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New stock market for long-term investors/reducing high-frequency trading

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Re: New stock market for long-term investors/reducing high-frequency trading

#41

Post by andrew1 »

yummyfajitas wrote: post #39
tastybites wrote: post #34

Earlier quoted context omitted.

Sure, but what would the people paying more be getting? Less volatility? More assurance that their price is closer to long term averages? How is that possible? Is this possible because the market maker ensures some kind of buffer from the HFT shops in exchange for a bigger spread? I'm not in this field so I ask from ignorance.

You can't pay more - it's illegal (see RegNMS). You must buy on exchange B before buying on exchange A.

There are markets outside of the US though, where it would be possible to buy on the more expensive exchange.

Re: New stock market for long-term investors/reducing high-frequency trading

#43

Post by borism »

andrew1 wrote: post #40
borism wrote: post #36

Doesn't Credit Suisse have pretty active HFT desk? Just another way to shaft their own customers, isn't it?

They're not shafting anyone, no one will be obliged to trade on this market. People are only going to trade on it if they believe they'll gain some advantage through doing it - so conversely you could argue that by offering this service Credit Suisse are doing their customers a favour.

dear god, how tired I am of this "no one will be obliged" argument!

no one is obliged to have an iphone or credit card too. that doesn't mean that a lot of people can't have them, and the fact that they got them voluntarily (or more likely trough carefully crafted advertisement) doesn't mean that companies providing them can now do as they wish with their customers!

believe they'll gain some advantage through doing it - so conversely you could argue that by offering this service Credit Suisse are doing their customers a favour

you're doing your customers a favor when you're actually giving them some advantage, not making them believe in you doing so.

Re: New stock market for long-term investors/reducing high-frequency trading

#44

Post by noname123 »

Excellent. Another dark pool for people who think that they are safe. There are already have a bunch of these, Crossfinder, Liquidnet etc.

Here's how you game them without being detected. Have your long term hedge fund/mutual fund department set up an connection to that market. Make sure that you only do long term investing on these venues (e.g., buy blue chip stocks that have low PE) so that they don't ban you.

Now you feed the information about displayed liquidity on high volatility stocks that you are interested in trading (e.g., small biotechs) from those exchanges. Especially this new one that isn't even a dark pool but has displayed liquidity.

Now next you use that information to front-run the mutual funds who are trying to execute their VWAP in other exchanges such as BATS. Most investors don't have access to dark pools and dark pools aren't obligated to conform to NBBO, so you could get cheaper shares elsewhere and sell when the VWAP is reported in the next hour/end of trading day by dark pools.

Other way you can play this is play the liquidity rebate game. So much rebate, $.14/100 shares. Just trade C all day long, high liquidity, low slippage. Offer and buy back at same price as long as C doesn't slip too much. Guess who's paying for the rebates, the mutual funds who's taking the liquidity. Wall Street, what a scam.

Re: New stock market for long-term investors/reducing high-frequency trading

#45

Post by andrew1 »

borism wrote: post #43
andrew1 wrote: post #40

Earlier quoted context omitted.

They're not shafting anyone, no one will be obliged to trade on this market. People are only going to trade on it if they believe they'll gain some advantage through doing it - so conversely you could argue that by offering this service Credit Suisse are doing their customers a favour.

dear god, how tired I am of this "no one will be obliged" argument! no one is obliged to have an iphone or credit card too. that doesn't mean that a lot of people can't have them, and the fact that they got them voluntarily (or more likely trough carefully crafted advertisement) doesn't mean that companies providing them can now do as they wish with their customers! believe they'll gain some advantage through doing i…

I'm not really sure what you're talking about.

A market participant will choose which exchange to execute a trade on based on their analysis of those exchanges. If for a particular trade they decide that out of all the exchanges, darkpools and this new lightpool available to them that the exchange that is most suited to that order is the lightpool, then they'll probably route it there. What do you expect them to do? If you're going to buy or sell something then there's an associated cost to doing that whether you do it on the NYSE, in a darkpool, or in this new lightpool.

