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Goldman Sachs is spending $100M to shave milliseconds off stock trades

cnbc.com

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Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#61

Post by twic »

nickles wrote: post #37
codingslave wrote: post #17

People love to rail on HFT, but at this point, its really not that profitable. It's just a reality of trading in the markets. There was a blip of time between 2008 and 2014 when HFT was extremely profitable. Those inefficiencies have been gone from the market for years. People were whooped into anger about how much money was being made, at this point its a complete non issue and needs to be removed from the highlight…

Adding to this, HFT is a product of rule 612 of Reg NMS (the sub-penny rule). Markets are not allowed to show quotes in increments of less than $0.01 for most names. Since traders cannot compete on price, they have been forced to compete exclusively on speed. The impact of such regulation was tested by the SEC recently with the 'tick size' program. Instead of reducing the minimum increment, some names saw it increase…

On the other hand, the Intercontinental Exchange reduced the tick size for sterling interest rate futures towards the end of 2018, and the result was ... decreased liquidity! And resulting increased volatility.

I'm not sure anyone knows for sure why this happened, but the best theory i've heard is that the reduction in tick size reduced the expected profits of market makers, because they are collecting less spread on every contract they turn around, while not affecting their potential losses, because external factors which cause the market to jump three basis points will still cause it to jump three basis points. Halved regular profits divided by constant occasional losses equals no longer worth bothering with.

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#62

Post by twic »

em500 wrote: post #51
nickles wrote: post #12

Earlier quoted context omitted.

> pointless expenditure on an ultimately meaningless arms race What about price discovery is pointless? Would you prefer that prices update only once a day? Once a week? Once a month? Realtime pricing of securities and derivatives is critical for an efficiently functioning economy. > if we imposed reasonable limits on the time required to hold an equity in order for a trade to be legally recognized This would damage…

> What about price discovery is pointless? Would you prefer that prices update only once a day? Once a week? Once a month? Realtime pricing of securities and derivatives is critical for an efficiently functioning economy. Pretty much everything at sub-second resolution is pointless. I'd like to hear a coherent argument how realtime or even sub-second pricing of securities and derivatives is critical for an efficientl…

> I'd like to hear a coherent argument how realtime or even sub-second pricing of securities and derivatives

I won't touch equities, but surely it's obvious why derivatives have to be priced quickly? When the underlying moves, you have to re-price the derivative, otherwise you're giving away money!

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#63

Post by denormalfloat »

nickles wrote: post #37
codingslave wrote: post #17

People love to rail on HFT, but at this point, its really not that profitable. It's just a reality of trading in the markets. There was a blip of time between 2008 and 2014 when HFT was extremely profitable. Those inefficiencies have been gone from the market for years. People were whooped into anger about how much money was being made, at this point its a complete non issue and needs to be removed from the highlight…

Adding to this, HFT is a product of rule 612 of Reg NMS (the sub-penny rule). Markets are not allowed to show quotes in increments of less than $0.01 for most names. Since traders cannot compete on price, they have been forced to compete exclusively on speed. The impact of such regulation was tested by the SEC recently with the 'tick size' program. Instead of reducing the minimum increment, some names saw it increase…

Without having read the regulation, why don't institutional investor just make a private market place where they can trade for sub-penny values?

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#64

Post by denormalfloat »

wallace_f wrote: post #33
jedberg wrote: post #32

Can someone explain to me what is gained by processing the trades in real time vs. batching the processing into say 1 second increments? What does GS gain by being able to get their trade there a few milliseconds before the competition and what do I as a consumer gain from this?

You don't gain anything. GS is in an arms race with other fintech firms to be first in line to act on new information.

That's not right, you (we) get accurately priced securities. We also get tighter bid-ask spreads.

