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Wall Street Profits by Putting Investors in the Slow Lane

nytimes.com

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Re: Wall Street Profits by Putting Investors in the Slow Lane

#151

Post by keenerd »

rtx wrote: post #131
keenerd wrote: post #118

Earlier quoted context omitted.

Right, but how does "market efficiency" trickle through the rest of society? I can't even find anything that quantifies market efficiency, let alone anyone who has tracked it over the years.

Increases market confidence, which in turn promotes economic activity.

Too vague!

Since 1990, US population has increased 30% while the (inflation corrected) GDP has increased 90%. So something improved. I'm going to (arbitrarily) say it was computer literacy, since home PC ownership went from 15% of households to 85% of households in that time period.

What can you counter with to say that the improvements were from market efficiency? If we never had HFT, how much lower would the GDP be?

Re: Wall Street Profits by Putting Investors in the Slow Lane

#152

Post by rramdin »

lin_lin wrote: post #40
corporateslave3 wrote: post #33

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.

https://www.bloomberg.com/news/articles/2017-07-13/they-re-t...

Re: Wall Street Profits by Putting Investors in the Slow Lane

#153

Post by cwkoss »

dsacco wrote: post #59

Articles like this are so mind-numbingly frustrating because they completely muddle the water for any reasoned debate about the true advantages and disadvantages of high frequency trading. > 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…

>More importantly, this claim is neither axiomatic nor defended by the article. How precisely do these rebates harm investors?

The rebates are effectively being taken out of retail investors' money. If the rebates did not effect brokers' behavior, there would be no point in offering them. If the rebates do effect brokers' behavior, then it means brokers are willing to accept a marginally worse price for their investors in order to get the rebate.

Re: Wall Street Profits by Putting Investors in the Slow Lane

#154

Post by Chardok »

rramdin wrote: post #73
Pxtl wrote: post #2

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…

Your reasoning seems to ignore the evidence in this article; there does seem to be a business model of fraud and, even if he did lack a fundamental understanding of the stock market, I would hope we could all agree that action needs to be taken to regulate and restrict these illegal practices. Perhaps it would not be the specific terms Sanders was describing, but unfortunately he was the only viable candidate that ostensibly wanted to do so.

Re: Wall Street Profits by Putting Investors in the Slow Lane

#155

Post by princeb »

harryh wrote: post #99
orclev wrote: post #89

Earlier quoted context omitted.

It seems like that would only matter if you assume that a bid can't be canceled or changed. Assuming you're free to cancel or modify a bid right up until the close, whether you put the bid in at the start of the window or the close of the window wouldn't matter as you could always modify or cancel the bid as new information comes in.

If you can always modify or cancel a bid then people will compete to see who can ingest information the fastest and update all of their bids as close to the auction time as possible.

even if you can't modify or cancel a bid people will still compete on speed and submit their one (and only) order as close to the auction time as possible.

i have no idea what he's trying to come up with. there's no need to belabour the point plenty here have tried to show that the power of information (of all kinds: central bank actions, Donald Trump's tweets, corporate filing, obituaries, declaration of war, natural disasters, etc) and the ability to push order submission to the last moment is going to be king. the only way i can imagine one would nullify the value of information is to assign every participant of the market a random price on their trade that has no correlation to the value of the asset that they are trying to buy or sell.

Re: Wall Street Profits by Putting Investors in the Slow Lane

#156

Post by matt4077 »

rramdin wrote: post #65
minimax wrote: post #46

Earlier quoted context omitted.

I think that's about half right. A 0.5% tax on all equities trades, which is what Bernie was proposing, would put a bunch of HFTs out of business basically overnight and at the same time dramatically increase costs for investors via 1) the tax (obviously) 2) wider spreads 3) reduced liquidity.

4) increased volatility 5) less efficient price discovery The HFT shops put millions of dollars into research to attempt to ascertain correct prices (e.g. ETF pricing, derivatives pricing, etc). If they are disincentivized from trading in the equities markets, they will no longer be a conduit of relevant pricing information from other global markets into the equities markets. That means investors (big Wall Street fir…

as far as I can tell, HFT shops aren't producing anything tangible. Considering almost nothing is as zero-sum as a stock market at sub-second timescales, their revenue is exactly equal to the costs for other market participants. For Virtu Finance, mentioned by another comment, that's around $800 million/year.

