back to article EU: Let's cost financial traders $400m a day, because EVIL BANKERS. Right?

Hurrah! The European Union has decided to save us from the perils of automatic trading! Also known as High Frequency Trading (HFT) or algo trading, this is simply the practice of writing a piece of code to do the buying and selling faster than a human being can possibly do it. We've talked about the basics of it here before at …

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  1. Mage Silver badge
    Devil

    Speculation

    Speculators are not creating wealth for the pension fund, they are evil parasites. It's not investment in the original companies that issued the shares.

    HST is the worst type of speculation. Perhaps shareholding should be for a minimum of a year or six months?

    1. Vladimir Plouzhnikov

      Re: Speculation

      You obviously don't have any idea of what are you talking. It's like saying that HDDs in computers are parasitic because all they do is making a whirring noise and making a light blink.

      Speculation is taking a risk (that is the definition), therefore, speculators are buying risk from those who want to reduce theirs. In doing so they automatically bring information to the market, assisting in price discovery. All of that also means that they create liquidity which makes markets more efficient and less costly for other participants.

      1. Anonymous Coward
        Anonymous Coward

        Re: Speculation

        A few fallacies to pinpoint here:

        "Speculation is taking a risk (that is the definition), therefore, speculators are buying risk from those who want to reduce theirs"

        True, HFT are taking risks. False, they are not taking it because someone else has asked them to do so. There's no explicit relationship between them, only implicit by their activities. Non-HFT sellers and buyers are not begging the HFTs to reduce their risk. By their own admission, HFTs traders are taking 1000s of cents of "risk".

        "In doing so they automatically bring information to the market, assisting in price discovery"

        They only bring noise to the market. The market should root its decisions on real economy conditions, and those don't change each tenth of a second.

        "All of that also means that they create liquidity which makes markets more efficient and less costly for other participants"

        This is the best fallacy. Who are those other participants. They surely are not the meat and bones investors, because they take advantage of price differences before these have any saying on what they want to do.

        HFT is parasiting what is already a casino level operation whose roots on reality are long foregone.

      2. Don Jefe

        Re: Speculation

        I've gone to all SSD HDD's so no whirring noise for me.

        But saying 'they're trading for more risk or for less' is an elementary understanding of the HFT sector that's the equivalent of saying supply & demand is actually what economies are built on. You've left out the 98% of what's actually happening.

        'Normal' trading is basically what you've described, risk management, but HFT is exploiting time differentials through the application of technology. It has fuck all to do with the actual commercial value of a company and 100% to do with the lapse in everyone having the same valuation in their system.

        Speculation is a time honored practice and is 100% of what business and business innovation is about ('guarantees' are what crooks and idiots promise). But HFT isn't speculation and actually degrades the value of end user action as the money is being made in change, not market health. HFT is fucking worthless to markets and gets away from why we allow companies and commodities to be traded in the first place.

        We do that do that investors can compare various investment opportunities among competitors in a given sector and everyone has the same data with which to make their decisions. Ultimately those decisions are end user driven. If the end user is sufficiently dissatisfied with a company or product the valuation of that company falls, or increases if the end user is sufficiently satisfied.

        HFT has precisely zero of those interests in mind, change in any direction is all they need and change in continued direction is even better (obviously). Because of the growing interest in the world of low risk HFT (it's all low risk), HFT is beginning to drive change itself as continued change gives everyone a good reason to see how far in any direction a company can go. Crash or soar, eat or starve, it doesn't matter. Change is all they need and they say fuck you to everything else. I say fuck them right back for not only not being interested in shared success, but for furthering a fundamentally flawed concept that is inherently broken and detrimental to everyone else.

        1. Vladimir Plouzhnikov

          Re: Speculation @Don Jefe

          I don't know. In my post I only addressed the issue of speculation per se. I did not talk about HFT at all. I don't think the OP did either (although [s]he seems to object to the use of the Hubble Space Telescope for some reason).

          HFT is not speculation but rather an arbitrage process, so this aspect of the discussion is moot anyway.

      3. Anonymous Coward
        Anonymous Coward

        Re: Speculation

        "Speculation is taking a risk (that is the definition), therefore, speculators are buying risk from those who want to reduce theirs. In doing so they automatically bring information to the market, assisting in price discovery. All of that also means that they create liquidity which makes markets more efficient and less costly for other participants."

        Bollocks. Speculation is part of the bubble process and in the medium term destroys liquidity by funnelling money out of the system and into the pockets of a tiny number of aristocrats who can then live the rest of their lives without contributing anything to the economy, as can their kids.

