Nanex Gets $700k Whistleblower Award from SEC
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Re: Nanex Gets $700k Whistleblower Award from SEC
#2While I am fully pro-HFT, and in fact work as a consultant for a few HFT shops, this is certainly illegal and anti-competitive.
(Somewhat akin to using game engine bugs for artificial lag creation in MMOs on the opponent side).
Re: Nanex Gets $700k Whistleblower Award from SEC
#3I have two questions about HFT:
- Is HFT a healthy or unhealthy part of the economy? Meaning does it help flatten out the highs/lows, or does it emphasise them?
- Aside from a micro-tax on trading (e.g. 1c/trade) is there any other mitigations/solutions to HFT?
Re: Nanex Gets $700k Whistleblower Award from SEC
#4I never realised the NBBO could cross because of HFT. (Technically a market type order is required to prevent this, but the quote stuffing lags price) Definitely seems wrong.
Re: Nanex Gets $700k Whistleblower Award from SEC
#5Note, the SEC has a protocol for all whistleblowers. Here's the largest ever award [1] and the wiki article on the topic [2] (sorry for mobile link).
I asked my accountant friend about whether he'd ever consider whistleblowing if he saw wrongdoing. His decision criteria was based on whether he'd A) Ever be able to get hired again or B) If the size of the prize was so big he'd never have to worry about it.
[1] https://www.sec.gov/News/PressRelease/Detail/PressRelease/13...
[2] https://en.m.wikipedia.org/wiki/SEC_Office_of_the_Whistleblo...
Re: Nanex Gets $700k Whistleblower Award from SEC
#6So essentially the exchanges offer multiple data feeds. These feeds are differentiated by a couple of points.
1) How much market data they give out. Typically this is broken into 3 levels:
- Level 1, Just the top of book quote, this is the best bid and offer and their corresponding number of shares at this price level.
- Level 2 Depth of market at each price level, same as above but you can see all liquidity offered.
- Level 3 same as Level 2 but you can see each individual order that contributes to each price level
The other way they differentiate is the speed at which you get updates.
Have a look here to see what just the Nasdaq offers. http://www.nasdaqtrader.com/Trader.aspx?id=FeedMIPS
You can spend anywhere from $500/month to $75,000/month to receive market data from just the Nasdaq, one of 50 trading venues in the US.
As you can imagine the difference is speed. The slower methods will use the text based FIX protocol and the fastest methods give you a feed and an FPGA to parse the feed with.
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 millisecond second peek at the market before everyone else does.
Couple these faster feeds with many dark pools not reporting trades in a timely manner and new order types that allow firms to sweep liquidity at one exchange only( ie not rout-able orders) and you get a situation where latency arb can thrive.
Re: Nanex Gets $700k Whistleblower Award from SEC
#7I have two questions about HFT: - Is HFT a healthy or unhealthy part of the economy? Meaning does it help flatten out the highs/lows, or does it emphasise them? - Aside from a micro-tax on trading (e.g. 1c/trade) is there any other mitigations/solutions to HFT?
I don't see why we couldn't put a time delay in. Something like this: when you commit to a trade, the actual trade delayed for some N minutes, where N is a randomly-chosen value from some distribution. Wouldn't this eliminate the incentive to do HFT?
Re: Nanex Gets $700k Whistleblower Award from SEC
#8I have two questions about HFT: - Is HFT a healthy or unhealthy part of the economy? Meaning does it help flatten out the highs/lows, or does it emphasise them? - Aside from a micro-tax on trading (e.g. 1c/trade) is there any other mitigations/solutions to HFT?
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.
Re: Nanex Gets $700k Whistleblower Award from SEC
#9So 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 exposes the NYSE as systemically fraudulent. The implication of that is so overwhelming it causes me to want to ignore it out of sheer inability to think of a way to solve the problem.
Re: Nanex Gets $700k Whistleblower Award from SEC
#10Pretty sure this is the initial analysis from 2010 - http://www.nanex.net/FlashCrash/FlashCrashAnalysis_LOD.html
"If the average or base quote rate is around 10,000/second, then it only takes an additional 10,000 quotes/second to reach the magic 20,000 quotes/seconds where a corresponding delay is seen in NYSE quote from CQS."
This seems like a bug related to system load, so a $5M seems pretty harsh unless they knowingly ignored the issue for the benefit of their high-paying CQS customers.