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

Kevin Stevens Re:Not a surprise (303 comments)

You seem to have a lot of animosity- did you post in this thread to just have a circlejerk about how obviously bad HFT is? Or have a reasoned and informed discussion?

Maybe my reading comprehension is off- here is your second sentence: And none of them benefited society in any respectable proportion to what they earned. So why should society infrastructure be modified to suit them (exclusive order types on exchanges regulated of necessity) ?

You don't even know how much they earned, so how can you really comment on it? Virtu Financial recently filed an S-1 to go public: https://www.sec.gov/Archives/e... Total revenue: $664 million. Net revenue: $182 million. Not bad, but not exactly killing it either.

What are you talking about with "society infrastructure", and particularly "exchanges regulated of necessity?" What does that even mean? Did you know that NYSE, amongst many other liquidity venues, is now a publicly traded company? The exchanges have provided these order types of their own volition, this isn't an "HFT" problem, its an exchange problem if anything- they are trying to attract the HFT flow to their exchanges!

As for "off the shelf" and "more difficult", it is nuanced. There are many components that are required to build a trading engine, major pieces of them can now be bought- low latency market data (Exegy), low latency network cards (Mellanox/Solarflare), and exchange connectivity, for example. There is now a critical mass of developers who can build this stuff for you, as opposed to this being arcane research type stuff. However, its all rather expensive. Co-location itself will cost you $10k/month per rack last I looked into it. Hence the "high barrier to entry" and "off the shelf" go together. 15-20 years ago, a boiler-room type phones and brokers operation might only have startup overhead (outside of employees) in total of $10k per month. The costs of some of this stuff will come down as it becomes commoditized, but bandwidth and datacenter space are likely to remain a sparse resource and remain costly.

As for whether this new technology is benefitting anyone, I would argue this is just a luddite argument that has been made many times before whenever there has been a disruptive new technology. Do you think the guys on the floor of the NYSE used to pay hundreds of thousands of dollars for their seat because they liked going to Champs Deli or because they could wear a funny colored blazer? They did it so they could trade on information first. Telephones disrupted the bucket shops, SOES bandits disrupted the floor traders, later electronic trading completely disrupted floor trading, and now we have a bunch of guys who realized that they could build much faster infra and make money off it, and they did, forcing others to beef up their systems to keep up. And most have.

I am not spouting off anything- I spent the last ten years building this stuff on both the HFT and Agency side. You read a few articles, and maybe the entire Flash Boys book? Good for you. I am trying to give you the rest of the story.

about 3 months ago
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SEC Chair On HFT: 'The Markets Are Not Rigged'

Kevin Stevens Re:Not a surprise (303 comments)

You don't understand why dark pools were created in the first place. They originally came about so that institutional players, mutual funds, pensions, hedge funds, etc, could move large amounts of stock without tipping their hand. If Vanguard has its hand tipped that its selling all of it shares of say IBM in a large fund, that stock is going to plummet, and Vanguard is going to take a loss. This is called market impact. So dark pools were created where these large buyers and sellers could come together and trade large blocks of stock at once, and in the process they would also eliminate exchange fees and trade at the midpoint instead of eating the spread.

This was loved by the big players as they could easily move into and out of big positions- meaning that your pensions and mutual funds are now getting better prices and aren't getting taken advantage of in the lit markets.

The "price" is still the price for everyone, and you can not trade at a worse price than the NBBO- National Best Bid Offer. An HFT participant would have a field day if they were able to sniff out that large movements were going down. Many traders did this form or "tape reading" in the Bad Old Days you seem to be want to go back to.

about 3 months ago
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SEC Chair On HFT: 'The Markets Are Not Rigged'

Kevin Stevens Re:Not a surprise (303 comments)

This is not true, at least not for B/D owned dark pools. You could not buy real colocated access to those venues. You can buy other products to get low latency links into brokers, but you can't buy a direct route into a dark pool, at least not one owned by any of the b/d's I worked at, but I am unaware of any other B/Ds doing this either.

about 3 months ago
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SEC Chair On HFT: 'The Markets Are Not Rigged'

Kevin Stevens Re:Not a surprise (303 comments)

They just transferred profits from one group of guys that were making fairly easy money, collapsed the profit margin and concentrated that money into a fairly smaller group of people- so I think that they actually did benefit society. Though I would ask you why all actions have to benefit society? Does a gambler going to a casino benefit society? Does someone who goes to a restauarant? How about about someone who takes a weekend trip away from the city?

