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Nanex Gets $700k Whistleblower Award from SEC

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Re: Nanex Gets $700k Whistleblower Award from SEC

#151

Post by jsprogrammer »

kasey_junk wrote: post #150
jsprogrammer wrote: post #147

Earlier quoted context omitted.

I think I get the setup and that my characterization is rather accurate.

Well just to clarify a little. There are 2 different concepts that sound sort of similar. 1) A dark pool. This is just another name for an exchange, but one that is not public. I don't know if NYSE runs one, but it wouldn't be surprising. The theory behind these is that they are provided as a service to large institutional investors to trade with each others outside the vagaries of the public markets for lots of reas…

The case we are talking about however, I believe, is where NYSE operates an apparently public market with delayed quotes for some players. Tptacek claims that my orders cannot even make it into the supposedly public market because someone will scoop up my order on the way, before it even reaches the delayed quote market and therefore, the market is not special because I cannot access it (which is disputable).

Re: Nanex Gets $700k Whistleblower Award from SEC

#152

Post by minimax »

kasey_junk wrote: post #150
jsprogrammer wrote: post #147

Earlier quoted context omitted.

I think I get the setup and that my characterization is rather accurate.

Well just to clarify a little. There are 2 different concepts that sound sort of similar. 1) A dark pool. This is just another name for an exchange, but one that is not public. I don't know if NYSE runs one, but it wouldn't be surprising. The theory behind these is that they are provided as a service to large institutional investors to trade with each others outside the vagaries of the public markets for lots of reas…

1)

A U.S. equities exchange has to be registered with and approved by the SEC. There are currently 12 of them. As a registered exchange you have to play by certain rules, and in exchange your displayed top of of book is subject to the order protection rule, meaning that no other venues (exchanges, dark pools, ECNs, or broker dealers) are allowed to trade through your top of book quote without first routing an order to you for the full amount of the displayed size. Exchanges also get a share of SIP revenue (which is important to exchange economics).

In it's most technical definition, a dark pool is an ATS (specifically not an exchange) that has no displayed quote i.e. no market data whatsoever. Most ATSs in the US fit this definition, though there are also ATSs that display a quote. For example, IEX is an ATS that has feed for their top of book quote... so technically not a "dark" pool.

NYSE doesn't run a dark pool and it would be weird if they did. Most US equity exchanges support fully hidden (completely non-displayed) orders, so if you want to trade in the "dark" on NYSE you can just send a hidden order. I think this is one area where futures exchanges and equity exchanges differ. In futures you have icebergs but not fully hidden.

2)

Wholesalers aren't allowed to give you a worse fill than the NBBO. That's the law. Often they will actually give you a tiny bit better than the NBBO on marketable orders. I think they do this so retail brokers can advertise price improvement. For most of the low cost retail platforms there is no ability to direct your order. You give it to the broker and I think basically if it's a marketable order they send it to the wholesaler and if not they post it to an exchange that offers a liquidity adding rebate (the brokerage keeps the rebate, natch). If you are willing to spend a little more on your brokerage account, you can use a platform like Interactive Brokers which does let you route orders directly.

Re: Nanex Gets $700k Whistleblower Award from SEC

#153

Post by cdetrio »

kasey_junk wrote: post #82
cdetrio wrote: post #58

Earlier quoted context omitted.

That's why market makers are also called scalpers, because they skim the $0.10 spread. But in return for paying the spread, what traders get is immediacy. The problem is, how much immediacy do traders actually want? HFT provides immediacy in microseconds; its needed for continuous-time auctions because buyers sellers usually aren't in the market at the exact same microsecond interval (while the HFT is there at every…

Current continuous-time trading already provides you the ability to specify very precisely how much immediacy you are willing to pay for. Thats precisely what the market types are about. I don't particularly have an opinion about the Budish paper, other than it has some serious impacts to globally traded products and it is way more disruptive than people seem to suggest. I do worry that fundamentally altering the way…

Simplish order types (limit/market, good till cancel, immediate or cancel, etc.) can only do so much. When you place a limit order on a continuous-time market, you'll pay exactly your limit price; but on a batch market you'll pay the clearing price (which may be less than your limit price).

The complicated types (hide-n-slide, NBBO pegs, and conditional pegs[1]) may help some players at the expense of others. The only players who wouldn't benefit from batch auctions (according to Budish et. al.) are latency arbitrageurs.

