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

Re: Nanex Gets $700k Whistleblower Award from SEC

#111

Post by anonu » Wed, Mar 02, 2016, 7:48 PM UTC

tsunamifury wrote: post #9

So essentially the NYSE is a provably fixed game, with large HFT houses paying for the right to trade on non-public information, and it hides behind the idea that it was just a few hundred milliseconds. All the while they are selling non-public information as a product that is deliberately used to micro-manipulate the market? I mean, deep down I always knew this, but to have it all spelled out is shocking because it…

You can also come to the same conclusion if you see how NYSE conducts opening and closing auctions. The presence of human specialists and d-quotes is in the same vein...

Re: Nanex Gets $700k Whistleblower Award from SEC

#112

Post by revelation » Wed, Mar 02, 2016, 7:54 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…

That's silly, because it's an universal truth. Yet they still close the exchange and the dumb traders go home to sleep.

You can design the rules to optimize for one thing or another, continuous world notwithstanding. I'm suggesting a way to optimize for something more useful.

Re: Nanex Gets $700k Whistleblower Award from SEC

#113

Post by fnordfnordfnord » Wed, Mar 02, 2016, 7:56 PM UTC

kbenson wrote: post #59

TheNanex wrote: post #48

Yikes. Lots of misinformation here. First of all, this has nothing to do with High-Frequency Trading. It's about the NYSE not delivering a product (SIP real-time data) while collecting $100M a year for that service. This was happening for at least 3 years. I am a champion of free markets. The term "High-Frequency Trading critic" is a label others use when they either can't understand and/or refute solid evidence. I'm…

Can you comment on how hard it was to find another period exhibiting this behavior? The article says We chose this period because there was a noticeable lag in the public quote from the NYSE versus quotes from other exchanges, allowing us to rule out the consolidation process as a source of the delay. Did you have to look for a few periods to see the behavior, or did you look for a few to get a sample that showed the…

http://www.nanex.net/NxResearch/ResearchPage/5/

Re: Nanex Gets $700k Whistleblower Award from SEC

#114

Post by harryh » Wed, Mar 02, 2016, 7:56 PM UTC

revelation wrote: post #112

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…

That's silly, because it's an universal truth. Yet they still close the exchange and the dumb traders go home to sleep. You can design the rules to optimize for one thing or another, continuous world notwithstanding. I'm suggesting a way to optimize for something more useful.

And I'm saying that your optimization wouldn't accomplish any goals that you might have.

Re: Nanex Gets $700k Whistleblower Award from SEC

#115

Post by true_religion » Wed, Mar 02, 2016, 7:58 PM UTC

harryh wrote: post #109

true_religion wrote: post #105

Earlier quoted context omitted.

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?

Ah, that's why I wanted an example. Your answer is fairly obvious, but it's pretty absolute too so there's no way to ask questions like "is this information actually going to affect the bid size or price of a bidder?" or "is this event important but infrequent, like quarterly reporting?"

For example, infrequent important events will result in a race for people to submit at the last microsecond, but because they're infrequent 99% of the time the 10ms buffering will effectively change the behaviour of market participants.

Re: Nanex Gets $700k Whistleblower Award from SEC

#116

Post by kasey_junk » Wed, Mar 02, 2016, 7:58 PM UTC

malisper wrote: post #110

kasey_junk wrote: post #102

Earlier quoted context omitted.

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.

He edited it down an order of magnitude (and rightly so, it was clearly a typo).

That said, whenever any trading entity talks about their trading income, be suspicious, because that is usually just the difference between bought/sold (and fees) and doesn't account for the infrastructure costs of trading.

Thats why I like these public SEC documents so much, because they have to use GAAP so you know exactly what they mean.

Re: Nanex Gets $700k Whistleblower Award from SEC

#117

Post by mentat » Wed, Mar 02, 2016, 7:58 PM UTC

jsprogrammer wrote: post #83

reverend_gonzo wrote: post #28

Earlier quoted context omitted.

Market data is not non-public definition. NYSE was simply slow in aggregating market data during times of high volume. This did not affect you as a retail investor, as you get the NBBO price. This only affected you if you were an HFT firm with bad infrastructure who depended on the aggregate feed and not their direct line. Like tptacek said, the price for getting a direct line, while expensive, is not unreasonable fo…

Are you saying that there is a special market operating in the NYSE that some traders cannot access? Why would my order not be eligible for being matched, but a HFT's would? Edit: wow, rate limited after three posts this morning. A new HN low. My response to tptacek below: My dumb order? How can HFT's intercept and redirect my trades to their, appently, captive pool of dumb trades? Sure sounds like multiple markets a…

Read Dark Pools (http://smile.amazon.com/gp/product/B006OFHLG6/) and it will make the setup at least comprehensible.