I am not sure what you are getting at about raising the barriers to entry. Technology has in general raised the barriers to entry for opening up a brokerage firm. It used to be that you needed phones, sales reps, a clearing firm and someone down on the floor to open a brokerage, and that was about it. These days everything is electronic and it is more difficult to do so. That technology needs to be reasonably good as well. To be competitive these days, the technology is commoditized, you can buy many pieces off the shelf.

The window for the glory days of HFT has closed. People caught on to them, and caught up. I wouldn't get too caught up in the storyline that a few geniuses almost took over the world. In 2008, I heard of several firms doing really stupid slow things- database accesses of security information in the critical path for instance.

about 3 months ago
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The Ways Programming Is Hard

Kevin Stevens Re:Programming is the easy part (278 comments)

This reminds me of when I was building a new stock trading system from scratch. We wanted to provide a web interface so you could enter orders, view your trades, etc. This wasn't considered a core thing, so it was outsourced to some guys in Brazil. These guys were smart, but knew nothing about our industry and clearly hadn't ever traded a stock. We gave them some mockups and specs, and what they gave us back looked just like what we asked for, but it was a usability nightmare.

The order and execution screens were in a random order, and there was no way to sort the records. Basic validations were not done- entering a negative number of shares or price was not caught for example. Summaries of numbers of shares, value executed, etc, were not there. There were just a bunch of things like this, that made the app a complete disaster to use.

But I realized after talking with these guys, it was entirely our fault. They really had no idea what they were building, how it was used, or who would use it. But they were amazing soldiers, I could have told them to walk in a straight line, and watched those guys just get up and walk, straight into a wall, and continue to do so until I told them to stop. Things like being able to sort the records, were so obvious to us that we didn't even think to put them in the spec.

about 3 months ago
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SEC Chair On HFT: 'The Markets Are Not Rigged'

Kevin Stevens Re:Not a surprise (303 comments)

You completely misunderstood Flash Boys when you read it. Diverting an order into a dark pool is meant to HIDE information from HFT guys. You don't know where the order came from, or who your counterparty is. You can't view the order book, its much more hidden (hence the name "dark" pool, as opposed to the "lit" exchanges). The only way to see if there is any activity in a given name is to actually send an order in and hope it gets executed.

What do you mean that this gives HFT guys more information that others don't have? They can try pinging dark pools and try to make guesses about the size that is actually there, but this not really information that others don't have. Around 2008-2009, it was becoming known that some participants were trying to sniff out size in dark pools, and most pools put in mechanisms to prevent this.

Dark pools exist as a way for brokers to make themselves money by keeping the exchange fees.

Source: I have built dark pools and routers that route flow into them.

about 3 months ago
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SEC Chair On HFT: 'The Markets Are Not Rigged'

Kevin Stevens Re:Not a surprise (303 comments)

Are you just some fatass in a chair bitching? Or do you have a real solid, informed complaint about HFT?

I ask this, as I worked in the algo trading industry for ten years on both the prop (HFT) side and the agency side, where I built tools to counteract HFT players. I recently left as the money dried up, while the hours didn't, and to be quite honest I just lost a lot of interest in the business.

There are problems with HFT activity, but I believe that overall, they have benefitted the retail investor. Since the rise of HFT and electronic markets, spreads have collapsed to be an insignificant cost of trading. HFT guys ate the lunch of market makers who used to have cushy little businesses and traders getting mid 6 to 7 figure bonuses. My first job involved automating those guys out of a job. Those guys used to legitimately front-run orders, anyone talking about HFT front running is either redefining the term, or doesn't know what they are talking about.

Guys with a speed advantage have always used that advantage to make money in the stock market. Whether it be guys with faster horses in the pre-railroad/telegraph era (supposedly the rothschilds made their fortune this way, buying up english bonds as they had news that a war had ended first), telephones ripping off bucket shops in the 1900's, SOES bandits in the 1980s, and now HFT today, this has always existed. All those guys who actually used to sit on the floor of the NYSE- why do you think they were there?- So they could trade on the news first (one quote from the book Market Wizards: "First its the floor traders, the next day its the dentists, then after that comes Joe Schmoe.")

The games that HFT guys are playing is generally sniping a penny here and there. As a retail investor who is buying and holding, their game has nothing to do with yours, and they have eaten the lunches of the market makers and brokers who used to rip you off.

Are there problems with HFT? Yeah- mainly that exchanges are developing order types exclusively for their use. The fact that they are acting like market makers by providing liquidity and squeezing the legit market makers, but once things start looking weird, pull out immediately (though after the flash crash, many of these guys started becoming legit market makers).