1. https://mechanicalmarkets.wordpress.com/2015/10/05/iex-peg-o...

Re: Nanex Gets $700k Whistleblower Award from SEC

#154

Post by tptacek »

CyberDildonics wrote: post #129
forrestthewoods wrote: post #101

Earlier quoted context omitted.

Let's say that happens. The system checkpoints and everyone orders off those checkpoints. What changes? What's the end result? How do normal people or society benefit? What would have to happen for the change to be declared a success. Conversely, what would have to happen for the change to be declared a failure?

The benefit? People don't have their order front runned by algorithm which will sell it back to them at a slightly higher price, skimming money off the top to no one's benefit.

Can you explain in as much detail as possible exactly how algorithms are front-running people's orders? Can you do it with an example of a specific kind of order, preferably down to where exactly the order is being placed? Then we can dig into the specifics and evaluate the claim being made here.

Re: Nanex Gets $700k Whistleblower Award from SEC

#155

Post by EdHominem »

ethbro wrote: post #106
reverend_gonzo wrote: post #98

Earlier quoted context omitted.

Outside of labor, the primary costs are hardware, colocation, and networking, none of which is a fee to the exchange. Please tell, how the world is supposed to provide that for free to anyone who wants it? Colocated servers are the public.

If NYSE wants to lobby for laws to be changed, then they're welcome to do that. Just like Uber or Airbnb when they get hit with fines. But the law's the law. "It doesn't make sense" isn't a valid defense.

Imagine that they're providing free firewood to the public - what obligates them to provide the pickup trucks?

Re: Nanex Gets $700k Whistleblower Award from SEC

#156

Post by kasey_junk »

minimax wrote: post #152
kasey_junk wrote: post #150

Earlier quoted context omitted.

Well just to clarify a little. There are 2 different concepts that sound sort of similar. 1) A dark pool. This is just another name for an exchange, but one that is not public. I don't know if NYSE runs one, but it wouldn't be surprising. The theory behind these is that they are provided as a service to large institutional investors to trade with each others outside the vagaries of the public markets for lots of reas…

1) A U.S. equities exchange has to be registered with and approved by the SEC. There are currently 12 of them. As a registered exchange you have to play by certain rules, and in exchange your displayed top of of book is subject to the order protection rule, meaning that no other venues (exchanges, dark pools, ECNs, or broker dealers) are allowed to trade through your top of book quote without first routing an order t…

How does priority work on fully hidden orders? Are they always at the back of the line?

Thanks for the clarification on the NBBO ramifications on wholesalers. I have never worked on a order flow trade and would love to see an insider account of them (its sort of what I was hoping Flash Boys would be about).

Re: Nanex Gets $700k Whistleblower Award from SEC

#157

Post by minimax »

kasey_junk wrote: post #156
minimax wrote: post #152

Earlier quoted context omitted.

1) A U.S. equities exchange has to be registered with and approved by the SEC. There are currently 12 of them. As a registered exchange you have to play by certain rules, and in exchange your displayed top of of book is subject to the order protection rule, meaning that no other venues (exchanges, dark pools, ECNs, or broker dealers) are allowed to trade through your top of book quote without first routing an order t…

How does priority work on fully hidden orders? Are they always at the back of the line? Thanks for the clarification on the NBBO ramifications on wholesalers. I have never worked on a order flow trade and would love to see an insider account of them (its sort of what I was hoping Flash Boys would be about).

Yeah for a given price, fully hidden and the non-displayed portion of iceberg orders will be ranked (generally by time priority) behind any displayed shares. Most of the rules are meant to incentivize displayed size.

Re: Nanex Gets $700k Whistleblower Award from SEC

#158

Post by kasey_junk »

cdetrio wrote: post #153
kasey_junk wrote: post #82

Earlier quoted context omitted.