Re: Nanex Gets $700k Whistleblower Award from SEC

#118

Post by mentat » Wed, Mar 02, 2016, 8:02 PM UTC

tptacek wrote: post #71

revelation wrote: post #67

Earlier quoted context omitted.

Somethings off. If all this is is market making, why all the trouble with the microsecond latencies? Microwave links? Shared colos? That seems like a lot of cost everyone could save on by simply having the exchange enforce some minimum timings.

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…

Exotic quote types and being paid for making the cross is where this explanation seems to hit market realities. HFTs are able to make money on fees by having special access not only in terms of latency but in terms of ordering.

Re: Nanex Gets $700k Whistleblower Award from SEC

#119

Post by itchyouch » Wed, Mar 02, 2016, 8:08 PM UTC

Nasdaq does go through great pains to ensure that public & private feeds go out "equally"-ish on the wire whether it's a quote going out of the prop or public data feeds. At the packet level, a public quote to the SIP or a private quote via Itch are within the sub ~10u level. But once the packet leaves, the fate of that packet is surrendered to the speed of the SIP system.

There's a couple of inherent challenges.

The SIP that aggregates the data is by design a separate system from the trading systems. This is for obvious reasons, as every participant provides their quote to the SIP. So no matter how fast the SIP the is, even with a 99.999% latency of 20 microseconds, the SIP will always be 20 micros + travel time to the SIP (1 to 500 to 7000 micros) as opposed to a direct feed. Nasdaq is in Carteret. NYSE is in Mahwah. BATS is at NY4 in Secaucus, etc. So direct feeds will always be the fastest, even with a SIP that can defy the speed of light a little bit.

Nasdaq does actually read marketdata directly from other exchange participants and falls back to using the "slower SIP" data as a fall back in the event of any issues. This allows for the latest quotes to be respected.

The challenge with the SIPs being hundreds of millis behind is partly due to the criticality & member-driven consensus system in place. Each of the marketcenters NYSE, Nasdaq, Bats, etc have a stake and voting power on how the SIP would be run & operated. Since it's a system that "works" there's really no motivation to continually improve the technology/latency of the SIP. There's also a fear to change the SIP and lead to it going down. If a SIP goes down, by rule, a regulatory halt must be issued and all trading in the securities that particular SIP handles must stop. This is what occurred during the 3 hour outage several years back at Nasdaq. The trading system was fine, but since the SIP was down, everything had to be halted. Halts are detrimental to business since the respective marketcenters make money on trades. Halts = No Trades = Lost Revenue, so there is a lot of motivation to not halt by all the member exchanges.

That ambivalence to a tech refresh has since changed since the scathing critique of Flash Boys and the Nasdaq SIP is in process of being refreshed to the same architecture as the trading systems, which should bring median latencies of the SIP down into the tens of microseconds and 99% latencies into the hundreds of microseconds. Current medians and 90th percentiles are at 450/810 microseconds, which is considered an eternity.

http://www.wallstreetandtech.com/infrastructure/nasdaq-omx-w...

http://www.utpplan.com/DOC/UTP%202015-Q4%20Stats%20with%20Pr...

On the technical side, one of the challenges with synchronizing packet delivery between a private & public feed is that the absolute fastest NICs available today with kernel bypass can get a packet from wire to memory or memory to wire in about 2-3u. So every hop of a computer costs a minimum of 4-6u. Usually this is Order Port Ingress -> Matching Engine -> Order Port Egress. An FPGA NIC that does the IP Header processing and delivers data to memory can do wire to memory in about 1-2u. One-way PCI-E latency is around 800 nanos. So there's about a 500-1000 nano budget to process a packet in the FPGA, then another 800 nanos to deliver it over PCI-E to memory to be processed. The fastest cut-through switches have a port-to-port latency of around 250 nanos, so switch hops are pretty negligible in the overall latency of a system, but they do play a part. Anyway, making sure that everything is super duper optimized and running as it should be in a semi-continuously deployed environment makes for interesting and quite crazy/bull-shit level challenges.

Re: Nanex Gets $700k Whistleblower Award from SEC

#120

Post by zekevermillion » Wed, Mar 02, 2016, 8:14 PM UTC

tsunamifury wrote: post #9

So essentially the NYSE is a provably fixed game, with large HFT houses paying for the right to trade on non-public information, and it hides behind the idea that it was just a few hundred milliseconds. All the while they are selling non-public information as a product that is deliberately used to micro-manipulate the market? I mean, deep down I always knew this, but to have it all spelled out is shocking because it…

And $5mm seems like a very small penalty to pay for systematically ripping off retail investors. I wonder if there is a valid basis for a class action that could recoup more of the theoretical losses due to the delayed quotation...