Net/net though, these guys are good for retail traders. If you disagree, come up with a good, specific, informed reason on how they are hurting you and your orders in the market. If you look at some of the major detractors of HFT like Joe Saluzzi, they are almost always from smaller niche firms who can not afford technology to adequately compete in an electronic world, and are getting squeezed out by the bulge bracket guys.

The HFT business is drying up as it is though. The arms race has put enough players on equal footing that the low hanging fruit is gone. The major banks have invested enough in their infra that they can't just be picked off by these guys anymore. This is good for the industry in my opinion, maybe the focus can go back to trading smarter, not just saving off ten microseconds on the slice time.

about 3 months ago
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Prediction Market Site InTrade Bans US Customers

Kevin Stevens Re:Hmmm ... (260 comments)

You can trade in London, because it is based in London. Just like you can buy a car from a german car company, but once it is on US soil, it needs to comply with US standards.

InTrade is acting as a futures market in the US, so it needs to be regulated by the SEC if it wants to continue to do so. I am not intimately familiar w/ the situation, though I have used InTrade in the past, but I don't see what is stopping them from becoming a legit exchange. I think it will help their business a great deal.

Imagine a convenience store that initially sells some cans of lighter fluid. Then it starts selling some gasoline in soda-like cans intended for lawn mowers. Then it starts selling larger cans that are primarily used to put into car tanks. The government is saying "Hey now, you are really starting to look like a gas station, and need to follow the rules and regulations that go along with being a gas station, and you can't sell any more gas until you do."

about a year and a half ago
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Gate One 1.1 Released: Run Vim In Your Browser

Kevin Stevens Re:putty replacement? (150 comments)

Very good to know. Thanks!

about a year and a half ago
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Gate One 1.1 Released: Run Vim In Your Browser

Kevin Stevens Re:Cool, (150 comments)

This isn't mission control, we are talking about a few blogs here. The security policies I am avoiding are intended to prevent data being sent out of the firm undetected, and I am not doing that, and I don't have the ability to do that in any reasonable way.

I don't consider loading up a web browser from a friend's house or wherever I am in an outage situation to log into my server "beyond stupid." I wouldn't even consider it mildly stupid, and its certainly not something to flame someone about.

I hope your day gets better.

about a year and a half ago
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Gate One 1.1 Released: Run Vim In Your Browser

Kevin Stevens Re:Cool, (150 comments)

It is a lot easier to ask for forgiveness than permission.

I run a few websites that generate a small but growing amount of traffic (and hopefully one day, revenue), so its also nice to know that from any computer, I can log in to my jump server, and take a look if something goes down, with nothing more than a web browser. It could be a locked down computer only offering a web browser, or a friend's computer I don't want to be fumbling around and installing putty on, etc.

But yeah 98% of my use is avoiding IT policies.

about a year and a half ago
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Gate One 1.1 Released: Run Vim In Your Browser

Kevin Stevens Re:putty replacement? (150 comments)

It runs over https. For most users like myself, its about access, not security.

about a year and a half ago
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Gate One 1.1 Released: Run Vim In Your Browser

Kevin Stevens Re:putty replacement? (150 comments)

Yeah there are. Most are pretty crappy. GateOne just performs far better, to the point where you can actually use it for useful work. I used to use ajaxterm, it worked, but had weird bugs. Later I moved to webshell, which was a big improvement. GateOne is an improvement further still. I use this on my personal server, so unless they are inspecting packets to see that this is an app, which currently my very paranoid company does not do, this won't get blocked.

about a year and a half ago
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Gate One 1.1 Released: Run Vim In Your Browser

Kevin Stevens Re:putty replacement? (150 comments)

No, its not. It runs in a browser and is thus cross platform. The main point is that the ssh session runs on the server side, so you are essentially tunneling ssh through http. Very nice if you need ssh access in an environment that won't let you ssh out of the network.

about a year and a half ago
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Gate One 1.1 Released: Run Vim In Your Browser

Kevin Stevens Re:Cool, (150 comments)

The main use of this is being able to access an environment from anywhere. This includes networks that do not allow you to ssh out of their networks, which is becoming a common security practice these days.