Credit Suisse don't 'own' any customers, people who trade on this exchange will have no obligation to trade there, it sounds like you think that there are people who are forced to trade through Credit Suisse and so will be forced to use an exchange run by Credit Suisse. That is not the case. If they don't like what is on offer at Credit Suisse then they can trade directly in a market, or they can use another broker.

Re: New stock market for long-term investors/reducing high-frequency trading

#46

Post by jrockway »

What exactly is the incentive for reducing high-frequency trading? People are offended that computers can make investment decisions better than humans? Computers making trades is not "really" investing?

Markets are based on trading. If there are no trades, there are no markets. If you want to buy 1000 shares of ABC company, and nobody has 1000 shares, guess what, the trade is not going to go through. This is what will happen on a restricted market.

Similarly, high-frequency trading means price corrections occur more quickly, meaning that when you buy or sell security foo, it is more likely at the correct price. Now you can argue that nobody really knows the correct price, but that is orthogonal. (Computers make mistakes, but so do people. There are some markets that are still not made on exchanges, and they are subject to the same whims that the equity markets are. Computers are buggy. People are irrational.)

My guess is that this market is for people with a lot of money that like to talk on the phone with bankers. They will get a "safe" investment (or so the dude on the phone says), and Credit Suisse will get a nice cut. Hint: whenever a bank invents a product, the main idea usually revolves around them getting a cut.

Re: New stock market for long-term investors/reducing high-frequency trading

#47

Post by [deleted] »

yummyfajitas wrote: post #31
tptacek wrote: post #24

Earlier quoted context omitted.

That's slippery slope logic. If the pricing is right at 1s, why pour money and talent into getting it right at 100ms? What's the win to society to "mitigate" an "incentive"? Is the problem volatility? Other forces create huge volatility. Should we penalize anything that creates volatility? Maybe we should end all program trading? Meanwhile, you're effectively vouching for a comment that models the markets as a closed…

What's the win to society to "mitigate" an "incentive"? The main incentive is reducing time and energy devoted to a zero sum game. A hypothetical: imagine a sunken pirate ship is discovered. Now suppose 10 crews of divers get into a race to retrieve the pirate gold. It's useful to society to bring up the gold. It might be useful to society to have a race between 2 crews to bring up the gold, to make sure the first cr…

[deleted]

Re: New stock market for long-term investors/reducing high-frequency trading

#48

Post by grav1tas »

jrockway wrote: post #46

What exactly is the incentive for reducing high-frequency trading? People are offended that computers can make investment decisions better than humans? Computers making trades is not "really" investing? Markets are based on trading. If there are no trades, there are no markets. If you want to buy 1000 shares of ABC company, and nobody has 1000 shares, guess what, the trade is not going to go through. This is what wil…

> Hint: whenever a bank invents a product, the main idea usually revolves around them getting a cut.

Replace "bank" with "just about anybody" and you have a winner.

Re: New stock market for long-term investors/reducing high-frequency trading

#49

Post by andrew1 »

tastybites wrote: post #34
andrew1 wrote: post #28

Earlier quoted context omitted.

Well, here's a situation where it can't happen: Exchange A: Price you can BUY ACME Co. = $34.50 Exchange B: Price you can BUY ACME Co. = $34.45 Exchange B: Price you can SELL ACME Co. = $34.40 Exchange A: Price you can SELL ACME Co. = $34.35

Sure, but what would the people paying more be getting? Less volatility? More assurance that their price is closer to long term averages? How is that possible? Is this possible because the market maker ensures some kind of buffer from the HFT shops in exchange for a bigger spread? I'm not in this field so I ask from ignorance.

I think you're generally right that people would normally choose the better prices. A few hypothetical reasons why someone might not could be: once fees/commissions are included the exchange with the worse price could actually be cheaper; an exchange might offer a rebate based on volume so trading on the more expensive exchange could help someone gain a larger rebate; if you wanted to trade a large quantity immediately in one order, and your quantity was greater than the quantity available at the best price, then you'd need to eat into the order book, and the resulting average price might be cheaper on the more expensive exchange; you might be banned from the cheaper exchange and so would have to trade on the more expensive one.
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