High-frequency traders attract regulator’s interest

Dunno about the forcing to register, but, say, settling once per second ought to put paid to most of the flood-of-orders and flood-of-cancels trickery's effectiveness, not so?

Instability?

The jury is still out - yes they did cause the flash crash - they do narrow the bid to offer spreads and improve liquidity (in normal market conditions) but when things go a bit chaotic they do seem to make it worse.

Stockblocked

Here's an unreasonable idea: enforce a minimum hold time of 30 minutes.

Well, they make money by arbitraging across continents using high speed, low latency networks. In some sense their value is distributing market information faster than anyone else can, hence their technical prowess.Its far from certain that the flash crash was a high frequency trading issue.

CaptainHook - in my experience the exact opposite is what algorithmic / high frequency trading brings to the markets, i.e. they bring liquidity and stability to the markets, indeed most exchanges actively court the trading firms that specialise in this area for the benefits they bring.

Can someone explain why HFT is a good idea?

It seems to utterly fly in the face of what I thought markets were for.

Can't we just give them their own markets?

I mean just let those traders play in their own sandbox and disconnect that from the real economy.

Emperor's New Clothes

Dare I suggest that most of the practices in the Financial Sector should be banned, as they inherently do nothing to add any value to underlying assets? Markets should be to encourage investment in listed companies, nothing more. If you buy shares, it should be for the long haul - day-trading should effectively be outlawed. As for derivatives, swaps, short-selling and so on, these should be illegal to operate as investments, as they are nothing more than pure gambling, which can have a devastating effect on the underlying share and commodity prices.

PS - I used to work in the "industry" until last month. It's not worthy of being called an industry, all it makes is smoke and mirrors...

High Frequency Trading != Low Latency Trading

With experience in (genuine) low latency trading systems in Euro Govies I feel that I have some real knowledge of what's happening in that space. Hence the AC, or my ex-employers would not be happy. While HFT, more specifically arbitrage, relies on low latency connections, co-location and proximity services with the markets that they are active on the reverse is not true.

There are good reasons to offer low latency solutions, outbound and in. Where the prices you may offer as a market maker are driven by external sources (EUREX futures are the primary in the space I played in) you need to be able to offer the right prices to your clients but they will also be watching other dealers prices. If a client wants to trade in some asset then you have to be able to manage your own position in the interdealer markets; buying or selling at one price and then neither hedging or updating your own position in real-ish time can be a very expensive mistake.

You mean...

"indeed most exchanges actively court the trading firms that specialise in this area for the benefits they bring"

... you mean:

"indeed most exchanges actively court the trading firms that specialise in this area for the MONEY they bring THE EXCHANGES IN FEES.

Tobin tax. Now. Go read about it.

"you'd like to charge everyone a flat fee to conduct a transaction, "#

Why not?

The "financial services" sector takes a cut of a couple of percent every time Joe Public moves some money around, and the world hasn't stopped because of it.

Debit card payment to retailer? Couple of per cent, no problem.

Credit card payment to retailer? Couple of per cent, no problem.

Credit card balance transfer from one card to another? Couple of per cent, no problem.

Mortgage balance transfer from one provider to another? Couple of per cent, no problem.

Advice to Greek government on how to hide state of Government finances off books ? Couple of per cent, no problem (whoops, wrong example, never mind).

Tobin tax at a tiny fraction of a per cent when money moves from one rich man's City institution to another? End of the world!

Why so?

It's a zero-sum game. If most CIty trading and traders really "added value" overall (the usual "liquidity" myths etc) there'd be sensible ordinary folk outside the City willing to defend them, in the same way as there are folk willing to defend the amounts we pay footballers etc. No sensible outsider defends the City as it is today, because they don't "add value" overall.

"So, you'd like to charge everyone a flat fee to conduct a transaction, making it even more difficult for companies to generate revenue? And you want to reduce unemployment?"

How about you pay a fee if you own the shares less than 1 day or 1 hour or even 1 minute - could have a sliding scale. The point is these guys want to own the shares for milliseconds - some people argue it makes the market more stable - others than it makes it more jittery - they can't both be right.

"some people argue it makes the market more stable - others than it makes it more jittery - they can't both be right"

therin lies the problem with economics, it is bloody complicated and ends up being about people which are notoriously hard to predict.

"The more complicated an economic system is the closer it is to failure" i cannot remember where that was from but I likes it

Err

"Most high-frequency operations also sell all holdings at the end of the day, and so contribute nothing to stock price stability"

But we don't want stock price stability. What we want is liquidity so that prices can change smoothly......

An outright Ban is the Only Solution

The only positive function I have ever heard HFT proponents propose as a reason it should be allowed to continue is that it provides liquidity and hence reduce spreads. If that is the only reason for it then it should go.

The government has a responsibility of ensuring that the the markets are healthy and serves the purpose to which they are intended. HFT is in effect sophisticated day trading or rather minute or seconds trading. I am not against day trading, however, HFT traders have the potential of manipulating the market and has become such a large proportion of the total market in terms of transaction values that it is discretionary at best.

What does it say about the health of the market when the more than half of the transactions are in effect day trades. Transactions that do not result in a true position being held by the traders. What does it also mean for the financial system as a whole when Banks actively participate in day trades to this extent.

If the only benefit to the system is in providing liquidity then it must go. Liquidity for liquidity sake makes no sense. in fact HFT would not be as viable without the higher level of liquidity so this is a self serving argument.

"you didn't hear B of A is now charging their customers "

"you didn't hear B of A is now charging their customers "

That's right, I hadn't heard that, but anyway the picture is not significantly changed. The card issuer/bank has your money. You want to use your card to pay some of your money to someone who isn't the bank. In order to do this, it seems BofA now want a monthly fee for allowing your money out of your account to go to your payee. The monthly fee seems to be $5.

This $5 isn't instead of the existing %age fees paid by the "merchant" ie retailer, but the existing merchant fees seem to be expected to be (roughly) halved, which I imagine will leave the banks/card companies with a hole in their revenue stream which the scum will look to pass on to some other suckers somehow.

It's always the customers that pay in the end - just like the UK £multi-billion cost of compensation for customers who were mis-sold Payment Protection Insurance won't be paid by the individual banksters who got bonuses based on its "profitability". Nor will these costs be paid by the regulators who let the PPI be mis-sold. No, they'll be paid by the current customers of the guilty companies.

Nice work if you can get it.

Interesting timing..

Just read this post about a previously unknown company overnight becoming the highest trading HFT on the new york exchange...

http://www.zerohedge.com/news/who-latour-trading-and-how-dare-they-upstage-goldman?page=1