1. Welcome to SportsJournalists.com, a friendly forum for discussing all things sports and journalism.

    Your voice is missing! You will need to register for a free account to get access to the following site features:
    • Reply to discussions and create your own threads.
    • Access to private conversations with other members.
    • Fewer ads.

    We hope to see you as a part of our community soon!

New book from Michael Lewis on High Frequency Trading

Discussion in 'Sports and News' started by lcjjdnh, Mar 29, 2014.

  1. The Big Ragu

    The Big Ragu Moderator Staff Member

    Same point. ... put a little more bluntly @ ZeroHedge about an hour ago.

    Why Nav Sarao Had To Be Destroyed: He Found A Way To Beat The HFTs At Their Own Game | Zero Hedge

    i.e. -- The HFT firms -- the Citadels, Virtus -- are part of the establishment. This guy beat them at their own game. So their protectors are making an example of him as a warning to others.

    I don't think it is quite that sinister.

    Sarao's e-mail exchange with the woman from the FCA essentially has him making the case I did in the long post above yours, DQ.(http://www.zerohedge.com/sites/defa...5/imageroot/2015/04/Sarao response letter.pdf)

    He basically says that he got sick of his order being front run, so he helped develop software to equalize the playing field. He may or may not have been that virtuous, but that is still in effect the purpose people like him serve. What I was saying.

    That's the spoofing the regulators need to protect everyone from -- oddly, the only people it protects are the HFTs that everyone was so angry about because of Michael Lewis.

    In your link, DQ, he said something that I pointed out very early on this thread. The current market environment, with HFTs that are encouraged to try to front run orders, exists in the first place because of the Reg NMS system the SEC put into place in the first place! They mucked with the market and created the problem in the process. ... Now we have someone who effectively was putting a check on the mess they created -- and which everyone was complaining about! -- and he is the criminal!

    By the way, I was watching crude oil futures at about 3:30, 4 am EST this morning -- I couldn't sleep. And there was someone or something using a dynamic layered algorithm to place and pull orders. It happens every day across all kinds of markets. It's not like the CFTC suddenly discovered something new and was quick to protect the integrity of their markets. This whole thing is a joke.
     
    doctorquant and YankeeFan like this.
  2. Songbird

    Songbird Well-Known Member

    Last several pages have been educational, so thanks, Ragu, but with that, who is going to stop the real raiders?

    Or is this a wink-wink nod-nod, ain't no one ever gonna stop us!
     
  3. The Big Ragu

    The Big Ragu Moderator Staff Member

    By "raiders," you mean HFT firms?

    If so, I don't know why anyone who understands the markets would want to interfere with them anymore.

    In my opinion, HFTs (and other very active trading firms) actually do more good than harm -- when it comes to cost. Any harm -- and that is subjective -- they are doing effects the big institutional traders -- the Blackrocks, Fidelities, various sovereign wealth funds, even the various central banks that are active in markets (and that should be WAY MORE criminal than anything we are discussing) the most. They get nickel and dimed whenever they show the intention to buy or sell. I guess you can argue that that is affecting lots of mom and pops, in that it ends up making their mutual funds or pension funds more expensive.

    But that line of reasoning is entirely wrong, because it looks at it too myopically. The flip side is that I am watching about 15 different markets as I type this and the spreads between bid and ask are tight as possible -- way tighter than they used to be. And that is the benefit of the liquidity all of the activity -- HFT included -- has injected into the markets. Take the Euro-Dollar exchange rate. The spreads amount to less than a .0005 percent cost on a buy or sell order. It is ridiculously efficient compared to how things used to be.

    You don't have those very tight spreads without these markets being open and free to everyone -- including guys with fast computers or high-speed lines looking for a millisecond advantage and trading like mad all day long. You can't have one without the other! The fact that they might have some technological advantage that allows them to jump some orders and cost someone an extra fraction of a cent on their order doesn't negate the fact that BECAUSE of the electronic markets that make what they do possible, whoever placed that order is already saving way more than some HFT cost them on the tighter execution they got.

