Market Makers and High Frequency Trading

[skc]

Here's some good reading.

http://www.asxgroup.com.au/media/ASX_submission_-_ASIC_CP202_final.pdf

This I particularly like from p.5

ASX regularly fields questions from companies and investors who query an unusual pattern of trading in small parcels which they regard as suspicious. While this is often attributed to HFT, in fact the bulk of this behaviour is directly related to execution algorithms used by brokers to spread out trades over the trading day(s).

and here

http://www.asic.gov.au/asic/asic.ns...idity+and+high-frequency+trading?openDocument

Some of the commonly held negative perceptions about high-frequency trading are not supported by our analysis of Australian markets ””for example:
(i) that high-frequency traders exhibit unacceptably high order-to-trade ratios. Increases in order-to-trade ratios in Australia havebeen moderate compared with overseas markets, and other algorithmic traders operate at similar levels; and
(ii) that high-frequency traders’ holding times are often a matter of seconds and therefore that they
make no contribution to deep, liquid markets. Our analysis shows that only 1.2% of high-frequency traders held positions for an average of two minutes or less, 18% for less than 10 minutes and 51% for less than 30 minutes

That's slower than TH when he had an off day!

And this

374 We do not regard the fact that market participants can co-locate to obtain a speed advantage as inherently unfair. Speed of access to the market has always been contestable, from the days of physical proximity on the floor, when an open outcry system operated. We recognise that not all market operators choose to operate at the co-location site with the lowest latency, but for those who do, our concern is to ensure that the facilities for doing so are made available to them on a fair basis and on transparent terms.

377 The use of technology to receive, process and instruct is only available after the market operator has publicised prices so that these are available to the wider market. In Australia, no specific investor or participant category has access to data before the broader market. While the technological advances discussed allow faster reaction times, for the removal, replacement and introduction of orders across markets, this is done based only on public and non-privileged information.

 

[mullokintyre]

According to Wall Street Journal the US SEC is planning on removing the ability of participants to front run retail investors trades.

SEC Chair Gary Gensler directed staff last year to explore ways to make the stock market "more efficient for small investors and public companies." And while aspects of the effort are in varying stages of development, one idea that has gained traction is to require brokerages to send most individual investors’ orders to be routed into auctions where trading firms compete to execute them, effectively making frontrunning impossible and obsoleting the entire microwave/laser trading industry which is meant to do just one thing: trade ahead of slower (retail) orderflow.

Digging into the details, we find that the most consequential change being discussed would impact the way trades are handled after an investor places a so-called market order (i.e., adding liquidity) with a broker to buy or sell a stock. Market orders, which account for the majority of individual investors’ trades, don’t specify a minimum or maximum price the investor is willing to pay, and are ripe for frontrunning by countless subpennying algos which move the entire market away from the order and force it to chase the market higher or lower, creating massive "slippage" in the process, or profits for HFTs and internalizers, such as Citadel, which can then turn around and immediately take the other side of the trade locking in risk-free profits.

Can't see it happening, the big boys have too much tied up in the scam.
mick

 

[divs4ever]

According to Wall Street Journal the US SEC is planning on removing the ability of participants to front run retail investors trades.

Can't see it happening, the big boys have too much tied up in the scam.
mick

finally aware of Nancy Pelosi ( and other government officials ) and their amazing stock-picking ability , nah , just picking on the brokers and traders using incredibly small time advantages ,
will be interesting to see what Blackrock does about that