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Nanex Gets $700k Whistleblower Award from SEC

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Re: Nanex Gets $700k Whistleblower Award from SEC

#51

Post by kbenson »

chollida1 wrote: post #18
kbenson wrote: post #12

Earlier quoted context omitted.

> It's this later feed that is getting the exchanges into trouble as these feeds notify the user of trades before the SIP can be updated which lets firms have a 300-700 nano second peek at the market before everyone else does. From the article: Specifically, we found that stock quotes from the NYSE were delayed by more than 30 seconds to the public quotation feed (chart 1), relative to Open Book, which is NYSE's expe…

Yes, but to be clear that was a very special situation that hadn't happened before or since. They were essentially fined for not having good developers. The NYSE has always had a reputation of being awfully inept from a technology standpoint, though they have made strides in the past few years. That particular time was made even worse by the direct feed holding up much better that their SIP feed, though the direct fe…

> Yes, but to be clear that was a very special situation that hadn't happened before or since.

If by a special situation, you mean directly observable at multiple time periods. Here's what the article says:

To satisfy a curiosity of whether the NYSE public quote delay was unique to May 6, 2010, we ran another quote-by-quote comparison of time-stamps from the public quote and Open Book for a 30 minute trading period in General Electric stock (GE) on July 21, 2010 (see chart 2). 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.

So they were able to find another time period exhibiting the same behavior as the flash crash at a later date, and it doesn't appear they had to look very hard (but there aren't a lot of details on that). Thirty seconds is a crazy amount of lag, but that was during the "special situation". That they look to have routinely had lag well into the hundreds of milliseconds is more troubling, because there's no longer a special situation to point towards as an excuse.

Re: Nanex Gets $700k Whistleblower Award from SEC

#52

Post by [deleted] »

owlee wrote: post #44
tptacek wrote: post #15

Earlier quoted context omitted.

So, no? From 2008-2012, if you paid NYSE (one of like 15 different exchanges that trade NYSE-listed stocks) for a proprietary feed --- something that costs more than most idle home day traders can afford, but would be affordable by any YC startup --- you were getting an edge in competing with other electronic trading systems . If you were a retail investor or a mutual fund, what NYSE was doing probably didn't impact…

Quote from an interview with Hunsader on CNBC regarding this topic: Q (CNBC): Should long-term investors care about milliseconds? A (Hunsader): Yes, they should.

[deleted]

Re: Nanex Gets $700k Whistleblower Award from SEC

#53

Post by reverend_gonzo »

biot wrote: post #42
reverend_gonzo wrote: post #23

What he's saying there was that due to inefficiencies in NYSE's infrastructure, the feed that went to the consolidation (which provides the NBBO) was delayed. Firms were able to then exploit those inefficiencies by dumping a ton of quotes into the market to cause it slow down those feeds. This is called quote-stuffing and is illegal and against exchange rules. (I don't know if this was illegal then.) From a technical…

Your summary is incorrect; the 30 second delay was six years ago and was caused by selling access to real-time data vs delaying the data for the public. Quote stuffing resulted in delays of hundreds of milliseconds: > Once again, we detected sizable delays between time-stamps > in the public quote and Open Book. These delays ranged in > the hundreds of milliseconds. Though the delay magnitude was > far lower than the…

Regular quote stuffing generally delayed by hundreds of milliseconds, which is a pretty bad sign regarding their infrastructure.

The 30 second delay was only during the flash crash. For an aggregate feed that's not aggregating very efficiently, that would make sense, as there was an abnormally high amount of volume during the crash.

Re: Nanex Gets $700k Whistleblower Award from SEC

#55

Post by chollida1 »

kbenson wrote: post #51
chollida1 wrote: post #18

Earlier quoted context omitted.

Yes, but to be clear that was a very special situation that hadn't happened before or since. They were essentially fined for not having good developers. The NYSE has always had a reputation of being awfully inept from a technology standpoint, though they have made strides in the past few years. That particular time was made even worse by the direct feed holding up much better that their SIP feed, though the direct fe…

> Yes, but to be clear that was a very special situation that hadn't happened before or since. If by a special situation, you mean directly observable at multiple time periods. Here's what the article says: To satisfy a curiosity of whether the NYSE public quote delay was unique to May 6, 2010, we ran another quote-by-quote comparison of time-stamps from the public quote and Open Book for a 30 minute trading period i…

Umm, I think what you posted proves my point. The 30 second delay was a complete aberration. 100 millisecond delays happen all the time at every exchange.

To be fair to you I originally posted nano second when I meant millisecond. I've corrected my post.

As I've said before, I'm not at an HFT firm but we routinly see latency changes in messagesfrom all excahnges and dark pools.

