago | (#46877925)

DING DING DING!!!

You think this is getting so much media attention because Wall Street is profiting? No, its because wall street wants the profits back and is using the media to get them back - the HFT guys are not all associated with Wall Street and WS doesn't want to compete with smart guys with computers. Wall Street wants its higher spreads back.

So...Why then (5, Insightful)

Grey Geezer (2699315) | about 7 months ago | (#46877497)

are trading houses spending hundreds of millions of dollars on high speed, fiber optic, trunk lines, in an effort to cut milliseconds from their transaction times? Give me a break puddin cake!

So how fast does real world value change? (4, Interesting)

Required Snark (1702878) | about 7 months ago | (#46877499)

If you accept that the market system is a way of determining the value of securities, then what does HFT mean? How is it possible for real world value to change over the course of milliseconds?

When put this way, the only events that qualify are explosions and lightning. Even an earthquake takes seconds to minutes to "change value". Tornadoes take minutes and hurricanes take hours or days.

HFT is totally removed from real world phenomena. It is a completely fictional construct. Is it any surprise that it is used to fleece the suckers? It has no legitimate purpose because it is not a real world measure of anything.

Re:So how fast does real world value change? (1)

jbmartin6 (1232050) | about 7 months ago | (#46877747)

Not every market event is weather related. Once relevant information becomes public, the price changes. For example, the CEO is resigning. The new iPhone specs are released, and company X has the contract to supply chips for it. All that happens in this sort of market is that prices rationalize more quickly in response instead of taking hours or days.

Re:So how fast does real world value change? (1)

nine-times (778537) | about 7 months ago | (#46877827)

If you accept that the market system is a way of determining the value of securities...

Is that what it is, though? I was under the impression that it was largely a casino dedicated to gambling on economic matters instead of card games or horse races. To that extent, it's not shocking when some rules are arbitrary, based on nothing in the "real world", and it's not surprising that everyone is looking for a way to cheat.

Re:So how fast does real world value change? (0)

Anonymous Coward | about 7 months ago | (#46877995)

The market system is used to establish price of a security not "value". You think the prices quoted before HFT reflected any sort of fundamental value? Why did prices fluctuate so rapidly just a few years ago? Price and value are separate - this is a fundamentally simple aspect of investing and the stock market. If you don't understand this then you have no business investing anyway. Have Obama manage your money in a MyRA - it will safely earn nothing but at least you will have paid a PRICE = VALUE.

Similar to (1)

stewsters (1406737) | about 7 months ago | (#46877545)

Casino Owner on Casinos : The games aren't rigged.

Reliable in what sense? (0)

Anonymous Coward | about 7 months ago | (#46877603)

'The U.S. markets are the strongest and most reliable in the world.'

Reliable in that insiders can reliably make money?

Strongest in the world (0)

Anonymous Coward | about 7 months ago | (#46877607)

That's a red herring. The strength of the market is not necessarily related to its fairness.

The market is not rigged (1)

dicobalt (1536225) | about 7 months ago | (#46877627)

and lobbies are not involved bribery. Nothing to see here. Everyone is playing fair.

Guess who is going to retire well; (5, Informative)

Vitriol+Angst (458300) | about 7 months ago | (#46877633)

U.S. Securities and Exchange Commission Chair Mary Jo White told a U.S. House of Representatives panel that she flatly rejected claims that retail investors are being fleeced by high-frequency traders

I'd make a bet with anyone that someone is going to be "shocked and surprised" one day that there was rigging going on just like Allan Greenspan. And just like Allan Greenspan, a certain SEC Chair is going to be miraculously a very wealthy bitch when she retires from a government oversight job.

Of course, I feel compelled to let you know that the betting process is rigged in my favor.

Half SEC are employed by HFT firms (2)

edxwelch (600979) | about 7 months ago | (#46877637)

They are guaranteed jobs in HFT firms after they retire from SEC:
  "High-frequency trader Getco hires key SEC staffer"
http://www.reuters.com/article... [reuters.com]

BULL (0)

Anonymous Coward | about 7 months ago | (#46877639)

Who the hell is he kidding?

Just hook her up to a lie detector (0)

Anonymous Coward | about 7 months ago | (#46877647)

Seriously, even if we know that the lie detector can be beaten, hook her up to it, then ask for a lie to calibrate, then turn on the taser. Any time she lies, she gets hit with pulsing 50Kv.

Then ask the serious questions. The fear of being shocked will break the conditioning and the lies will be detected. Hilarity will ensue.

Then why do it? (0)

Anonymous Coward | about 7 months ago | (#46877675)

If HFT doesn't yield an advantage, why invest the not inconsiderable time and effort in this infrastructure?

This defies the logic of Wall Street itself not to mention common sense.

If HFT provides no benefit to anyone ... (0)

Anonymous Coward | about 7 months ago | (#46877713)

... why on Earth don't they just ban it?

HFT as 'insider trading'. (3, Interesting)

oneiros27 (46144) | about 7 months ago | (#46877813)

The whole concept of 'insider trading' is that you're using knowledge that wasn't yet available to others.

If someone told you, 'hey, we're going to sell in 5 minutes at $100/share', and you went and bought it all up so they had to buy it at a slightly higher price ... wouldn't that be trading on information before it became public knowledge?

Now, it might not be 'insider', as you're not within the company whose stock is being sold ... and they're legally allowed to release the information ... but there are so many other laws regarding stock sales (eg, 'tender offers', where a company plans to buy back shares at a higher price, and they have to leave it open for a given amount of time), that I'd be willing to argue that it *should* be illegal, even if only to improve 'investor confidence'.

(ie, why would you trade in the stock market when you're getting scammed every time you do?)

solution: large minimum time slices (1)

Anonymous Coward | about 7 months ago | (#46877985)

If the SEC simply required all exchanges to have a minimum time slice of 1 second this would not be a problem.
Load up the current bids and asks, and only "solve" the match up once a second. Problem solved. The entire scheme of HFT would dissolve.

Evolution's a bitch (0)

Anonymous Coward | about 7 months ago | (#46878101)

So Wolves eat dogs?

Yes, they are rigged, asshole! (3)

AndyKron (937105) | about 7 months ago | (#46878129)

I don't buy stocks anymore because I KNOW THEY'RE RIGGED.
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