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Nanex Gets $700k Whistleblower Award from SEC

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Re: Nanex Gets $700k Whistleblower Award from SEC

#91

Post by harryh »

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 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 problems in your proposed scenario to having to do with mismatched buy vs sell volume, but we'll ignore those for now.)

Re: Nanex Gets $700k Whistleblower Award from SEC

#92

Post by jordanbaucke »

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…

@TheNanex, Eric?

I have always been facinated by the underlying technology that drives Nanex's products. I follow http://www.nanex.net/NxResearch/ regularly and would like to see some more technical anotomy of some of the tools you guys have built.

Thanks and great work!

Re: Nanex Gets $700k Whistleblower Award from SEC

#93

Post by kbenson »

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.

Does that list include the HFT arms of the bigger traditional firms? Goldman bought into Perseus[1], so I assume if Perseus counts for them, but I imagine there may be some larger firms with HFT divisions that don't report separately.

1: http://www.bloomberg.com/news/articles/2015-04-21/goldman-sa...

Re: Nanex Gets $700k Whistleblower Award from SEC

#94

Post by minimax »

tptacek wrote: post #29
lr wrote: post #16

This might be of interest to people: A NYSE Speed Bump You Weren't Aware Of https://www.iextrading.com/about/press/op-ed/

The "speed bump" here being that NYSE's ancient creaky FIX gateway is slower than the NYSE ARCA gateway that they tell everyone to use instead. Quelle surprise! 80s text network protocol slower than 90s binary protocol: film at 11.

This is almost right. NYSE and Arca are two separate exchanges (both owned by NYSE). Both exchanges offer FIX and binary gateway protocols. Annoyingly, the Arca binary protocol and the NYSE binary protocol are not the same protocol. NYSE does not suggest using the Arca gateway to access NYSE. They suggest you use a NYSE binary gateway to access NYSE.

Re: Nanex Gets $700k Whistleblower Award from SEC

#95

Post by pfarnsworth »

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.

You are wrong. I'm sure you mean $750M, but they only have 200 employees, Goldman has 40,000. HFT is extremely lucrative.

Re: Nanex Gets $700k Whistleblower Award from SEC

#96

Post by usefulcat »

revelation wrote: post #67
tptacek wrote: post #37

Earlier quoted context omitted.

First, HFT firms aren't especially lucrative compared to other finance specialties, so one answer to that question is "nowhere". Second, HFT firms compete with other finance firms , so what money they do make comes from bidding down the costs those firms were imposing on the rest of the market. If you're a retail trader, automated electronic traders make money off you by outbidding the markets to quote good prices to…

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.

If you're doing market making, note that you're more likely to get a buy order filled when the market is going down, and more likely to get a sell order filled when the market is going up. This is the flip side of getting to "capture the spread".

So in order to be successful, especially when your margins are razor thin (and they pretty much always are), you have to be very, very good at canceling your orders as quickly as possible any time it looks like the market is likely to move against you.

Re: Nanex Gets $700k Whistleblower Award from SEC

#97

Post by tptacek »

minimax wrote: post #94
tptacek wrote: post #29

Earlier quoted context omitted.

The "speed bump" here being that NYSE's ancient creaky FIX gateway is slower than the NYSE ARCA gateway that they tell everyone to use instead. Quelle surprise! 80s text network protocol slower than 90s binary protocol: film at 11.

This is almost right. NYSE and Arca are two separate exchanges (both owned by NYSE). Both exchanges offer FIX and binary gateway protocols. Annoyingly, the Arca binary protocol and the NYSE binary protocol are not the same protocol. NYSE does not suggest using the Arca gateway to access NYSE. They suggest you use a NYSE binary gateway to access NYSE.

Dammit. I even looked this up before I wrote the comment, and got the opposite impression. (I'm a little familiar with the Arca protocol for other reasons).

Thanks for correcting me.

Re: Nanex Gets $700k Whistleblower Award from SEC

#98

Post by reverend_gonzo »

ethbro wrote: post #76
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…

> 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.

Re: Nanex Gets $700k Whistleblower Award from SEC

#99

Post by tptacek »

pfarnsworth wrote: post #95
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.

You are wrong. I'm sure you mean $750M, but they only have 200 employees, Goldman has 40,000. HFT is extremely lucrative.

Thanks for correcting; yes, I meant that Virtu makes a small fraction of what Goldman makes. Goldman, of course, is not principally an HFT firm.

Re: Nanex Gets $700k Whistleblower Award from SEC

#100

Post by tptacek »

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…

No, that's not what he's saying. But aside from that: the reason orders you place won't be matched on any market at NYSE, let alone a special one, is that HFT market makers will give you a price break to route your dumb order to them so they can collect their tiny spread from your trade without worrying that you're a hedge fund about to steamroll them with a giant block order.
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