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Big Banks Face Another Round of U.S. Charges

dealbook.nytimes.com

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Re: Big Banks Face Another Round of U.S. Charges

#41

Post by rqebmm »

geekpondering wrote: post #38
rqebmm wrote: post #31

Earlier quoted context omitted.

isn't the typical benefit of a middle-man that they have the money, resources, and geographic location to help facilitate transactions?

HFT doesn't "facilitate transactions". What is often happening is Seller A wants to sell something for $10. Buyers B, C and D submit an order to buy it for $10. The computer sees this, knows that it might be worth more than $10, and while Buyers B and C get their orders through, the computer buys it out from under Buyer D because their computers are faster. Buyer D now gets a notice that "oh, sorry, that thing you wa…

If Buyer D is still willing to spend $11, how is that perverting the market? All HFT does arbitrage, which has been around forever and only serves to make a market more efficient.

Re: Big Banks Face Another Round of U.S. Charges

#42

Post by geekpondering »

rqebmm wrote: post #41
geekpondering wrote: post #38

Earlier quoted context omitted.

HFT doesn't "facilitate transactions". What is often happening is Seller A wants to sell something for $10. Buyers B, C and D submit an order to buy it for $10. The computer sees this, knows that it might be worth more than $10, and while Buyers B and C get their orders through, the computer buys it out from under Buyer D because their computers are faster. Buyer D now gets a notice that "oh, sorry, that thing you wa…

If Buyer D is still willing to spend $11, how is that perverting the market? All HFT does arbitrage, which has been around forever and only serves to make a market more efficient.

"If Buyer D is still willing to spend $11, how is that perverting the market?"

What if Buyer D isn't willing to spend $11?

"only serves to make a market more efficient"

I would say it's exploiting inefficiencies. That doesn't make the market any more efficient. In fact, given the sizable number of 'computer errors' leading to significant volatility when they occur, HFT is in fact a destabilizing force in the market at times.

Re: Big Banks Face Another Round of U.S. Charges

#43

Post by DMac87 »

mattgrice wrote: post #36
DMac87 wrote: post #23

Earlier quoted context omitted.

(Not original poster, but some suggestions) : - Use a local credit union as opposed to big national bank. Yes, there may be minor inconveniences in service, but in this day of online banking, they should be minimal. - Invest with a financial advisor you know and trust, who will pick up the phone when you call and explain things to any level of detail you desire (or who will bring in experts to do so if you won't). Ba…

Investing with a financial advisor you know and trust doesn't sound like a good idea to me. That's what Bernie Madoff's clients were doing. You want a financial advisor who is trustworthy, which is a very different thing and much harder to find.

I disagree - Madoff was extremely secretive about his "strategy" (because there was none) and financial statements. He wouldn't meet with individual investors. So the transparency & access that I recommend simply weren't there with him.

Re: Big Banks Face Another Round of U.S. Charges

#44

Post by rqebmm »

geekpondering wrote: post #42
rqebmm wrote: post #41

Earlier quoted context omitted.

If Buyer D is still willing to spend $11, how is that perverting the market? All HFT does arbitrage, which has been around forever and only serves to make a market more efficient.

"If Buyer D is still willing to spend $11, how is that perverting the market?" What if Buyer D isn't willing to spend $11? "only serves to make a market more efficient" I would say it's exploiting inefficiencies. That doesn't make the market any more efficient. In fact, given the sizable number of 'computer errors' leading to significant volatility when they occur, HFT is in fact a destabilizing force in the market a…

>What if Buyer D isn't willing to spend $11?

If Buyer D isn't willing to spend $11, then he simply doesn't buy the item. The HFT took on risk by buying the item and needs to either find someone else willing to buy it for >$10 or lose money.

>I would say it's exploiting inefficiencies.

Exploiting Market Inefficiencies == A More Efficient Market. The whole idea of "buy low, sell high" is exploiting inefficiencies in pricing, which is all HFT's are doing. As a result, they bring the buy/sell prices closer together, making it easier to trade. In return for making the market more efficient, they get a profit, and everyone wins except those who are acting in an inefficient manner. (Remember, buying something for less than it's worth is ALSO an inefficiency!)

The point about volatility is fair, but that has to do with market stability, not market efficiency. The HFTs are HIGHLY incentivized to not destabilize the market because they stand to lose a LOT of money if they make a mistake. Now, it _is_ possible someone could concoct a scheme where they profit from a destabilization caused by faulty HFT, but HFT is the means by which that actor perverted the market, not the reason the market is perverted.

Re: Big Banks Face Another Round of U.S. Charges

#45

Post by hackuser »

tsunamifury wrote: post #40
hackuser wrote: post #14

It's interesting, and troubling, that so many still trust these institutions: * Banks that have been caught repeatedly both intentionally defrauding people and acting with extreme incompetence (and who knows who often they haven't been caught). Yet most customers, from individuals and to large corporations continue to trust the banks with their money and to take the banks' advice. * They trust LIBOR and similar servi…

Because given the choice between being aligned with: 1) A powerful bad guy 2) A weak and ineffectual good guy Most people will pick the powerful bad guy to protect their funds, advise their company and make decisions for them. We want the power, not the morality. These guys don't let their morality get in the way of winning.

> Most people will pick the powerful bad guy to protect their funds, advise their company and make decisions for them. We want the power, not the morality.

Considering only self-interest, how do you trust the bad guy with your money, when they've lost other people's funds? How do you trust their advice when you know they've deceived other clients? How do you know they will act in your interest, when they've acted against clients in the past?

Re: Big Banks Face Another Round of U.S. Charges

#46

Post by geekpondering »

rqebmm wrote: post #44
geekpondering wrote: post #42

Earlier quoted context omitted.

"If Buyer D is still willing to spend $11, how is that perverting the market?" What if Buyer D isn't willing to spend $11? "only serves to make a market more efficient" I would say it's exploiting inefficiencies. That doesn't make the market any more efficient. In fact, given the sizable number of 'computer errors' leading to significant volatility when they occur, HFT is in fact a destabilizing force in the market a…

>What if Buyer D isn't willing to spend $11? If Buyer D isn't willing to spend $11, then he simply doesn't buy the item. The HFT took on risk by buying the item and needs to either find someone else willing to buy it for >$10 or lose money. >I would say it's exploiting inefficiencies. Exploiting Market Inefficiencies == A More Efficient Market. The whole idea of "buy low, sell high" is exploiting inefficiencies in pr…

> Exploiting Market Inefficiencies == A More Efficient Market. The whole idea of "buy low, sell high" is exploiting inefficiencies in pricing, which is all HFT's are doing.

There's a difference between pricing inefficiencies and technology inefficiencies. In theory there should be equal access to markets. This is why SEC laws on disclosure exist. When people with greater technological ability can, in effect, toll everyone else, you are eliminating this idea of equal access.

> The HFTs are HIGHLY incentivized to not destabilize the market because they stand to lose a LOT of money if they make a mistake.

So are all traders, but that doesn't stop things like Enron and Lehman Brothers from creating smoking holes in our economy. When you start creating legal fictions and technologies that are barely understood by those that create them, much less those that provide executive oversight, government oversight, or the general public, you are getting into very dangerous waters.

Software only works as long as the assumptions of the programmer stay valid. HFT quants are incentivized to make their companies money, not to protect the market at large. An application on a desktop computer crashing and exhibiting weird behavior isn't a big deal. A HFT process going rogue is going to cost a company millions or billions of dollars at best.

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