        As to market efficiency, all speculators do everything they can to manipulate the market and make it more opaque as that gives them inside information which can be leveraged. Maybe in lala land where all the people involved are working for the Greater Good what you say is true, but it never has been and never will be in the real world.

        1. Vladimir Plouzhnikov

          Re: Speculation

          "Bollocks. Speculation is part of the bubble process and in the medium term destroys liquidity by funnelling money out of the system and into the pockets of a tiny number of aristocrats who can then live the rest of their lives without contributing anything to the economy, as can their kids."

          Bollocks to you, Sir. You have responded with some wild assortment of unsubstantiated ideological slogans at the level of instinctive class-based animosity. Messrs Marx or Lenin would have chewed your "argument" to pieces and spat it out in 2 seconds. :-)

      4. Mage Silver badge

        Re: Speculation

        But is any of this good?

        Is it actually inflationary as nothing is invested, no service or good is produced?

        Investment only occurs when people buy share issues, buying shares already on the market may make profit but it's not investment!

        Speculation obviously makes speculators a profit. But that money has to come from somewhere (I know the Governments can print more when needed, which can but doesn't always devalue existing currency).

        Speculation doesn't create liquidity. Actually sometimes it can do the reverse. The second evil after speculation is to loan people money they can't even pay the interest on, on the basis that what they are going to buy will be worth more than the loan when they sell it (soon). That increases when the economy is stable and results in a crash eventually when the leveraged buyouts / housing bubbles etc burst.

        The 3rd great evil is to be a Dragon. That's to consistently manage to sell your goods or services to others and then sit on the profit made. Dragons also like to do this at higher profit margin than competitors of course. This sucks money out of the economy. This it problem with Offshore banking for individuals or Tax Havens for Corporations. How can they spend the money? So they borrow when they need to expand. Which reduces the amount others can borrow.

        Making money from share dividends is acceptable. I don't care if you are a pension fund. Making profit from speculation isn't acceptable, especially if it's HST (High Speed Trading, I meant HFT), HFT (High Frequency Trading).

        1. Vladimir Plouzhnikov

          Re: Speculation @Mage

          You win, Mage. Can't beat Dragons, you know...

      5. jcpw

        Re: Speculation

        Speculation creates no wealth. Wealth creation takes time. All wealth creators need from the capital markets is long term investors to help fund their wealth creating activities. Ultimately our pensions depend on wealth creation vastly more than market efficiency.

    2. nematoad Silver badge
      Unhappy

      Re: Speculation

      The system has worked so well over the past few years, why change it?

      Hasn't it?

      I see no reduction in the bonuses being paid out to the bankers or any perceptible will to change.

      So, business as usual, oh and big bonuses all round. (For those inside the magic circle only.)

      The rest of you, just keep paying up.

      One wonders what the bankers want all that money for. After all, you can only buy so many fancy cars/houses/yachts etc.

      Is it greed or is it just because they can?

      As someone who had their small business go under because of the refusal of the banks to give me a business loan I wonder what bankers and their cronies are really for.

    3. Jim 59

      Re: Speculation

      A complex issuue indeed, and with a whole fleet of vested interests circulating around. On the one hand we have the banks, who damn near trashed the western world a bit ago, facing off against the EU, a body which could drain an olympic sized swimming pool of gravy in 10 seconds. The EU is probably narked that London is Europe's biggest financial centre, so anythong to put the mockers on that is fair game for them. The traders, as Mage says, have never generated a penny of actual wealth in their lives, and make a living by digging holes and filling them in again. The pension companies continue to have it good, largely because, incredibly and uniquely in 2014, they are allowed to charge for pensions in secret and abstract whatever they want from your pot without even setting out the figues in an invoice. Whoa there I have reached MAXRANT, an algorithmic constant which stops commentards from going completely doolally and then--

      Oh er, and yeah good article.

      1. 's water music Silver badge

        Re: Speculation

        MAXRANT, an algorithmic constant which stops commentards from going completely doolally

        if only this was more widely implemented...

    4. Tom 35 Silver badge

      Bull shit allert.

      "this is simply the practice of writing a piece of code to do the buying and selling faster than a human being can possibly do it."

      No it's not, it's digital coin clipping by parasites. If it was something an average person could do they would be thrown in jail. They are not even speculators.

      1. browntomatoes

        Re: Bull shit allert.

        Actually, many algorithmic trading shops started as one person playing with their own savings. So it very much *is* something an average person could do (and there are brokerage accounts which are available to pretty much any investor and have API access these days too).