Current continuous-time trading already provides you the ability to specify very precisely how much immediacy you are willing to pay for. Thats precisely what the market types are about. I don't particularly have an opinion about the Budish paper, other than it has some serious impacts to globally traded products and it is way more disruptive than people seem to suggest. I do worry that fundamentally altering the way…

Simplish order types (limit/market, good till cancel, immediate or cancel, etc.) can only do so much. When you place a limit order on a continuous-time market, you'll pay exactly your limit price; but on a batch market you'll pay the clearing price (which may be less than your limit price). The complicated types (hide-n-slide, NBBO pegs, and conditional pegs[1]) may help some players at the expense of others. The onl…

> you'll pay exactly your limit price

Thats not quite true. Price improvement happens all the time on limit orders, but I'll concede you'll pay close to it if it fills.

> The complicated types (hide-n-slide, NBBO pegs, and conditional pegs[1]) may help some players at the expense of others.

This is true of limit/market/stops as well.

The Budish paper is very interesting.

What we don't know is what it would do to the spread, which is very important especially given that it will be harder to predict the clearing price. It is also a major change to the markets, virtually impossible to implement and its not clear to me what that risk is buying us, especially given that I fully expect most participants to go through an intermediate first.

Re: Nanex Gets $700k Whistleblower Award from SEC

#159

Post by tptacek »

CyberDildonics wrote: post #132
tptacek wrote: post #37

Earlier quoted context omitted.

First, HFT firms aren't especially lucrative compared to other finance specialties, so one answer to that question is "nowhere". Second, HFT firms compete with other finance firms , so what money they do make comes from bidding down the costs those firms were imposing on the rest of the market. If you're a retail trader, automated electronic traders make money off you by outbidding the markets to quote good prices to…

> First, HFT firms aren't especially lucrative compared to other finance specialties, so one answer to that question is "nowhere". Total bullshit. If there was so little money to be made why is every exchange catering to high frequency traders? Why was the building across from the NYSE hollowed out to become a data center? Why are custom fiber optic cables being layed down specifically for it? > If you're a retail tr…

First, let me gingerly remind you that strong arguments don't appear stronger when they include things like "total bullshit" and name-calling.

Second: I didn't say HFT wasn't lucrative at all. I said it wasn't lucrative compared to other finance specialties. I would feel worse about this misunderstanding if the thread you were commenting on didn't include actual numbers backing this up.

Third: the ultimate reason exchanges "cater" to "HFT" is that they get paid based on order volume. That's what it means to be an exchange. Exchanges compete with each other. If nobody trades on your exchange, you don't make much money with it. Exchanges would rather you do business with them than not. It's not complicated.

Fourth: if you're in the normal demographic of HN (age 20-35 or so), you've never bought or sold a share of stock that went through a human market maker. Market-making is automated now and has been for something like two decades.

Fifth: if you're an individual buying and selling stocks for your own account by clicking buttons in an online brokerage, you are placing market orders. There aren't "minimum" and "maximum" prices. There's a current best bid, and a current best offer, and a gap between those two prices. We have decades worth of research on what automated trading is doing to that gap: it is slashing it from dollars to pennies.

Sixth: if you are placing limit orders, there is nothing an HFT or anyone else can do to "front-run" you to cheat on your order limit. Incoming orders are priced according to the price on the order resting on the book. When you place a limit order that doesn't immediately execute (in other words: when you place a limit order that is actually meaningful), that's the price your order is going to trade for, if it ever trades.

If you disagree with any of this, it would be helpful if you could lay out a hypothetical sequence of events in which this "front-running" is actually occurring. I place a LIMIT SELL order for 1000 CSCO on BATS at $27.90. An HFT decides to front-run me. What exactly happens next?

Re: Nanex Gets $700k Whistleblower Award from SEC

#160

Post by jnordwick »

kasey_junk wrote: post #156
minimax wrote: post #152

Earlier quoted context omitted.

1) A U.S. equities exchange has to be registered with and approved by the SEC. There are currently 12 of them. As a registered exchange you have to play by certain rules, and in exchange your displayed top of of book is subject to the order protection rule, meaning that no other venues (exchanges, dark pools, ECNs, or broker dealers) are allowed to trade through your top of book quote without first routing an order t…

How does priority work on fully hidden orders? Are they always at the back of the line? Thanks for the clarification on the NBBO ramifications on wholesalers. I have never worked on a order flow trade and would love to see an insider account of them (its sort of what I was hoping Flash Boys would be about).

Non-displayed orders and the non-displayed portion of iceberg orders are generally put in the back of the line behind all displayed liquidity. There are some exceptions, such as the BATS "hide not slide" order.
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