Nanex Gets $700k Whistleblower Award from SEC • Hacker News Board

Re: Nanex Gets $700k Whistleblower Award from SEC

#101

Post by forrestthewoods » Wed, Mar 02, 2016, 7:10 PM UTC

revelation wrote: post #88

tptacek wrote: post #71

Earlier quoted context omitted.

Because speed is an implicit and intrinsic "figure of merit" in automated market making: if you are faster than other market makers, you outcompete them. There are two straightforward problems with microsecond-speed electronic trading: * At very small timescales, possibly as a sort of inevitable consequence of the CAP theorem, correlations between instruments that should trade in lock step start to break down. Since…

That's circular reasoning: right now speed is a figure of merit because that's how the game has been designed. I'm suggesting to change the game rules. I don't mean to get rid of automatic market making, I'm saying the exchange could just move to a system where it checkpoints every 10ms or whatever, still much faster than humans can blink, but no detriment to the algorithms. Then everyone has 10ms to come up with ord…

Let's say that happens. The system checkpoints and everyone orders off those checkpoints.

What changes? What's the end result? How do normal people or society benefit? What would have to happen for the change to be declared a success. Conversely, what would have to happen for the change to be declared a failure?

Re: Nanex Gets $700k Whistleblower Award from SEC

#102

Post by kasey_junk » Wed, Mar 02, 2016, 7:10 PM UTC

tptacek wrote: post #75

samstave wrote: post #70

Earlier quoted context omitted.

Can you define "not especially lucrative"? I.E. how much money is a good HFT firm making at scale?

Virtu, one of the very largest HFT firms, had revenues of ~$750MM, with net income around $120mm, in 2014. Goldman Sachs made $34bn.

http://ir.virtu.com/results.cfm

Actual results for 2015. Your numbers are a fair bit off of those. What you can see from the results is that their revenue/profit numbers are small in real terms, but their margins are big compared to other businesses, even technology ones.

Personally, I'm not offended by that and think that the entire conversation about HFT is funny given how little money is actually involved, but if you view profitability in any context as evil or rent seeking, then you have ammunition for that argument with Virtu.

[edit]

Another good one to look at is Knight (Getco) http://investors.kcg.com/phoenix.zhtml?c=105070&p=irol-SECTe....

Had a much better year last year vs the previous 2 and it still was a fundamentally little amount of money.

[edit again]

That Knight statement is very interesting because it shows that the vast amount of their profit came from execution services and that their market making business was very low margin. Now that could be because their market making business is taking the full shot of the infrastructure accounting that enables the execution services business, but its interesting none the less.

Re: Nanex Gets $700k Whistleblower Award from SEC

#103

Post by tptacek » Wed, Mar 02, 2016, 7:12 PM UTC

revelation wrote: post #88

tptacek wrote: post #71

Earlier quoted context omitted.

Because speed is an implicit and intrinsic "figure of merit" in automated market making: if you are faster than other market makers, you outcompete them. There are two straightforward problems with microsecond-speed electronic trading: * At very small timescales, possibly as a sort of inevitable consequence of the CAP theorem, correlations between instruments that should trade in lock step start to break down. Since…

That's circular reasoning: right now speed is a figure of merit because that's how the game has been designed. I'm suggesting to change the game rules. I don't mean to get rid of automatic market making, I'm saying the exchange could just move to a system where it checkpoints every 10ms or whatever, still much faster than humans can blink, but no detriment to the algorithms. Then everyone has 10ms to come up with ord…

You've misunderstood what I'm saying. I agree with you: timescales far below anything that provide any meaningful social value are an intrinsic figure of merit (usual definition: "often arbitrary-seeming number people compete over") of the market microstructure we have now.

I'm not saying the markets must function this way, only that they do, and it's not evidence of a giant conspiracy or grift that they do.

The rest of my comment suggests that while we could potentially quantize the markets, it doesn't seem like we have much to win from doing that, and, further, that it's likely that the problems we're trying to solve by doing that would persist.

Re: Nanex Gets $700k Whistleblower Award from SEC

#104

Post by kpkp » Wed, Mar 02, 2016, 7:31 PM UTC

Except the NBBO was often stale (on purpose), so you were getting what was wrongly quoted as the NBBO by selling to an HFT who knew that the actual BBO was better, allowing them to arb on that knowledge.

That said, a substantial portion of your posting history consists of you being dishonest about the value extracted by HFT (value that is actually created by others), so I'm not surprised that you are lying about the results.

Re: Nanex Gets $700k Whistleblower Award from SEC

#105

Post by true_religion » Wed, Mar 02, 2016, 7:34 PM UTC

harryh wrote: post #91

revelation wrote: post #88

Earlier quoted context omitted.