    The regulation people want will make things MORE costly.

    This is a "problem" that doesn't need to be fixed. To the extent that anyone could legitimately think of HFTs as a problem, it would be the actual large traders who have gotten picked off over and over again by HFTs and want to bring down their costs. And they can deal with it on their own, if they see the need. In the case of this guy in the UK who was just arrested, he paid someone to build a program to disguise his orders. In the case of the big institutional money managers, Blackrock, JP Morgan, Bank of NY, T. Rowe Price, Fidelity and a couple of other large institutional firms are really close to launching their own dark pool that will be closed and won't allow any HFTs to participate. In the case of Brad Kasuyama and IEX, they have built a dark pool (he'd like it to be an exchange) which adds a slight delay in front its trading engine to limit the ability of HFTs to get ahead of orders.
     
  4. Songbird

    Songbird Well-Known Member

    Seems spurious that a gamer who gamed the gamers got got.
     
  5. YankeeFan

    YankeeFan Well-Known Member

    Convicted:

    The lightning fast guilty verdict against a high-speed commodities trader may embolden prosecutors who have gone on the offensive in a year of heightened regulatory scrutiny of spoofing.

    Michael Coscia’s trial was the first use of an anti-spoofing law after the 2010 Dodd-Frank Act made it illegal to manipulate prices by placing orders without intending to trade on them. That law, which also provided an easier standard of proof to try cases, was put to test in Chicago federal court amid stepped-up civil enforcement by the Commodity Futures Trading Commission.

    The jury of eight men and four women deliberated for about an hour before finding the 53-year-old head of Panther Energy Trading LLC guilty on the spoofing charges. The trial was widely watched by lawyers and trading firms as a bellwether for future cases.


    Commodities Trader Michael Coscia Found Guilty in Spoofing Trial
     
  6. The Big Ragu

    The Big Ragu Moderator Staff Member

    Absolutely ridiculous. Let's be honest. The reason that spoofing (how do you decide someone is spoofing anyhow!) is illegal is because some very large, wealthy high-frequency trading firms had the political clout and money to buy legislation that criminalizes a trading activity that neutralizes what they do.

    We have now taken a perfectly legal activity -- trading an asset -- and it has become randomly criminalized based on a clueless jury being instructed to decide what the "intent" of the trader was -- with the actual "intent" that has been criminalized being a perfectly legitimate activity!!

    Of course, the same people throwing high-frequency trading out there as red meat to an uniformed public, just effectively criminalized the antidote to high-frequency trading.

    A true market has zillions of participants with different motivations, varying amounts of info and different technological capabilities. All of that participation, and varying degrees of knowledge of the participants, is what makes those markets the most efficient way to determine a price -- the amount of supply meets the amount of demand at an equilibrium price. Throw everyone in with all of their motivations and all of their methods of trading and you really do find a value for something.

    Rather than allowing markets to value things, we have politburos that have arbitrarily decided what is "fair" -- like the participants in the market can't figure that out best for themselves. It needs to be price fixed. It is based on populist blather (for effect), but really corruptly, based on who has the money to buy the legislation that gives one participant a legalized advantage over everyone else. And in the process they very randomly criminalize some of the market participants (by reading tea leaves about people's motivations!). The result is that you no longer have an actual market. And we all suffer from that -- way more than most people realize. These self-made market inefficiencies drive up costs of things and create misallocations of capital that affect each and every one of us.

    This kind of stupidity also makes those markets -- which involve highly leveraged participants -- unstable and prone to big swings (and crashes). The CTFC is an insidious organization. If these regulatory poliburos would butt the F out, all these made-up problems would take care of themselves. A high-frequency trader tries to use a technological advantage to get an edge. ... and someone comes up with a spoofing algorithm that keeps them honest. It takes care of itself.

    But instead, we have these blind mice regulatory bodies that interfere and F things up. When you randomly criminalize one mode of operating, you are picking winners and losers, rather than letting the market participants work it all out for themselves.
     
