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Google and Nasdaq Pursuing Nano-Second Precision in Network Time Protocol

nytimes.com

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Re: Google and Nasdaq Pursuing Nano-Second Precision in Network Time Protocol

#121

Post by physguy1123 »

samolang wrote: post #120
physguy1123 wrote: post #116

Earlier quoted context omitted.

Yes, I work in the industry. Flash boys is misleading garbage, it's a long form advertisement for IEX. What a broker does has nothing to do with how market orders work. The strategy you're describing also doesn't really work because any respectable broker is sweeping all of the exchanges at once - the regulations considered this possibility and allowed this behavior. Also, many of the liquid symbols have single cent…

> What a broker does has nothing to do with how market orders work. A market order submitted to a single exchange isn't the same as a "market order" submitted to e.g. Fidelity.com. He's talking about the latter.

Then this whole discussion is nonsensical since in almost all cases retail orders are directly filled by wholesale market makers and don't ever land on the exchanges (and don't see any 'frontrunning' as a result).

Re: Google and Nasdaq Pursuing Nano-Second Precision in Network Time Protocol

#122

Post by samolang »

physguy1123 wrote: post #121
samolang wrote: post #120

Earlier quoted context omitted.

> What a broker does has nothing to do with how market orders work. A market order submitted to a single exchange isn't the same as a "market order" submitted to e.g. Fidelity.com. He's talking about the latter.

Then this whole discussion is nonsensical since in almost all cases retail orders are directly filled by wholesale market makers and don't ever land on the exchanges (and don't see any 'frontrunning' as a result).

Sure. All I was saying is that it's theoretically possible for a market order that a customer submits online to be front-run (as opposed to a market order submitted to a single exchange). No clue how often it happens in practice.

Re: Google and Nasdaq Pursuing Nano-Second Precision in Network Time Protocol

#123

Post by mrchicity »

chaboud wrote: post #118
mrchicity wrote: post #88

Earlier quoted context omitted.

Interesting idea, but how would you deal with these issues: 1.) Randomizing who receives contentious trades will just encourage order splitting and gaming. Sure some of that can be banned, but nothing stops big firms from putting each trading group into different legal entities or other tricks. This also discourages traders from bidding their true most aggressive price. In time priority, you must, or someone else wil…

For 1), I'd randomize with proportional unit (share) representation, and I'd certainly be open to rule-prioritized execution (e.g. most-favorable taker first) if it didn't lead to degenerate incetives. Smart market design can incentivize people to play at their best price. For example: locational marginal pricing in wholesale energy markets... 2) I agree that the real world is quantized, but I think that a settlement…

1.) If you do it proportional to shares, then it introduces bad incentives to oversize orders. There's a reason why almost every market in the world uses price time priority in a realtime two sided auction.

2.) What problem does this solve? Proximity is freely available and relatively inexpensive. Barriers to entry for professional traders are much lower than the days of buying exchange seats. 10s of thousands a month sounds like a lot, but it's nothing compared to the costs of running a trading operation.

You could give every man, woman and child a rack at Nasdaq with a nanosecond trading system, and they wouldn't make any money. Proximity only matters to traders running latency sensitive strategies. These strategies have low margins per trade and can only profit through scale. Running them requires robust systems that take years to develop, capital, smart researchers, and data.

3.) Spoofing is illegal and people go to prison for it. HFT is just a catch all term for executing short term trading strategies with a computer. Most HFTs make their money through market making, arbitrage, stat arb, or some blend of those. All profitable trading can be cast as predatory, but that doesn't make it bad. Having accurate prices and more quotes in the market is a public good.

4.) So you believe it's good if S&P 500 futures go up 2%, nobody arbitrages the S&P 500 ETF, and John Smith comes to the exchange and sells his ETF shares 2% below their value? I'm guessing not.

Odds are you believe arbitrage and efficient pricing are important. If you believe that, then someone should do those trades, and they'll earn profit as a reward for correcting the price. Why shouldn't it be the person or machine who does it first and for the lowest possible margins?

Re: Google and Nasdaq Pursuing Nano-Second Precision in Network Time Protocol

#124

Post by physguy1123 »

samolang wrote: post #122
physguy1123 wrote: post #121

Earlier quoted context omitted.

Then this whole discussion is nonsensical since in almost all cases retail orders are directly filled by wholesale market makers and don't ever land on the exchanges (and don't see any 'frontrunning' as a result).

Sure. All I was saying is that it's theoretically possible for a market order that a customer submits online to be front-run (as opposed to a market order submitted to a single exchange). No clue how often it happens in practice.

It's theoretically possible and has always been for somebody to see order execution in progress and trade ahead of it. In practice, that's frequently just a side effect of somebody being so slow that their actions trigger quant algorithms, it's not a super profitable game trying to latency arb proper market sweeps anymore (not to say latency is not important in but, but it's usually for other reasons)

Re: Google and Nasdaq Pursuing Nano-Second Precision in Network Time Protocol

#125

Post by MR4D »

Lazare wrote: post #102
MR4D wrote: post #61

Earlier quoted context omitted.

Of course the retail guy gets hurt. Who do you think buys the mutual funds that pay a higher price. Seriously, I hear this all the time, but it’s only one step removed. Why does everybody keep repeating this lie?