        Where it gets controversial is in the small number of algorithms where timing advantage is everything. Seeing the order flow before everyone else does and trading on the basis of that information is usually called "front running" and is highly frowned upon even where it's not illegal (which it is in most places nowadays). There is additional controversy about the extent to which exchanges/trading venues have been complicit in this as they got to make some nice additional fees by selling colocation space very near the exchange.

        Despite all this there is still an argument that even those traders are adding at least some value (and probably also transferring value from big investors to smaller ones) by providing additional liquidity and narrowing bid-offer spreads. The dispute is about how much, and whether the cost (if it can be measured) caused by front-running type behaviour outweighs this.

        What is quite ironic is the fact is that HFT of this sort has largely moved into markets like FX where there has always historically been less transparency and there are a huge number of different trading venues - not for reasons of regulation, but of profitability. So regulation is, as ever, targetting the behaviour of two to three years ago and not today and will probably make close to no difference to those it seeks to target. What is very unfair is that many other algorithmic traders who do not engage in this type of strategy are getting tarred by the same brush and these are the people who will be hurt by this. The usual government regulation story, in other words.

    5. Dave Bell

      Re: Speculation

      Speculators have value in a market. Markets need people willing to buy and sell.

      OK, when I was taught about this it was still the old-fashioned stock exchange, slow to make trades and expensive to run. And you are correct that the modern world is insanely fast. And the modern speculation, high speed and based on small price differences, may be people skimming the froth off the top. It may be going too far.

      The whole business happens so fast that the distance between computers becomes significant. We're used to measuring ping times in milliseconds. In this High Speed Trading microseconds matter, maybe even nanoseconds. In some ways, this starts to look like a computerised game of Snap.

    6. Anonymous Coward
      Anonymous Coward

      Re: Speculation

      I think you mis-typed www.dailymail.co.uk

    7. Field Marshal Von Krakenfart
      Paris Hilton

      Re: Speculation!!!! It's worse than that...

      As Tom 35 said "it's digital coin clipping by parasites"

      The purpose of HST is to suck money out of the markets for the brokerage firms. The way HST works is the the software 'spots'a difference in the share price of a stock on two exchanges, it will sell the dearer one and buy the cheaper one.

      For example; a brokerage house sees that microsoft is trading at $39.69 on the Chicago stock exchange and trading for $39.67 on the New York Stock exchange, the software will sell the brokerage firm's 1,000,000 microsoft shares in Chicago and buy 1,000,000 microsoft shares in New York netting the brokerage $20,000 less fees. The client's stock-holding is unaffected but the brokerage firm has somehow managed to siphon $20,000 out of the market.

      It's just modren day coin clipping, it's also part of the reason why Lewis' claims that the American stock markets are rigged to the disadvantage of the non-HST trader.

      Paris, see paragraph 2 above

      1. Vladimir Plouzhnikov

        Re: Speculation!!!! It's worse than that...

        Firstly, these 20k are not brokerage fees, they are the trading P&L and if a brokerage house is doing what you described in your example, that profit belongs to the principal client, not to the brokers.

        Quite separately, the broker will charge the client its fee for doing the trades - those will be the brokerage fees. If there is very little or no benefit or necessity for the client to do these trades but the broker is doing them anyway, this is known as "churning" and is a form of fraud or breach of fiduciary duty, but that's a whole different story...

        Back to your example - let's assume that the broker is acting in good faith and has found an arbitrage opportunity which is likely to benefit his client. Let's also assume for simplicity that the best offer in Chicago and the best bid in NY are precisely 1 million MSFT shares.

        When the broker buys MSFT shares in Chicago at 39.67 the exchange fills the order and all offers at that price are taken up, the next best offer is 36.68. In New York, the broker similarly sells the million shares 36.69 and the new best bid is now also 36.68.

        By making his arbitrage trade the broker caused the two markets to synchronise.

        You call it "coin flipping" but it is exactly the opposite. It's known as "risk-free" transaction and whenever an opportunity for a risk-free profit exists it is a sign of inefficiency in the market. After that trade there is no more opportunity for a risk-free profit and therefore the inefficiency is gone (for now).

        If, however, the broker were to just buy some MSFT shares for the client in the hope that eventually its value will rise - that would have been coin flipping, aka speculation. But, oh, wait - the ultra-leftist public here calls this an "investment", go figure...

  2. sugerbear

    Article sounds like a rant

    A rant from someone very close to the software industry.

    I have no fear of seeing a reduction in HFT trades. In fact I think my pension fund may benefit.

    1. I ain't Spartacus Gold badge

      Re: Article sounds like a rant

      Your pension fund will definitely lose from a decrease in high frequency trading. Precisely as the article points out. Transaction costs will be increased, thus costing your pension fund more when it trades. As a certain portion of your pension pot is likely to be in tracker funds, these have to trade in order to reflect the current state of the market. That's the whole point of them. They will have to charge higher fees.