    YankeeFan likes this.
  7. The Big Ragu

    The Big Ragu Moderator Staff Member

    Following up on the last few posts. ...

    The antidote to what everyone was in a twist over when Lewis' book came out. ... was sentenced to 3 years in prison.

    First Trader Convicted of Spoofing Gets 3-Year Prison Term

    Guys like Coscia keep the Citadels of the world in check. And that can't happen. Citadel bought this Kreskin-inspired legislation that punishes traders based on their "intent" when they send an order, and Citadel has a clueless CFTC in the palm of its hand, as well as a team of prosecutors ready to see to it that a guy accused of making peanuts at Citadel's expense, goes to prison for doing the exact thing Citadel has done to the tune of billions of dollars at others' expense.

    American Justice. ... Crony Capitalism Edition.
     
    YankeeFan and doctorquant like this.
  8. YankeeFan

    YankeeFan Well-Known Member

    Like a lot of highly regulated industries, those regulated and up in bed with the regulators, and use their influence to keep out competition.

    The Taxi industry is an obvious example, which is being challenged now by Uber and the like.

    This American Life's latest episode had this example:

    Ira Glass
    Is the fix in or is it just our imagination. Consider this case, our state legislature here in Illinois recently passed a bill. It was signed into law and it said that if you were a company that made liquor, any kind of liquor product, and you had some distributor in Illinois, who was doing what a liquor distributor does, which is buying from you and shipping to stores and bars and whoever, and if you decided at some point that you wanted to switch to a different distributor, somebody whose service was better, somebody more reliable, whatever, this law said that unless a special board ruled that you had a good reason to switch, and the reasons had to be really, really good, you were not allowed to switch.

    Basically it was a law that stopped you from freely choosing who you wanted to do business with. And who was the main force behind this law? Cindi Canary, the head of the Illinois Campaign for Political Reform, will tell you the answer. And be forewarned, it may sound suspicious. It was a man named Bill Wirtz. And his job?

    Cindy Canary
    He owns the largest liquor distributorship in the state.

    Ira Glass
    What was the rationale that they had for this bill when it was debated?

    Cindy Canary
    Well, what they lobbied on in the legislature was they took the tack that if manufacturers could go wherever they wanted, all of these liquor distributor jobs would go to foreigners. They would all go overseas.

    Ira Glass
    But wait a second--

    Cindy Canary
    I know. It's crazy.

    Ira Glass
    If they're distributing liquor in Illinois, then that would pretty much mean that these are trucks that are delivering alcohol--

    Cindy Canary
    I know.

    Ira Glass
    --in the state of Illinois. Right.

    Cindy Canary
    I know. But the big pitch was we were going to lose all these jobs.

    Ira Glass
    The Federal Trade Commission examined the bill and concluded that there was no evidence of any need for it. And that in fact it would protect liquor distributors, like Bill Wirtz, from normal market forces. And would probably increase alcohol prices besides.

    Cindy Canary says that a year before the bill passed, legislators used to point to this bill as an example of the kinds of special interest proposals they were protecting us from every day. Proposals that could never actually get to be real laws.

    Cindy Canary
    I was on a panel out in the suburbs with a number of other panelists, including some members of the Illinois legislature. And one state senator said to me, he said, now you campaign finance people, you always make such a big deal about quid pro quo and graft. You always say there's something there, he goes. And I'll give you an example there's nothing there. This Wirtz bill, it'll never pass. If it passes, I'll take everyone in this room out to dinner. There were at least 70 people in the room. We've yet to take him up on his invitation.

    Ira Glass
    And that legislator, he voted against it, I presume.

    Cindy Canary
    No, he voted for it.

    Ira Glass
    Wait. What happened?

    Cindy Canary
    I don't know. This is Illinois. And things can change with the wind blowing a different direction.
     
  9. doctorquant

    doctorquant Well-Known Member

    But without businesses being regulated we'd all die from rat droppings in our applesauce ...
     
  10. YankeeFan

    YankeeFan Well-Known Member

    Strawberry ice cream can kill.
     
Draft saved Draft deleted

Share This Page