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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

#171

Post by neuronexmachina »

nostrademons wrote: post #168

Heh. My second project at my first employer out of college (back in 2006) was building a system to detect violations of this rule (Reg NMS, if you're curious). We found that there were trade-throughs happening on a daily basis, it was so common that it appeared to be just how the markets worked. Tried to sell it to the SEC and they weren't interested. Then we pivoted to try to sell to traders, so they could prove to…

> I remember reading a non-mainstream economics paper in college that modeled the world not in terms of price equilibria or value-add, but assumed that all actors were basically bandits who would try to take whatever they could by force or deceit.

If you can find the paper I'd love to see it.

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

#172

Post by Brockenstein »

eli_gottlieb wrote: post #108
osrec wrote: post #13

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?

"But but the regulations impeding economic growth... "

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

#173

Post by Retric »

harryh wrote: post #144
Retric wrote: post #135

Earlier quoted context omitted.

Sure, but this is combined with all other information over that minute/hour. Suppose you had exactly 1 price exchange per day, now yes you might gain incite waiting for that last millisecond, but you have to weigh all other information over the day, approximate it's changes in the price, and then make a bid. Further if the ticks are say every 15 minutes it's easy to not disclose information on a tick boundary. (Simpl…

Further if the ticks are say every 15 minutes it's easy to not disclose information on a tick boundary. This is not true. Lots of things are happening in the world all of the time. You can't tell everyone to stop what they are doing every 15 minutes and wait for the stock market auction to close.

If ticks are 15 minutes, then 99.9% of all things don't happen in that last 1/2 second. Compared to the current situation where every single piece of news is a race for 1/1,000th of a second head starts.

So rather than a race vs time, it's a race to better interpret information. And considering that's basically the point of the stock market in the first place I would call that a net win.

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

#174

Post by nostrademons »

neuronexmachina wrote: post #171
nostrademons wrote: post #168

Heh. My second project at my first employer out of college (back in 2006) was building a system to detect violations of this rule (Reg NMS, if you're curious). We found that there were trade-throughs happening on a daily basis, it was so common that it appeared to be just how the markets worked. Tried to sell it to the SEC and they weren't interested. Then we pivoted to try to sell to traders, so they could prove to…

> I remember reading a non-mainstream economics paper in college that modeled the world not in terms of price equilibria or value-add, but assumed that all actors were basically bandits who would try to take whatever they could by force or deceit. If you can find the paper I'd love to see it.

Ooh, I think I got closer, though I still haven't found the exact paper. Search for the work of Mancur Olson. I think "Dictatorship, Democracy, and Development" was the paper, but I just got a JStor link, so I'm not sure it was exactly it.

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

#175

Post by pfortuny »

harryh wrote: post #122
pishpash wrote: post #116

Earlier quoted context omitted.

Sure there is. The idea isn't to quantize to arbitrarily long times, but to make it long enough compared to the time of information generation and more importantly, communication. Otherwise you may as well give up the notion of a common market. The number may not be a minute but it sure as hell ain't a nanosecond.

The real world is continuous. It cannot be quantized.

like 32 bit fixed point continuous?

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

#176

Post by dsacco »

cwkoss wrote: post #120
rramdin wrote: post #65

Earlier quoted context omitted.

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…

How is mispriced markets a problem? If institutional investors are buying and selling at roughly the same rate, and the mis-pricing occurs in either direction, there will be more noise, but over time it would balance out. Sometimes you'll pay 1% too much, sometimes 1% too little, but it would balance itself out in the long run. Am I missing something here?

> Am I missing something here?

Yes. By paying relatively small amounts to high frequency market makers in return for enhanced liquidity and price discovery, you won't be overpaying by 1% (or more). I also challenge the idea that it would just "balance" itself out, in the absence of evidence supporting that thesis. In actuality you'd likely just amplify the costs you already have and either fill fewer trades or have higher costs for doing so.

Choosing to lose $1 due to low liquidity instead of a few cents due to market makers is both petty and nonsensical. There are legitimate arguments against HFT, but they don't begin by trying to reinvent economics such as to de-emphasize optimal price discovery.

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

#177

Post by chuckkir »

daodedickinson wrote: post #165
osrec wrote: post #13

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…

Eh, somebody in their spare time figured out Bernie Madoff's scheme in the 90's and wrote them an explanation such that ignorance was no excuse. The SEC regulator marrying Madoff's daughter seems relevant.

Madoff didn't have a daughter.

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

#178

Post by dragonwriter »

eli_gottlieb wrote: post #108
osrec wrote: post #13

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?

> After all, the point of a market transaction for pricing is its ability to convey transparent, accurate information to other market participants

Arguably, the transparency for pricing that matters is only the final trade price, but I'd argue, in any case, that providing liquidity and actually pricing trades that occur is the more important function of markets, not providing pricing information.

OTOH, transparent pricing information brings some participants to the market, which increases liquidity; conversely, though, so does providing various dark trading vehicles. So, in the liquidity-focussed view, there is a trade-off and a balance to be struck.

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

#179

Post by dsacco »

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.

> Would also probably add a ton of liquidity to the markets.

What? No it wouldn't. You are disproportionately rewarding makers in this scenario. You would find plenty of listed orders, which somewhat looks like liquidity, but it would not be a liquid market. The end result would be a market that is actually less liquid because no one wants to fulfill orders. It would be utterly lopsided.

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

#180

Post by thanatropism »

jorjordandan wrote: post #159
thanatropism wrote: post #125

Earlier quoted context omitted.

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.

Here's a primer on intellectual hygiene you might enjoy.

https://www.ribbonfarm.com/2017/03/02/the-limits-of-epistemi...

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