      There is a valid argument to be made that HFT is a risk to the overall functioning of the market, and therefore even the real economy. In which case they might also be a risk to the value of your pension. But the next point the article is making is that the legislators are not in the best position to make this argument, given that their legislation has shown itself to be ignorant of the biggest benefit of HFT to the market and economy overall. Which is its effect of decreasing transaction prices. A good that the legislation is directly attacking, by setting minimum increments.

      There's another valid criticism to be made of HFT. In that it improves liquidity in the good times, but may not do so in worse times (for example liquidity has collapsed after a couple of the 'flash-crashes').

      Firstly it competes with the market makers, taking away their profits, but HFT isn't necessarily being done in order to provide a market making service. Therefore the traders may withdraw it at no notice, removing normal liquidity from the market. Whereas the whole point of a market maker is to keep liquidity going, so that it's always possible to trade. So there might be an argument to regard the market makers as part of the market's infrastructure, and therefore offer them some protection from competition that's taking the easy profits, but fewer of the risks.

      Another argument is about refused trades. This is where HFT will offer trades and then cancel them before they can happen - as the algorithm spots the opportunity another trader has seen - and basically nicks it. This might be a good area to legislate on. Or markets could set rules themselves. As I understand it this used to happen in open-outcry markets, the old style ones with a trading floor where the guys in blazers shout the deals. But a trader who people noticed "didn't hear" the bad deals would find that others wouldn't trade with him any more. Maybe the markets need to learn from this practise themselves, to avoid the need for regulation.

      As a summary, it's bloody complicated. Greedy self-interested and short-sighted incompetents shouldn't be solely in charge or regulating such important matters. Which is why I think the European Parliament should be kept well away from anything really. Not that I have a high opinion of the markets at the moment. They need to have a long hard look at themeselves and start learning some lessons and being less shit. But I can think of few organisations I have less regard for than the European Parliament.

      1. Graham Cobb

        Re: Article sounds like a rant

        Surely trackers only have to trade when the composition of the underlying index changes (a company enters or leaves the index)? Sure, the trackers need to trade, but orders of magnitude less frequently than many other traders. I don't see this putting up the costs of trackers significantly.

        1. Anonymous Coward
          Anonymous Coward

          Re: Article sounds like a rant

          > Surely trackers only have to trade when the composition of the underlying index changes

          Trackers hold the shares in the same proportion as the underlying index.

          You take the total market capitalisation of all the FTSE 100 companies and then work out what proportion of that value individual constituents are. For example HSBC is about 8% and Rio Tinto is about 3% so if your tracker was worth £1000 you would have £80 of HSBC and £30 of Rio Tinto. Since share prices change, next week you might have sell £10 of HSBC and buy £10 of Rio Tinto to reflect the change in prices.

          1. Anonymous Coward
            Anonymous Coward

            Re: Article sounds like a rant

            Actually that is often completely wrong even though its what you might expect.

            Many trackers (and lets take a FTSE100 tracker for example) do not contain the shares in the tracked index.

            What they contain is a set of instruments which the traders believe will closely track the specific index, plus a selection of hedges if they are wrong - the hedges most likely being in the forms or options or derivatives or other complex products.

            The reason this is done is the traders believe they can do better than the index, even with the hedges, and thus make a profit.

            Do consider checking the listed holdings of a few tracker funds if you are interested.

            1. Anonymous Coward
              Anonymous Coward

              Re: Article sounds like a rant

              You mean synthetic indexing as opposed to the traditional indexing.

              1. Anonymous Coward
                Anonymous Coward

                Re: Article sounds like a rant

                "You mean synthetic indexing as opposed to the traditional indexing."

                You mean mis-sold lied-about indexing as opposed to real genuine honest indexing.

                1. Anonymous Coward
                  Anonymous Coward

                  And just to add to the rant

                  It's the wrong solution. A Tobin tax would have been preferable to me.

                  ##!/usr/bin/pythed off with doing quotes for high freak traders who want to know latency and circuit routing to the nanosecond. Especially when your algo box is as close to the exchange as you can get it and your procurement people are only looking at the price. And if they're trying to procure this kind of stuff via Ariba, I'd like to introduce them to a special circle of telecomms hell.

                  If you're really going to lose $400m a day on the back of this change, I could design and build you the lowest possible latency route between two points for a month's losses. You know the telecomms world has gone mad when the lowest latency transatlantic route is only available to a limited number of suck.. I mean discerning clients and everyone else gets latency added by virtue of a large pile of cable drums acting as delay generators. One has to admire that provider for their chutzpah though.