Just like Google can't guarantee each query will be served in 250 milliseconds, each exchange can't guarantee every message will be delivered in nano seconds.

I'm good with this.

Re: Nanex Gets $700k Whistleblower Award from SEC

#56

Post by TheNanex »

rcavezza wrote: post #54

Anyone know what this quote means? When the SEC called Hunsader in June 2015 to tell him about the award, he said to them "I would have accepted $1 if you simply acknowledged me at the time." Was he initially ignored?

I was ignored by the Trading and Markets people at the SEC, but not ignored (obviously) by the Enforcement people.

Re: Nanex Gets $700k Whistleblower Award from SEC

#57

Post by branchless »

tptacek wrote: post #31
branchless wrote: post #20

Earlier quoted context omitted.

We'd have liquidity without this endless war on getting closer to zero. They are adding nothing and soaking up qualified grads who could be building something useful. This is a great example of how the modern economy fails to link wealth created with wealth extracted.

That's true, but it's true of a lot of other things (for instance: huge fractions of all the devs working at Google and Facebook). Meanwhile, trading tech is (IMO) much more fun to work on than a lot of the work Googlers do, lucrative, and not concentrated in the Bay Area. I'd rather we found a way to get everyone to work on drug discovery and civic engagement, but unfortunately, we don't generally put regulatory bra…

We should put breaks on it because it's not creating wealth. If it's not creating wealth but people are becoming wealthy it's because money is being extracted via economic rent (due to monopoly).

When firms make lots of money from trading platforms and then pay staff who go and consume real resources that is ultimately coming by transferring from wealth producers.

Re: Nanex Gets $700k Whistleblower Award from SEC

#58

Post by cdetrio »

jobu wrote: post #19
kbenson wrote: post #8

Earlier quoted context omitted.

IIRC, HN's yummyfajitas goes into a lot of details in his blog posts on HFT[1]. My own understanding is that it provides liquidity and reduces bid/ask spreads, resulting in a more accurate stock valuation. I'm not sure the negatives, but I'm not a trader nor do I follow such things all that closely. 1: https://news.ycombinator.com/item?id=3852341

From that blog post: "Most HFTs run a market making strategy. What this means is they play both sides of the table - they take no position on whether a stock will go up or down. Instead, they try to offer securities both to buy and sell. If you want to buy, they will sell to you at $20.10. If you want to sell, they'll buy from you at $20. As long as their buys and sells match don't get too out of whack, the HFT will…

That's why market makers are also called scalpers, because they skim the $0.10 spread. But in return for paying the spread, what traders get is immediacy.

The problem is, how much immediacy do traders actually want? HFT provides immediacy in microseconds; its needed for continuous-time auctions because buyers sellers usually aren't in the market at the exact same microsecond interval (while the HFT is there at every interval).

Frequent Batch Auctions[1], where orders are matched in batches with single-price clearing (call auction style) - just like the opening and closing sessions of NYSE, but much more frequently with shorter periods of say 30 seconds, 1 second, or even 100ms per batch. Their models show that frequent batch auctions will reduce spreads even further (because it eliminates mechanical/latency arbitrage rents). In theory, retail traders should get even better prices (because the spreads will be smaller) if they are willing to give up microsecond immediacy for 1 second order matching.

http://faculty.chicagobooth.edu/eric.budish/research/HFT-Fre...

Re: Nanex Gets $700k Whistleblower Award from SEC

#59

Post by kbenson »

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 problem more clearly?

Do you have any info on how often lag was present, or how often over a specific threshold?

Do you know how representative you sample was with respect to when lag was present?

I understand you may not have gone into this much detail in your research, but if you have any info like this, I think it helps illustrate the scope of the problem.

Re: Nanex Gets $700k Whistleblower Award from SEC

#60

Post by tptacek »

branchless wrote: post #57
tptacek wrote: post #31

Earlier quoted context omitted.

That's true, but it's true of a lot of other things (for instance: huge fractions of all the devs working at Google and Facebook). Meanwhile, trading tech is (IMO) much more fun to work on than a lot of the work Googlers do, lucrative, and not concentrated in the Bay Area. I'd rather we found a way to get everyone to work on drug discovery and civic engagement, but unfortunately, we don't generally put regulatory bra…

We should put breaks on it because it's not creating wealth. If it's not creating wealth but people are becoming wealthy it's because money is being extracted via economic rent (due to monopoly). When firms make lots of money from trading platforms and then pay staff who go and consume real resources that is ultimately coming by transferring from wealth producers.

Economic rent? Monopoly? That was far more true of the firms HFT preys on, and not true of HFT firms at all.
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