Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders • Hacker News Board

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#171

Post by nycdatasci » Mon, Jul 11, 2016, 4:08 PM UTC

lordnacho wrote: post #122

HFT / Fund guy here. This is marketing spiel. If you just want to trade on a bunch of exchanges so no information flows between them, you can easily (TM) write a program that either a) lines up the orders at each exchange to execute at a specific time or b) delays the orders from a central server by the line delay. So say NYC is 13ms from Chicago. You want to hit both at once. As long as you're not 13 ms late, nobody…

They don't need to market; their returns speak for themselves.

As obvious as the idea seems in hindsight, no one on the sell-side has a product like this right now. The closest thing is the Thor router, which is a crude attempt to accomplish the same feat because it doesn't address variation in latency. An algorithmic execution product like this would effectively end latency arbitrage, which is a source of RenTech's livelihood. To hedge against that, they have secured the IP rights to the technology.

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#172

Post by lordnacho » Mon, Jul 11, 2016, 4:16 PM UTC

jilopy wrote: post #169

lordnacho wrote: post #122

HFT / Fund guy here. This is marketing spiel. If you just want to trade on a bunch of exchanges so no information flows between them, you can easily (TM) write a program that either a) lines up the orders at each exchange to execute at a specific time or b) delays the orders from a central server by the line delay. So say NYC is 13ms from Chicago. You want to hit both at once. As long as you're not 13 ms late, nobody…

Is the implication of the answer is 'we have loads of PhD math geniuses building the strategies and amazing execution technology' that the institutional DD team is saying this to the investment committee or there is actually another entirely different reason?

Yes, the DD team needs to say something that sounds like they've done their work properly.

So they'll come in with a list of checkboxes, which as a fund manager you learn to tick. Even if the questions have no bearing on how you're actually making money. So you might get asked what qualifications people have (very few people actually have a qualification in building strategies), or you'll get asked something quite superficial about what technology you're using (what's it written in? C or C#? Those are the same, right? That's good...)

Unfortunately, most of the DD teams I've seen do not ask the questions they need to ask. They have a long list of irrelevant questions that make sense to people who are in the CYA (cover your ass) business, not investing or coding. I never met anyone who asked me whether we used version control, and only a small sample bothered to ask whether we had our own money in the fund (one smart guy avoided a 50% blowup by doing this and discovering the big boss had barely any skin in the fund).

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#173

Post by beezle » Mon, Jul 11, 2016, 4:18 PM UTC

There is nothing patentable in their application. All is obvious, not novel or has prior art.

Case in point: gang switch in the era of voice brokers. Nothing says 'synchronized' execution better which is all this application is.

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#174

Post by beezle » Mon, Jul 11, 2016, 4:22 PM UTC

nycdatasci wrote: post #171

lordnacho wrote: post #122

HFT / Fund guy here. This is marketing spiel. If you just want to trade on a bunch of exchanges so no information flows between them, you can easily (TM) write a program that either a) lines up the orders at each exchange to execute at a specific time or b) delays the orders from a central server by the line delay. So say NYC is 13ms from Chicago. You want to hit both at once. As long as you're not 13 ms late, nobody…

They don't need to market; their returns speak for themselves. As obvious as the idea seems in hindsight, no one on the sell-side has a product like this right now. The closest thing is the Thor router, which is a crude attempt to accomplish the same feat because it doesn't address variation in latency. An algorithmic execution product like this would effectively end latency arbitrage, which is a source of RenTech's…

"As obvious as the idea seems in hindsight" And the "obvious" should not be patentable. And of note, this technique has been done before in the past in different market and theirs is only an adaptation to the current equity markets.

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#175

Post by jilopy » Mon, Jul 11, 2016, 4:24 PM UTC

lordnacho wrote: post #172

jilopy wrote: post #169

Earlier quoted context omitted.

Is the implication of the answer is 'we have loads of PhD math geniuses building the strategies and amazing execution technology' that the institutional DD team is saying this to the investment committee or there is actually another entirely different reason?

Yes, the DD team needs to say something that sounds like they've done their work properly. So they'll come in with a list of checkboxes, which as a fund manager you learn to tick. Even if the questions have no bearing on how you're actually making money. So you might get asked what qualifications people have (very few people actually have a qualification in building strategies), or you'll get asked something quite su…

Got it! Thanks for the response. I wasn't sure whether that was a comment on RT's strategy (i.e. implying something else going on) or on the industry as a whole.