That's not really that much in the scheme of things, but it's only one company, and I doubt the other investors would be willing to spend similar on insurance against volatility.

Re: Wall Street Profits by Putting Investors in the Slow Lane

#157

Post by minimax »

cwkoss wrote: post #126
minimax wrote: post #78

Earlier quoted context omitted.

Here are some numbers. 0.5% of a $50 stock is $0.25. So to break even on the tax alone you need to sell $.50 higher than you buy. That alone will blow out the spread any market maker is able to quote at. The other problem is that now scratching (you buy at the bid and now it looks like the price is going the other way so you aggress and sell back into the bid for no profit) is also extremely expensive (you lose $.50…

Easy fix - only tax the takers. I agree the 0.5% is a bit steep on both sides. If only to takers and makers aren't taxed, seems like it could work. Would also probably add a ton of liquidity to the markets.

How is that a fix? A market with huge displayed sizes but no trading (because nobody wants to pay the massive take penalty) is not a "liquid" market.

Re: Wall Street Profits by Putting Investors in the Slow Lane

#158

Post by netcan »

harryh wrote: post #74
netcan wrote: post #71

Earlier quoted context omitted.

These need to be discussed together. Otherwise, the defence of HFT tends to cite the economic damage caused by measures to reduce it. Anyway, I agree with you. I don’t see a significant downside to using a small transaction tax or one of the other suggestions. The real hard question is about the benefit or harm of HFT itself. I haven’t heard a decisive argument yet, but I would say that the “liquidity defence” of HFT…

For the record I do actually see a downside to a trading tax and do not think we should have one. Trading is a useful activity. There is no need to single it out separately from all other forms of economic activity for a special tax.

Trading is probably essential, it definitely is given our economic system which involves trading. In my opinion, HFT does easily merit singling out for evaluation. It is a relatively marginal economic activity, but accounts for a large portion of transactions, mostly in highly liquid markets purposely designed/evolved to be highly efficient like stock markets and other tradable securities markets. I don't think pure theory economics can say much about what happens at extremes like that. Transactions are prices and information. If most transactions are based on HFT strategies divorced from anything even remotely related to an understanding of the underlying asset, who knows what wheels fall off the theoretical model and/or reality. It's worth looking at, at least.

As I said though, I agree with you that there's an onus on those proposing a HFT tax to convict it convincingly. I don't think this has happened yet. The argument can't be "weird and scary." I don't see the liquidity defense. How can liquidity beyond a certain point be meaningfully more useful, but that's not a conviction. In my mind, it rests on how HFT impacts economic fragility, and increases the likelihood or impact of busts.

We're talking about something like a 0.02% of equity tax on HFT specifically or lower if it's going to be everyone. That does not impede the ability to price in real information.

An artificial restriction on trading is not unlike natural ones. Did we have liquidity issues when trading in and out multiple times within tenths of seconds was impossible? I don't think the cost is high. The risk is ..unproven.

Re: Wall Street Profits by Putting Investors in the Slow Lane

#159

Post by jorjordandan »

thanatropism wrote: post #125
jorjordandan wrote: post #34

Earlier quoted context omitted.

Outrage is a form of cultural pollution? So no one should ever be outraged by peoples actions? Or only in the right circumstances? Who gets to say when its justified, if ever?

All of those questions apply to air pollution.

That's true. I guess the difference is that outrage has a function, and can have a utility, so I don't think it's a good metaphor. Viewing it as just 'pollution' implies that it has no value. It's only 'pollution' to those who don't agree with the outrage.

Re: Wall Street Profits by Putting Investors in the Slow Lane

#160

Post by [deleted] »

thanatropism wrote: post #125
jorjordandan wrote: post #34

Earlier quoted context omitted.

Outrage is a form of cultural pollution? So no one should ever be outraged by peoples actions? Or only in the right circumstances? Who gets to say when its justified, if ever?

All of those questions apply to air pollution.

[deleted]
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