> Of course the retail guy gets hurt. Nope. Retail traders get better prices; it's the big hedge funds that lose. > Who do you think buys the mutual funds that pay a higher price. The big index funds are paying a lower price. > Why does everybody keep repeating this lie? Because it's true.

Can you explain to me why an index fund would pay less but a hedge fund would pay more? They are all buyers in the market, and index funds are more predictable, as they have to (roughly) adhere to their index. Once an index changes, they have a limited time to buy or sell. GE being kicked out of the Dow last week is a great example.

Re: Google and Nasdaq Pursuing Nano-Second Precision in Network Time Protocol

#126

Post by jrockway »

throwaway2048 wrote: post #91
jrockway wrote: post #64

This technology will also be excellent for games. Right now, the server has to decide how it's going to break ties, and that results in confusing moments. For example, Overwatch favors the shooter, so you might see someone in a position to shoot you, use a defensive ability, and die even though you used it, because the server decides that if two events are close in time, the shooter wins. With a trusted time referenc…

You still cant trust the client here, no matter how precisely synced your clocks are, because it could maliciously reorder events/tamper with time (always claim you activated first, with a certain fudge factor to prevent detection) and it would be undetectable within the bounds of internet latency.

I'm not completely convinced that cheating would not be detectable after aggregating some statistics over time. (Similar to how you can extract encryption keys from server processes, simply by timing how long certain operations take.)

Re: Google and Nasdaq Pursuing Nano-Second Precision in Network Time Protocol

#127

Post by unclebucknasty »

JamesBarney wrote: post #111
unclebucknasty wrote: post #68

Earlier quoted context omitted.

Aren't the cost of the trade and price of the trade two different things? Tighter spreads can only do so much to offset disadvantageous pricing, right?

No, you cant. The spread is the difference between the bid and the ask. You can't have disadvantageous pricing without affecting the ask. Which would in term drive up the spread.

HFT helps tighten spreads for smaller investors, and also itself benefits from the tighter spreads.

But, to the extent that you believe the argument that HFT is essentially front-running, then HFT gets the tight spreads and better pricing.

Re: Google and Nasdaq Pursuing Nano-Second Precision in Network Time Protocol

#128

Post by egwor »

geofft wrote: post #50
dirkgently wrote: post #22

Earlier quoted context omitted.

Only if the article mentioned it! Oh wait, it did! https://www.usenix.org/conference/nsdi18/presentation/geng

I don't think the article answers amelius's question, which is not about how you would achieve that precision but how you would use it. On an OS that only supports recording timestamps up to microsecond accuracy, what is the point of synchronizing your clocks within nanoseconds of each other, even if you could?

On linux you can get nanosecond timestamps, and so could record them. This could be useful for capturing certain events. Is that what is meant? IIRC Windows XP didn't support resolving timestamps smaller than 8ms but we've moved beyond this.

Re: Google and Nasdaq Pursuing Nano-Second Precision in Network Time Protocol

#129

Post by Lazare »

MR4D wrote: post #125
Lazare wrote: post #102

Earlier quoted context omitted.

> Of course the retail guy gets hurt. Nope. Retail traders get better prices; it's the big hedge funds that lose. > Who do you think buys the mutual funds that pay a higher price. The big index funds are paying a lower price. > Why does everybody keep repeating this lie? Because it's true.

Can you explain to me why an index fund would pay less but a hedge fund would pay more? They are all buyers in the market, and index funds are more predictable, as they have to (roughly) adhere to their index. Once an index changes, they have a limited time to buy or sell. GE being kicked out of the Dow last week is a great example.

> Can you explain to me why an index fund would pay less but a hedge fund would pay more? They are all buyers in the market, and index funds are more predictable

And that's the reason. Market makers (and especially HFTs) profit from razor thin spreads on predictable orders, but they can lose money when they get hit by a big unpredictable order, so they avoid them and/or charge them more. A hedge fund's order is inherently dangerous to a market maker, because they have no idea before the fact if the hedge fund is just offloading 1k shares to rebalance their risk profile, or if they're liquidating their entire position, or taking a big short position. Hedge funds can change the entire market. Some guy calling up his broker and asking to sell his Apple shares won't.

So retail orders and index funds are safe, so they can be charged lower spreads. And because they're profitable, market makers compete for the volume, driving down prices. And the data supports this - prices paid by retail investors has crashed, and complaints from hedge funds and big active investors has spiked. :)

Re: Google and Nasdaq Pursuing Nano-Second Precision in Network Time Protocol

#130

Post by tptacek »

unclebucknasty wrote: post #127
JamesBarney wrote: post #111

Earlier quoted context omitted.

No, you cant. The spread is the difference between the bid and the ask. You can't have disadvantageous pricing without affecting the ask. Which would in term drive up the spread.

HFT helps tighten spreads for smaller investors, and also itself benefits from the tighter spreads. But, to the extent that you believe the argument that HFT is essentially front-running, then HFT gets the tight spreads and better pricing.

People believe all sorts of weird things, but the actual offense of front-running involves an agency relation: it occurs when you work with a broker/dealer to order your securities, and upon receiving your order, they trade for their own account ahead of yours.

Market makers aren't agents of traders.

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