It'd be an interesting short white paper/post to see what a technical take on DD would be in a fund of funds/institutional investing scenario. I guess that would take away some of the value of the rise in the "consultants" we're getting calls from every day.

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#176

Post by mikeyouse » Mon, Jul 11, 2016, 5:16 PM UTC

HillaryBriss wrote: post #161

1024core wrote: post #75

> its flagship Medallion Fund generate[d] average annual returns of 71.8 percent, before fees, from 1994 through mid-2014. Jeezus. That is about the same OOM as Moore's Law.

thanks for noticing/commenting on that return rate. humongous. i'm surprised no one else has mentioned it in the comments. for comparison, according to one source, over 50 years, Berkshire Hathaway grew at about 21 - 22% http://fortune.com/2015/02/28/berkshire-after-50-years/

Renaissance also reportedly charges a 5% / 44% fee instead of the standard 2% / 20%.

Quick math (which is wrong since they've changed their fee structure) -- If you had invested $1M with Renaissance in 1994, using a 5/44, you'd end up with something like $411M in 2014. Ren. would've made about $430M.

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#177

Post by lsaferite » Mon, Jul 11, 2016, 5:16 PM UTC

kasey_junk wrote: post #165

lsaferite wrote: post #156

Earlier quoted context omitted.

As someone with zero domain knowledge, why aren't the exchanges already doing precision timed order processing? That just seems like it's should be a standard feature across the board. The broker sends buy/sell orders with planned execution times to all the required exchanges and the exchanges sit on the orders until the designated time.

Exchanges do time ordered processing on their own exchange (with different levels of precision). I don't know of any exchanges that offer execution time as a constraint, but new order types can be created if they were deemed valuable (it takes SEC approval). That said, it wouldn't alleviate the issue necessarily. If firms detect problems in the clock sync between exchanges you are right back to the same problem, and…

But this technology is patent is just implementing the exact same thing at one layer removed from the exchange. You still have to time the orders and you still have to keep the timed orders confidential. To me, using a 3rd party to do this instead of having it as part of the base system is... silly I guess.

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#178

Post by ktRolster » Mon, Jul 11, 2016, 5:26 PM UTC

lsaferite wrote: post #156

reddytowns wrote: post #58

Earlier quoted context omitted.

The idea doesn't help the hft'ers. It takes an order, secretly transmits it to computers each as near to the major markets as possible, with instructions so that the computers submit the trade offer at precisely the same time. The hft'ers can't make money since they can't outrun trade offers that are synchronous across all markets.

As someone with zero domain knowledge, why aren't the exchanges already doing precision timed order processing? That just seems like it's should be a standard feature across the board. The broker sends buy/sell orders with planned execution times to all the required exchanges and the exchanges sit on the orders until the designated time.

As someone with zero domain knowledge, why aren't the exchanges already doing precision timed order processing?

HF traders give the exchanges a nice cut (colocation costs, etc). Not many corps can afford it.

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#179

Post by darawk » Mon, Jul 11, 2016, 5:26 PM UTC

eru wrote: post #111

darawk wrote: post #103

Earlier quoted context omitted.

You could say the same thing about insider trading. So, the argument that accurate prices reach the market faster is not, in and of itself, an argument that something is good.

Why? He can argue that insider trading is good. Which is actually a pretty easy argument to make. (And places like Germany only recently tightened laws against it.)

What is your argument that insider trading is good?

Re: Hedge Fund Wants to Use Atomic Clocks to Beat High-Speed Traders

#180

Post by nycdatasci » Mon, Jul 11, 2016, 5:36 PM UTC

beezle wrote: post #174

nycdatasci wrote: post #171

Earlier quoted context omitted.

They don't need to market; their returns speak for themselves. As obvious as the idea seems in hindsight, no one on the sell-side has a product like this right now. The closest thing is the Thor router, which is a crude attempt to accomplish the same feat because it doesn't address variation in latency. An algorithmic execution product like this would effectively end latency arbitrage, which is a source of RenTech's…

"As obvious as the idea seems in hindsight" And the "obvious" should not be patentable. And of note, this technique has been done before in the past in different market and theirs is only an adaptation to the current equity markets.

I'm conflicted on whether or not a patent should have been granted. I've worked in equity execution for about a decade and do feel that this is novel.

On the other hand, this is a clear case of using the patent system to secure and persist an inefficiency in the market. It's hard to measure the cost of such an inefficiency to institutional investors (mutual funds, pensions, endowments, etc) but I suspect that it is well into the billions annually.