I have this installed on my server, as my company's netsense filter is far too aggressive and I can not access personal email or chat programs from work. I find from time to time I need to answer personal emails in a timely manner (like when I bought a house), and tapping out messages on a phone doesn't cut it. Gate one is actually quite awesome. I used predecessors that had the same functionality, and they were only useful in the most dire situations because of the slight lag and other display issues they had. You can actually attempt to do some real work with Gate One, though obviously putty is preferred if you can use it.

about a year and a half ago
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NYC Data Centers Struggle To Recover After Sandy

Kevin Stevens Re:Manhattan unsuitable for data centers? (231 comments)

About the history and feasability of moving data centers out of Manhattan:

I am not an expert on this, but Wall St has been a datacenter hub because it has always been an information hub. There has always been a huge telecom demand down there, because there has always been a huge information demand down there. From telegrams, ticker tapes, masses of traders on phones, to bloomberg terminals, to exchanges sending quotes out, there has always been a big demand for data lines down there- I am using data lines generically, because we are talking technology spanning back to the 1900s. So when the first data centers were being built, lower Manhattan was a natural location. It actually made financial sense for a time, as running lines used to be really expensive, and there were major telco facilities based in lower Manhattan.

Of course things have changed, connectivity has gotten way cheaper, to the point where proximity is no longer very important, especially from an economic standpoint. On top of that, 9/11, and to a greater extent the blackout of 2003, made companies realize that having geographical diversity is really important.

So yeah, not only is it feasible to move datacenters out of Manhattan, it is happening, and preferred. Its much cheaper and easier to build out in suburbs and exurbs. However, partly because these facilities already exist in Manhattan, and partly because a good Business Continuity Plan also has data centers in close proximity to your main offices, there are still data centers downtown. My firm is running at reduced capacity for some specific processes due to a data center under water, and at least as of yesterday was running some on generator power, but we are fully functioning. I am sure there is an infra guy right now who is regretting on a micro level the usage of this particular facility due to its placement and vulnerability (though I know this building houses machines from many firms, and I am not sure how easy it is to find data center space in Manhattan), but having a facility in Manhattan is part of the BCP.

High Frequency Trading doesn't really play a part in this btw. The stuff running in our data centers in Manhattan is mundane stuff. HFT requires you to be close to the exchange's matching engines, which in the case of NYSE are actually in mahwah NJ, near the NY border.

about a year and a half ago
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US Adoption of 10 Mbps+ Broadband Nearly Doubles In a Year

Kevin Stevens Re:The numbers (172 comments)

If that makes you envious, FIOS now offers 300 down, 65 up in my neighborhood. Its a standalone plan, and costs about $200 a month, but that just blew my mind. It appeared I could also increase my current 50/25 to 150/50 for about $20. My current 50/25 plan, all in with the "triple play" currently costs $100/month.

about 2 years ago
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Report Cites Highest IT Job Growth In 4 Years

Kevin Stevens Re:In real jobs or fake ones? (176 comments)

I hope you aren't in NYC or Silicon Valley, because that is almost entry level in those places.

about 2 years ago
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Google's Own Nexus Tablet Leaks Into the Wild

Kevin Stevens Re:ICS fo Galaxy Tab (224 comments)

I am with you on that. I went Android after owning a 3GS. I mostly liked it, but the pace of change just seemed so slow- even what seemed to be infuriatingly easy to implement features like being sent invitations from exchange and having apple recognize them. The walled garden of the app store, lack of flash support, and then finally the small screen size vs android phones made me switch. I loved the widgets on android, and the fact that apps like the NYTimes could DL content overnight so I can just pull up the app on the subway and read the morning's news (this is finally in the latest IOS release).

So I bought a Samsung Galaxy S II. Aside from the super large screen, I was really excited about Google Wallet and NFC, which were only supported in ICS which would be coming down to the S II "any day now" when I bought it. 9 months later, I am still waiting for AT&T to release it. This is supposed to be a flagship phone. My buddy spends many hours rooting and tweaking his phone with ICS images found on the net, but my phone is something I just want to work with as little effort as possible. The fragmentation makes it harder for the carriers to support, but also harder for people to bitch- "antenna gate" could never happen with an android device because it would be so easy to deflect as a carrier specific modification causing problems!

Google really needs to tighten up the reins a bit. Aside from the absurd branding each carrier does (Sprint's flavor of the SGS II is officially called the Samsung Galaxy S II Epic 4G Touch. Really?!), even the hardware is different on each model- I was told that the SII would have an FM tuner on it, which I was quite excited about, only to find out that wasn't the case for AT&T. Single phone models across carriers (hard). Force them into some sort of SLA that requires them to provide updates within a few months for a support window of 2 years.

I like the choice among Android phones, but at the same time the Android universe is so fragmented, I really have no idea what someone has in their hand when they say they have an android phone- it could be a cheap POS, or a premium phone. At least with an ios device I have an idea of what features are supported and when and what I am getting with each new release. If Apple comes out with an iphone with a competitive screen size, I am going back.

more than 2 years ago
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Ask Slashdot: Jobs For Geeks In the Business/Financial World?