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#65

Post by barry-cotter »

ggm wrote: post #49
codingslave wrote: post #17

People love to rail on HFT, but at this point, its really not that profitable. It's just a reality of trading in the markets. There was a blip of time between 2008 and 2014 when HFT was extremely profitable. Those inefficiencies have been gone from the market for years. People were whooped into anger about how much money was being made, at this point its a complete non issue and needs to be removed from the highlight…

Yea, I was one of them. I mixed up trading ahead from side-channel knowledge which breaks insider-trading rules, with having a fast engine which can just move bits faster than the other guy. I don't "like" HFT the same way I don't "like" the market at all, but HFT is not actually stealing grannies money.

Side channel knowledge doesn’t break insider trading rules. You need to have a fiduciary duty to someone to betray to be doing insider trading. There needs to be someone who has the right to that knowledge, who you’re supposed to act on behalf of, who doesn’t want you trading on it.

There are many types of “side channel” non public information that aren’t insider trading.

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#66

Post by simula67 »

vannevar wrote: post #3

It seems like we could save a lot of pointless expenditure on an ultimately meaningless arms race in flash trading if we imposed reasonable limits on the time required to hold an equity in order for a trade to be legally recognized.

A simpler solution might be to just increase the transaction tax

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#67

Post by vijaybritto »

winrid wrote: post #58
vijaybritto wrote: post #53

"Using so-called microservices to break complicated problems into easy-to-solve ones" I would love to see microservices which actually solve problems and reduce complexity! :(

I am curious how that will help latency here. It must be pretty bad if refactoring and adding more network connections is an improvement.

Yeah I know people preferring microservices for its horizontal scalability advantage but never for reducing latency. Maybe something was lost in the translation to the author.

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#68

Post by doctorpangloss »

twic wrote: post #61
nickles wrote: post #37

Earlier quoted context omitted.

Adding to this, HFT is a product of rule 612 of Reg NMS (the sub-penny rule). Markets are not allowed to show quotes in increments of less than $0.01 for most names. Since traders cannot compete on price, they have been forced to compete exclusively on speed. The impact of such regulation was tested by the SEC recently with the 'tick size' program. Instead of reducing the minimum increment, some names saw it increase…

On the other hand, the Intercontinental Exchange reduced the tick size for sterling interest rate futures towards the end of 2018, and the result was ... decreased liquidity! And resulting increased volatility. I'm not sure anyone knows for sure why this happened, but the best theory i've heard is that the reduction in tick size reduced the expected profits of market makers, because they are collecting less spread on…

Or there was adverse selection: only kooky traders go into kooky trading rules.

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#69

Post by bgdnyxbjx »

jiggawatts wrote: post #52
em500 wrote: post #51

Earlier quoted context omitted.

> What about price discovery is pointless? Would you prefer that prices update only once a day? Once a week? Once a month? Realtime pricing of securities and derivatives is critical for an efficiently functioning economy. Pretty much everything at sub-second resolution is pointless. I'd like to hear a coherent argument how realtime or even sub-second pricing of securities and derivatives is critical for an efficientl…

This. A million times this. All possible arguments for price discovery are totally invalidated by regular market closures. Conversely, if sub-second resolution is somehow "a good", then by extension sub-millisecond price discovery is "even better". There are some insane people that state this kind of gibberish with a straight face. If millisecond are good, then surely microseconds are even better! Next... nanosecond…

They’ll only stop when they get to Planck time resolution price discovery

Re: Goldman Sachs is spending $100M to shave milliseconds off stock trades

#70

Post by tomp »

barry-cotter wrote: post #65
ggm wrote: post #49

Earlier quoted context omitted.

Yea, I was one of them. I mixed up trading ahead from side-channel knowledge which breaks insider-trading rules, with having a fast engine which can just move bits faster than the other guy. I don't "like" HFT the same way I don't "like" the market at all, but HFT is not actually stealing grannies money.

Side channel knowledge doesn’t break insider trading rules. You need to have a fiduciary duty to someone to betray to be doing insider trading. There needs to be someone who has the right to that knowledge, who you’re supposed to act on behalf of, who doesn’t want you trading on it. There are many types of “side channel” non public information that aren’t insider trading.

Depends. This is the case in the US, but in the EU, “insider trading” is more absolute, just “trading on non-public information” (regardless of how it was obtained) and can happen even without fiduciary duty.
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