51–60 of 238 posts
Can't practices like these not be considered in the same way as "hacking" and thus made illegal? After all, hacking = influencing electronic systems to make them function in ways they are not intended to function. Replace "electronic" by "legal/financial" and there you are.
Every article I read on the topic has a plug for IEX, an exchange that "refuses to pay kickbacks" which make me think that these peices are basically advertisements. Either kick backs serve no purpose and IEX will thrive especially in this environment where where investors are clamoring for yield. Or it does have some purpose or is not significant. Putting in regulations would likely lead to more complexity and regul…
Kickbacks to brokers that are sending out retail flow allow those brokers to reduce commissions on trading. These reductions have gone all the way to zero in a lot of places.
I think you are wrong here. Most consumer orders are active meaning typically the broker would pay the maker fee instead of collecting a kick back. I mean, inverted exchanges are a thing but do very little volume.
Now pay for order flwo from wholesalers like Citadel is a big win for brokerages and does help to reduce trading fees.
Remember when Sanders proposed a small fee on every trade on Wall Street to discourage high frequency trading and to recoup some value from the market? Remember how he was widely pronounced deranged for suggesting that there should be a fee associated with trades? How it would destroy the market? Funny, that.
I've always thought a better solution would be a voluntary market "quantization" at some reasonable human-scale time frame. It would be a little random (to avoid gaming), so all put and asks get resolved "about every hour". There would probably have to be a law to prevent people from running markets at faster time-scales on top of this.
1) Let's say that trades are resolved at time X. Participants have every incentive to submit all bids/asks as close to time X as possible (microseconds possibly).
2) How do you handle a mismatched number of bids/asks at a given price? Resolving this difficulty without creating bigger problems than the problem you were trying to eliminate is challenging.
3) I'm just a regular guy who wants to buy $1000 of stock as part of my monthly savings plan. With an up to date market I can just buy and sell at the market price and not worry about it. But now I have to be afraid that there has been some big news event in the past hour that will make this hours price much different than last hours. One of the biggest services markets provide is up to date pricing information. Why do you want to take that away from me?
The low volume numbers make it slightly more difficult to determine significance, but the effect does appear to be real, which I found slightly surprising.
[1] https://www.bats.com/us/equities/market_statistics/execution...
[2] https://www.bats.com/us/equities/market_statistics/execution...
Someone will call this a submarine article for IEX but I don't think this is far, it was written as an oped by Dave Swensen, the famous head of Yale's endowment fund. Just so the issue is clear, almost all hedge funds don't do active/passive also called maker/taker, but rather they pay a flat fee per share traded to their sell side broker. The sell side broker will then collect/pay the exchange fees. This means that…
Most brokers charge some all-in commission per share to clients. If you take away the rebates, brokers will simply raise commissions to compensate. Whether a fee is passed through or not is irrelevant. Brokers don't pass through direct costs of exchange licenses, servers, development time on their algos, etc. but clients still end up paying for them. Odds are clients like the current system because they know exactly…
Earlier quoted context omitted.
You are aware that HFT is essentially dead? It isnt profitable anymore and most of those firms are failing. Trading situations that allow for easy outsized profits like that disappear very fast.
Is this true? Any links? Not doubting you, just interested.
The amount of disinformation surrounding HFT is staggering.
Earlier quoted context omitted.
Fees on trading would not meaningfully discourage high frequency trading and would just be passed on to buyers and sellers of stock in the form of larger bid/ask spreads.
Something like a minimum holding time is a more reasonable approach. However, there's not a clear cut answer in any case.
> Wall Street has developed a new way, clouded in obscurity, to fleece the hundreds of millions of Americans who have money invested in company pension plans, mutual funds and insurance policies.
Well, that sure is a neutral way of presenting it, isn't it?
> Instead, brokers routinely take kickbacks, euphemistically referred to as “rebates,” for routing orders to a particular exchange. As a result, the brokers produce worse outcomes for their institutional investor clients — and therefore, for individual pension beneficiaries, mutual fund investors and insurance policy holders — and ill-gotten gains for the brokers.
"Kickbacks"...that's a strategic word to use. Technically true, but more importantly, emotionally loaded. "Kickback" is not often associated with positive sentiment. "Union leaders receiving kickbacks"..."politicians receiving kickbacks"...
More importantly, this claim is neither axiomatic nor defended by the article. How precisely do these rebates harm investors?
> The diffuse harm to individuals and the concentrated benefit to Wall Street create yet another way in which the system is rigged, justifiably eroding public confidence in the fairness of the financial system.
What the hell? The rhetoric is so heavy-handed - is there no attempt at an unbiased presentation here? I understand this is an opinion piece but come on.
> And yet, brokers choose longer queues hundreds of thousands, if not millions, of times a day. Publicly available trade and quote data show that the queues to buy or sell stock are considerably longer on exchanges that offer kickbacks. Even though the queues decrease the likelihood of getting a trade completed and impair the price performance after the trade is executed, brokers still direct trades to these places because of the kickbacks they receive.
Yes, that's interesting. But how does that correlate with the liquidity available on these exchanges? If you have reduced liquidity, do you want to be in a smaller queue with less price competition? This isn't even addressed.
> One exchange, the IEX, refuses to pay rebates. Created by Brad Katsuyama (whose odyssey to defy the ethos of Wall Street was told in Michael Lewis’s “Flash Boys”), IEX has a speed bump that prevents high-frequency traders from front-running ordinary investors. (Yale University, where we work, has a de minimis exposure to IEX through an investment by one of the university’s external managers.)
Okay, so we have blatant hero worship and the claim that high frequency trading is front running in 2017. And this article has reached the front page of Hacker News.
> BATS (a rival stock exchange founded by a high-frequency trader) posts data on this measure of execution quality for the major exchanges on its website. According to our calculations, in the six months before IEX’s arrival, Nasdaq led the effective spread rankings in the widely used Standard & Poor’s 500 index, with the number of top ranks ranging from 169 to 216 stocks.
Okay, where are these calculations? What is the point of making the claim if you don't quantify it whatsoever?!
Can't practices like these not be considered in the same way as "hacking" and thus made illegal? After all, hacking = influencing electronic systems to make them function in ways they are not intended to function. Replace "electronic" by "legal/financial" and there you are.
One immediate problem -- this is how these systems are made to function. It's not like the kickback is happening behind the back of the operators of the exchanges. It's not "hacking" to follow the rules as they're laid out.