Kevin Stevens 10 years experience on Wall St- advice. (181 comments)

"Wall St" is a tremendous beast, and fortunately for you, the biggest banks have larger "IT" departments than major software companies. I put IT in quotes, because in general, I think of IT as being the networking/desktop support guys, not developers, but on Wall St, developers are considered IT. Most jobs need no real financial experience, you are just building a web app or piece of infrastructure, and in the case of real IT jobs, you are just building infrastructure like any other- a network on a trading floor might have a bit more fail over and edge protection, but its still just a network. The highest paying "quant" and automated trading jobs do require financial knowledge, but there are many jobs that don't require that.

The more dangerous question is what is the culture like? The crisis has really hit the banks hard. I used to love my job and the industry, but its really changed from work 10 hours a day because you love it and want to get ahead, to work 11 hours a day or else you are at risk of being laid off- and that risk is very real. The banks nowadays seem to hiring and firing in waves, and just kind of seeing what sticks. Layoffs are a semi-annual occurrence. I have watched the culture from generally being team based and cooperative, to very competitive. People are overworked, and no longer willing to take time and risk their projects being late to explain how something works to someone new. So in general you have to work twice as hard reverse engineering stuff and looking at years old docs and source code to learn how things work. The guys that are thriving on my team are young, single, and generally don't have friends and families in the area. They don't mind working late nights and weekends as much, and don't seem all that concerned that they are heading into their late 20s alone. I sometimes wish I never got a dog, because while my wife can tolerate me working late to some extent (because she often does as well), I have real guilt when the clock hits 7:30 pm and I know my little furball is sitting in a crate anxiously awaiting for me to come home. I also miss my wife and dog as well- it was a lot easier to work past 8pm when I only had some transient roommates at home waiting for me.

Some things that make me happy: I work on real, important systems. These make real money for the firm, and my contributions have real bottom line impact on revenue. There are no "throwaway" projects, code that doesn't make it into production, etc that I hear about in a lot of places. The pay is generally good, but as I spoke before, the hours are murderous, and bonuses are way down. They are no longer something you look forward to all year round. The culture used to be exciting and dynamic, and I hope that the industry will get its groove back, but it seems to be permanently calcified- moving from IT to the business side or to a real quantitative role is nearly impossible once you are boxed in as an "IT" guy.

Things that make me unhappy: At larger firms, its really hard to innovate. At a smaller firm, I would read about a new boost release, see something I wanted to use in it, work a little late that night to upgrade the codebase to it, and be done with it. Heard about a new IDE or compiler? I would DL it and try it out. Same for new versions of software like Chrome, firefox, or whatever. Playing with new technology makes me happy. At larger banks, everything is locked down. To upgrade from boost 1.35 to something more recent, is going to require a business sponsor, or some proven improvement- which is really hard to do when you can't even DL the source code as just about all download sites are blocked! You will be using winxp, and the approved version of the software packages your company has blessed- which is always several years behind. I was quite excited when we moved from gcc3.4 to 4.1 last year. There are lots of meetings, a lot of time spent coordinating with other teams and regions. There is also a general trend for all new hiring to occur in cheap regions like budapest, eastern europe, and India.

What I don't know, is the requirements for working overseas as a foreigner. I can tell you, that I have seen a few transfers from the US to Asia, and it seemed to go fairly smoothly. At least some of the guys I talk to in Shanghai seem to be from the US/EU, just based on their lack of accent and knowledge of US culture. I don't know for sure their background, as the time differences between NY and Asia mean its very late and very early for each of us, so there is zero chit-chat. Which brings up an interesting point- you are likely going to be in a role where there is inter-region interaction, be prepared to be on conference calls at inconvenient times.

In the US market, the best way to get a job is to talk to some recruiters- some of these guys also recruit for roles in Asia as well. Those guys are somewhat rare, but good recruiters can refer you to someone else as well.

BTW- I have been working in finance most of my career, though I did start out at a software consulting firm. Send me a PM if you want.

more than 2 years ago

Submissions

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Worm in wild is targetting industrial controllers

Kevin Stevens Kevin Stevens writes  |  more than 3 years ago

Kevin Stevens writes "In a story from the NY Times that sounds like something out of a Dan Brown novel, there appears to be a worm in the wild developed by an intelligence agency that targets specific industrial controllers used in Iran's nuclear weapons program. If that isn't sensational enough, looking at the strings inside the worm's code reveal that the project's internal name is a reference to a biblical story about the Jewish people pre-emptively attacking the Persians who were plotting against them."
Link to Original Source

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