Wall Street Profits by Putting Investors in the Slow Lane • Hacker News Board

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

#181

Post by dsacco » Tue, Jul 18, 2017, 6:51 PM UTC

cwkoss wrote: post #153

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 investo…

The money you lose in the cost of rebates being passed on is less than the money you gain through enhanced price discovery (so you overpay for securities less often) and enhanced liquidity (so you can actually fulfill your trades more often).

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

#182

Post by andrewla » Tue, Jul 18, 2017, 6:53 PM UTC

chuckkir wrote: post #177

daodedickinson wrote: post #165

Earlier quoted context omitted.

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.

Not to support GP's point, but he's probably referring to Shana Madoff, Bernie's niece, who was a compliance officer at the firm and married an SEC regulator. I'm not aware of any report "exposing" the Ponzi before it actually happened, but Shana met her husband during an SEC investigation into allegations of front-running by Madoff's fund.

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

#183

Post by justadeveloper2 » Tue, Jul 18, 2017, 6:54 PM UTC

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 disagree that it works--it's just that it hasn't utterly failed yet. Big difference. If you look at failed states, the bandits won. Argentina comes to mind, maybe Venezuela. Brazil is headed there.

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

#184

Post by abhi3 » Tue, Jul 18, 2017, 6:54 PM UTC

I see no social benefit that accrues from allowing trading (vs. investing) in the stock market. The usual arguments that traders make in its favor are just a plain attempt at legitimizing their stealing from market participants who are less sophisticated and resourceful.

1) Efficient price discovery - Individual stock prices often move 20,30,50%+ in short periods of time, prices can't be efficient with such high volatility. Trading more likely causes inefficient pricing due to speculations, margin calls, trigger orders.

2) Liquidity - Sure they do increase liquidity in the market but as long as sellers can find buyers I don't see any benefit from increased liquidity other than (3)

3) Bid/ask spread - I'll admit that lower spreads are desirable and traders to play a vital role in keeping it so, but I'll question how important it is for a long term investor if has to cover a spread of an extra 0.1% and then weigh that against the social cost of tens of billions of dollars worth of wealth transfers from retail traders to some HFT shops in New York.

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

#185

Post by justadeveloper2 » Tue, Jul 18, 2017, 6:57 PM UTC

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…

That's such bs--as if the markets couldn't determine prices at anything but sub-microsecond velocity. No, HFT is the ultimate rent seeking.

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

#186

Post by nostrademons » Tue, Jul 18, 2017, 7:01 PM UTC

justadeveloper2 wrote: post #183

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 disagree that it works--it's just that it hasn't utterly failed yet. Big difference. If you look at failed states, the bandits won. Argentina comes to mind, maybe Venezuela. Brazil is headed there.

Having "not utterly failed" for 240 years is a fairly big accomplishment, precisely because the lifespan of many other societal organizing principles is about equal to a human lifespan (~80 years).

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

#187

Post by harryh » Tue, Jul 18, 2017, 7:04 PM UTC

netcan wrote: post #158

harryh wrote: post #74

Earlier quoted context omitted.

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…

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.

Yes. Spreads were a dime (or more). Now they're a penny.

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

#188

Post by lordnacho » Tue, Jul 18, 2017, 7:04 PM UTC

osrec wrote: post #19

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…

Also, there is an argument for more time controlled auctions rather than giving everyone a continuous look at the order book. Much like the start of day auction, you could have something similar every minute, where traders submit prices but matching only occurs at the end of each minute. This would certainly put an end to the annoying high/low ticking that happens all too often.

A couple of facts about the auctions:

- They often end at a randomized time in a given window

- They often cross a very large proportion of a day's trading

So in some sense the things you are after - hard to game, transparent auctions - are already in existence. If you're happy with waiting, you can pretty much ignore the continuous trading when you're buying/selling your shares. The exchanges I look at all have an opening and closing auction, and a few have a midday auction as well.

I'm literally coding a system that uses the auctions right now. To game the randomized end would not be easy, though there are a number of particular market models that open for it.

In general, the exchange system has gotten out of hand. There's a lot of weird rules that only make sense if you're told what they're for, and it will undermine confidence if they continue to grow. It's become a catch-22 though, as the markets need the market makers, and the market makers can't make money so easily without an advantage of some sort.

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

#189

Post by gnaritas » Tue, Jul 18, 2017, 7:09 PM UTC

netcan wrote: post #71

harryh wrote: post #15

Earlier quoted context omitted.

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.

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…

HFT should be presumed innocent until proven guilty; the question isn't to defend HFT, it's to show it's actually a problem to begin with. Those wanting to regular HFT really have no argument that makes sense other than "we don't understand that thing so it's bad".

Proposing a tax on trades is punishing those presumed guilty without a lick of actual evidence they are. HFT don't need to prove they're good, they're just traders making trades in the market like anyone else, that they do it faster than a manual trader doesn't make them bad. To try and regulate them should require an actual case be made against them and all such cases I've seen so far are completely irrational emotional arguments by people who just want to point a finger at someone to explain why they're no longer able to compete.

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

#190

Post by [deleted] » Tue, Jul 18, 2017, 7:09 PM UTC

Retric wrote: post #173

harryh wrote: post #144

Earlier quoted context omitted.

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.

[deleted]