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 suspect this debate was/is largely conducted by uninformed parties. There already is a small fee imposed on every trade due to gov't regulation. https://www.sec.gov/fast-answers/answerssec31htm.html At best, there could be a meaningful debate over increasing the appropriation to the SEC and adding new regulation mandates for them. The question over whether we should have transaction fees should already be settled b…
IIRC, the bill he proposed had taxes on the value of trades, such as 1% per stock per trade, .05% (maybe off by OOM) on options, etc.
Kickbacks result in worse trade execution, brokers that route client orders for kickbacks violate their duty of best execution. So, not only is this unethical, it's arguably illegal.
> IEX has a speed bump that prevents high-frequency traders from front-running ordinary investors. Anyone care to explain, in precise terms, how a high-frequency trader front-runs ordinary investors on a typical exchange and how putting a delay on all incoming orders prevents it?
Michael Lewis and Brad Katsuyama misuse the term "front running," either willfully to stir people up or out out of ignorance. Front-running refers to the practice of a broker holding customer orders, but trading for their own accounts at a better price before executing their client's orders (i.e. using privileged information for their benefit). Katsuyama's uses "front running" to describe a practice where if an HFT sees a price change happening (i.e. trades are being reported or a level is going away), they quickly go and remove liquidity before others have gotten a chance to react to this new information. An HFT with faster technology will beat an institutional trader in this race (even though all market participants must always send bona fide orders that they intend to have filled). IEX solves this problem by slowing down incoming orders to give special orders on the exchange (D-pegs, which automatically change prices as the prevailing market price changes) an opportunity to reprice. The HFT has put millions of dollars into fast technology, whereas the institutional investment firms have presumably put millions of dollars into long term research. IEX allows institutional investors to outsource this technology investment to the exchange, which puts an artificial delay to give its matching engine time to reprice special orders during market moves.
Before you start talking about what would be effective in reducing the amount of high frequency trading you have to make the case that reducing HFT is a good goal in the first place. This is a challenging case to make.
http://www.thebigquestions.com/2014/04/21/high-frequency-ren... This seems pretty convincing to me. The argument is that, based on the amount that firms are willing to spend on fiberoptic cables to perform hft, they put an extremely high value on hft. On the other hand, reasonable back-of-the-envelope calculations show that the social benefit of making the trade slightly faster are much less than the private cost. Th…
HFT has drastically reduced the costs of trading and improved the returns of nearly all investors especially retail investors like you and me. These benefits are huge. This blog post ignores them.
That blog post also makes a mistake of claiming that the advantage of these sorts of fiber optic cables is to let people complete their trades faster. That is not the case. They enable people to execute their trades at better prices. The way he is looking at this issue is almost silly.
More generally, consumers have been fleeced and left out to dry over the past 10 year economic cycle. Take a look at a graph of the S&P500 from 2009-2017, then look at consumer interest rates of 0.5% (in a 'high yield' savings or CD account). It simply makes no sense. We simply cannot build wealth any longer. Baby boomers had CD rates of >10% [0]. Think about that for a moment.
Hint: If you can't see the orders during that minute, it doesn't matter when you submit...
Of course it does. A trader (not an investor) is incentivized to wait to the last possible moment when he can still expect a fill. This is why exchanges disseminate auction imbalance information, to attract people to the auction prior to its completion.
You seem to be describing a standard, continuous auction. Consider a more discrete time auction, like the opening auction described here: https://uk.advfn.com/Help/the-opening-auction-68.html - I'm not saying this format is perfect, but with modification, it may be reasonable
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.
Sanders lacks fundamental understanding of the stock market, indicated by his unsubstantiated refrain "the business model of Wall Street is fraud." First, there are already per-trade regulatory fees, so this isn't a novel idea. Second, this is necessarily a regressive tax: wider spreads mean worse prices for the ultimate owner of stocks; that tax is applied whether trades are retail (you and me), institutional (big W…
>Second, this is necessarily a regressive tax
You're putting your own ideas into his mouth. Nobody said anything about the fee being a flat fee, or that it would apply to every single trade in existence.
I think this is well known. The real problem is that the traders are much smarter than the regulators, and their ability to obscure far exceeds the regulators' ability to untangle. Incentivise your regulators better and you might end up attracting some real talent who can unearth the tricks the crafty traders pull every day (I am an ex trader, from a bulge bracket IB, and trust me, what some of these guys do is not a…
Or we can just ban anything insufficiently transparent and be done with it. After all, the point of a market transaction for pricing is its ability to convey transparent, accurate information to other market participants -- right?
Source is I work in the industry. Look at the price of VirtuFinancial stock, who was at one time a premier HFT firm. The amount of disinformation surrounding HFT is staggering.
Unrelated, but I have a question for you. I've been unable to find a good answer for how exactly HFT benefits the average person. Stuff like antibiotics, electric lights, refrigeration, washing machines, phones, computers all have all led to direct and immediate quality of life improvements. Often on the order of a tenfold improvement for that activity, and they are easily within reach of the majority of the populati…
Right now the newest investment strategies are taking alternative data sets, like mining website data, and using it to predict stock prices. What value does that provide to the average guy? Nothing but market efficiency. It's just how the industry works.
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.
There are some exchanges that have tried this, but it's hard when the auction price cannot result in a price better than the NBBO (which is just one way the Reg-NMS has stifled innovation). They are having more success with this in Europe: http://www.businesswire.com/news/home/20150906005008/en/BATS...