Securities regulators seek high-frequency secret sauce

[indio007]

Hopefully the SEC will finally ban these cheaters. How bout so true price discovery?

http://newsandinsight.thomsonreuters.com/Legal/News/2011/09_-_September/Securities_regulators_seek_high-frequency_secret_sauce/

WASHINGTON/NEW YORK, Sept 1 (Reuters) - Securities regulators have taken the unprecedented step of asking high-frequency trading firms to hand over the details of their trading strategies, and in some cases, their secret computer codes.

The requests for proprietary code and algorithm parameters by the Financial Industry Regulatory Authority (FINRA), a Wall Street brokerage regulator, are part of investigations into suspicious market activity, said Tom Gira, executive vice president of FINRA's market regulation unit.

"It's not a fishing expedition or educational exercise. It's because there's something that's troubling us in the marketplace," he said in an interview.

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[ElectricMucus]

That's like having a rotten tomato lying in the kitchen and asking the flies to fly out the window.

[BubbleBoy]

Dear sir, your ideas about cheating the stock market intrigue me. Can you please elaborate, and lay down a clear plan on how one can cheat the stock market and make a profit ?

[hugolp]

Dear sir, your ideas about cheating the stock market intrigue me. Can you please elaborate, and lay down a clear plan on how one can cheat the stock market and make a profit ?

Probably Goldman Sachs or JPMorgan have complained that someone else is taking their business and have ordered the SEC to stop them.

[johnyj]

No big secret

I talked to one of the leading firms making such kind of trading software, the principle is to be faster than others to lay an order after receiving the market data, with their software, they can be several millisecond faster than others to place the order into market, thus get better execution, and even arbitraging against slower brokers if they are slow enough. Those slower brokers trading on electronic trading market will get a higher execution cost

[Melbustus]

This is all kind of silly anyway. If you're taking a long-term view of the market and truly investing, having these HFT guys in the market doesn't matter. Let them battle each other for 100ns better execution. I don't really care if they spend a few billion on technology trying to best each other, or if the small day-trader is collateral damage. The market should be about long-term investing anyway.

[johnyj]

The problem now is, if every one is saving money and do not spend big, market will go down for a long time before people's confidence regained. High frequency trading does not affect this at all

The sad thing is, even I realized this truth, I still can not spend big, since my only alternative to prepare for the storm is saving more. If I spend big and everyone else save big, I will be in a much worse position if things get ugly. So to say, unless I have accumulated enough cash to pass the next wave of recession (5 years of living cost), I won't spend big

Unless banks can loan out those savings and turn them into investment and create new jobs, this downward spiral can go on forever. But what investment can bring a sure return?

[indio007]

All the descriptions of HFT on here are wrong. The are manipulating the bid/ask spread and doing exchange arbitrage, basically shaving a .001% off each side. It takes lots of $$$ to do this but these investment banks are highly leveraged and have the capital.

[Lolcust]

All the descriptions of HFT on here are wrong. The are manipulating the bid/ask spread and doing exchange arbitrage, basically shaving a .001% off each side. It takes lots of $$$ to do this but these investment banks are highly leveraged and have the capital.

And why is that "wrong", if I may naively ask ?

[indio007]

This explains it better than I can.
http://seekingalpha.com/article/151173-hft-the-high-frequency-trading-scam

No. The disadvantage was not speed. The disadvantage was that the "algos" had engaged in something other than what their claimed purpose is in the marketplace - that is, instead of providing liquidity, they intentionally probed the market with tiny orders that were immediately canceled in a scheme to gain an illegal view into the other side's willingness to pay.

[Lolcust]

So, it's kinda like financial port scan, specifically geared to detect limit price of an opponent in a time-efficient manner ?

I don't see a problem with that, at least not for big-time players who could pay some cow-pewter "wizards" to make "bot crusher" algos which  detect and bounce such patterns, not unlike some of the more savvy sites run "spider crushers" to quash unwanted search spiders (harvesters of content farms, etc)

Yes, it sucks for the slow average joe with no ability to recruit aid of computer experts and analysts, but it generally sucks to be joe average anyway, and there is no reason why regulation should side with "unaugmented" trader.

[Hawker]

All the descriptions of HFT on here are wrong. The are manipulating the bid/ask spread and doing exchange arbitrage, basically shaving a .001% off each side. It takes lots of $$$ to do this but these investment banks are highly leveraged and have the capital.

And why is that "wrong", if I may naively ask ?

Its wrong because the data feed is not shared equally.  I have a program I wrote that uses a real time feed from the exchanges.  But the HFT guys have access to the data before it enters the "Real time" feed.  So I can never write a HFT program and they can do so easily.  

Hmmm - it seems I am wrong.  "Flash trading is where certain market participants are allowed to see incoming orders to buy or sell securities very slightly earlier than the general market participants, typically 30 milliseconds, in exchange for a fee. According to some sources, the programs can inspect major orders as they come in and use that information to profit.[4] Currently, the majority of exchanges either do not offer flash trading, or have discontinued it," - http://en.wikipedia.org/wiki/High-frequency_trading#Effects

Please ignore my post.  And maybe I should get coding :p