That's circular reasoning: right now speed is a figure of merit because that's how the game has been designed. I'm suggesting to change the game rules. I don't mean to get rid of automatic market making, I'm saying the exchange could just move to a system where it checkpoints every 10ms or whatever, still much faster than humans can blink, but no detriment to the algorithms. Then everyone has 10ms to come up with ord…

You don't actually have 10ms to act in the scenario you describe. Because there is new information entering the world at all times, you would want to wait until the last possible microsecond before the end of the 10ms window before entering any bids. The window does nothing to remove the need for speed. The world is a continuous system. No matter how hard you try you can't force it to be discrete. (There are other pr…

What new information?

I think the above poster meant to imply that the 10ms delay would cover all market transactions, so if you put in an order now, then no one knows it till the next 10ms stop post.

Essentially its buffering all the data then releasing it at once, so it's not a truly continuous system anymore.

Re: Nanex Gets $700k Whistleblower Award from SEC

#106

Post by ethbro » Wed, Mar 02, 2016, 7:36 PM UTC

reverend_gonzo wrote: post #98

ethbro wrote: post #76

Earlier quoted context omitted.

> Like tptacek said, the price for getting a direct line, while expensive, is not unreasonable for a business. The largest cost will be salaries for the people writing your code and maintaining your infrastructure. Be that as it may in reality, per below quote I assume that behavior is still illegal. "A crucial sub-ruling in the regulations prohibits exchanges from giving stock quotes to special groups faster than to…

Outside of labor, the primary costs are hardware, colocation, and networking, none of which is a fee to the exchange. Please tell, how the world is supposed to provide that for free to anyone who wants it? Colocated servers are the public.

If NYSE wants to lobby for laws to be changed, then they're welcome to do that. Just like Uber or Airbnb when they get hit with fines.

But the law's the law. "It doesn't make sense" isn't a valid defense.

Re: Nanex Gets $700k Whistleblower Award from SEC

#107

Post by kpkp » Wed, Mar 02, 2016, 7:39 PM UTC

tptacek wrote: post #75

samstave wrote: post #70

Earlier quoted context omitted.

Can you define "not especially lucrative"? I.E. how much money is a good HFT firm making at scale?

Virtu, one of the very largest HFT firms, had revenues of ~$750MM, with net income around $120mm, in 2014. Goldman Sachs made $34bn.

It's not the quantity of money extracted by HFT that's offensive; it's that the value is created by others, and they pick the pockets of actual value-generating market participants (some of whom are also algorithmic).

Re: Nanex Gets $700k Whistleblower Award from SEC

#108

Post by rqebmm » Wed, Mar 02, 2016, 7:44 PM UTC

harryh wrote: post #91

revelation wrote: post #88

Earlier quoted context omitted.

That's circular reasoning: right now speed is a figure of merit because that's how the game has been designed. I'm suggesting to change the game rules. I don't mean to get rid of automatic market making, I'm saying the exchange could just move to a system where it checkpoints every 10ms or whatever, still much faster than humans can blink, but no detriment to the algorithms. Then everyone has 10ms to come up with ord…

You don't actually have 10ms to act in the scenario you describe. Because there is new information entering the world at all times, you would want to wait until the last possible microsecond before the end of the 10ms window before entering any bids. The window does nothing to remove the need for speed. The world is a continuous system. No matter how hard you try you can't force it to be discrete. (There are other pr…

Exactly. Instead of the game being "who communicates fastest" it would be "who can time the sample rate the best"

Re: Nanex Gets $700k Whistleblower Award from SEC

#109

Post by harryh » Wed, Mar 02, 2016, 7:47 PM UTC

true_religion wrote: post #105

harryh wrote: post #91

Earlier quoted context omitted.

You don't actually have 10ms to act in the scenario you describe. Because there is new information entering the world at all times, you would want to wait until the last possible microsecond before the end of the 10ms window before entering any bids. The window does nothing to remove the need for speed. The world is a continuous system. No matter how hard you try you can't force it to be discrete. (There are other pr…

What new information? I think the above poster meant to imply that the 10ms delay would cover all market transactions, so if you put in an order now, then no one knows it till the next 10ms stop post. Essentially its buffering all the data then releasing it at once, so it's not a truly continuous system anymore.

> What new information?

Stuff that happens in the real world. The stuff that all security prices are eventually based on. It's not a closed system you know?

Re: Nanex Gets $700k Whistleblower Award from SEC

#110

Post by malisper » Wed, Mar 02, 2016, 7:47 PM UTC

kasey_junk wrote: post #102

tptacek wrote: post #75

Earlier quoted context omitted.

Virtu, one of the very largest HFT firms, had revenues of ~$750MM, with net income around $120mm, in 2014. Goldman Sachs made $34bn.

http://ir.virtu.com/results.cfm Actual results for 2015. Your numbers are a fair bit off of those. What you can see from the results is that their revenue/profit numbers are small in real terms, but their margins are big compared to other businesses, even technology ones. Personally, I'm not offended by that and think that the entire conversation about HFT is funny given how little money is actually involved, but if…

From the source you gave:

> Full Year 2015:

> Net Income of $197.5 million

> Adjusted Net Trading Income of $500.7 million

His numbers seem pretty accurate.