            2. browntomatoes

              Re: Article sounds like a rant

              Tracking an index by naively owning the shares in the index means you will always underperform the index. This is because of a number of factors: friction costs involved in buying and selling shares in the right proportion each time the index composition changes (and the consequent market moves that the large number of people doing the same thing at the same time causes), the cost of providing liquidity if you are talking about an open-ended fund where people can decide to withdraw their money at any time (and the issue of how exactly you decide on the price at which they can do so), the administrative cost of employing people to run the fund, etc etc.

              Using derivatives (options, swaps, futures) and leverage (borrowing money to invest more than what you have from investors) instead of or as well as owning some or all of the shares in the index allows for these costs to be avoided and/or mitigated, at the cost of creating some other slightly different risks. How good managers are at hedging or managing these risks is difficult to tell; but the market for index funds uses the level of underperformance/variance vs the index as an important benchmark, and this creates economic incentives which push managers towards using these types of structures. Not all index funds do this, but many do.

      2. Nick Kew Silver badge

        Re: Article sounds like a rant

        Your pension fund will definitely lose from a decrease in high frequency trading.

        Wrong.

        Yes, it improves liquidity, so on a simple buy-then-sell your pension fund may do better. But assuming your pension fund is investing rather than speculating, that's lost in the noise (indeed, 0.5% stamp duty will hurt an order of magnitude more than loss of HFT).

        Meanwhile, the money that's not being siphoned off in unproductive trading can instead accrue to shareholders such as pension funds over the years they hold a share.

      3. Mark 65 Silver badge

        Re: Article sounds like a rant

        "Firstly it competes with the market makers, taking away their profits, but HFT isn't necessarily being done in order to provide a market making service."

        Market makers are part of HFT as well. There are many types of HFT, both good and bad. Market making = good, quote stuffing = bad etc. Part of the problem I have with the comments on here (not yours) is that they are Daily Mail ignorant of what HFT covers and come up with stupid arsed statements about minimum holding periods such as 6 months. Idiotic ideas like this would utterly f*ck the market. You wouldn't be able to sell if you spotted an impending market crash unless you'd held for long enough and arbitrage free pricing would disappear. Oh no, that's right, mom and pop would be screwed but banks would just setup multiple holding entities where one bought and the other sold.

  3. Anonymous Coward
    Anonymous Coward

    Flash Boys

    Since the legislation is a direct result of the work behind and subsequent publishing of the book Flash Boys, it'd probably behoove the author to read it before blathering about others ignorance.

    1. diodesign (Written by Reg staff) Silver badge

      Re: Flash Boys

      "it'd probably behoove the author to read it"

      Hi new reader - Tim wrote about Flash Boys here, on the Reg, a couple of weeks ago.

      C.

  4. Kracula
    WTF?

    Let me see if I got this right

    So instead of telling those guys to stop gambling my pension away and put that money to real use, the EU will review and approve their code before? I feel much safer now.

    I guess there is a "sucker management/transaction fee" parameter in the code, easily adjustable to compensate any loss to the trader's CEO bonus.

    1. Matt Bryant Silver badge
      Stop

      Re: Krapfula Re: Let me see if I got this right

      "....So instead of telling those guys to stop gambling my pension away...." I doubt that your pension is solely invested in the type of high-risk funds you assume it is. You'll probably find there is a large chunk in 'safer' long term bets with a lower return to offset the risk of investing in the higher-return, higher-risk funds. If not, then I suggest you change pension providers. I assume, since you have expressed such moral indignation, that should your pension fund actually over-perform and those 'evil bankers' deliver more money than you expected, you will give that excess back, right? Yeah, thought as much.

      1. Kracula
        Pint

        Re: Krapfula Let me see if I got this right

        Dear Mr. Bryant,

        Although I've tried several times, i fail to draw a conclusion from your comment. Presumably due to the high number of meaningless "investor jargon" terms. Therefore, I believe that I owe you a chance to come up with a decent rant.

        To make it simple, I believe investment funds should engage into both high-risk and low-risk investments to get a decent return. But I would like to find an investment fund which funds for example a start-up in India or an SME in Poland and the managers of the investment fund work their ass off to make sure those businesses grow and thrive, rather than have my pension invested into market manipulations, high speed transactions or other "complex instruments", which are nothing but blind bets.

  5. Charlie Clark Silver badge
    FAIL

    Usual crap from Worstall

    HFT just appears to increase liquidity. Whenever there is a real demand for funds it dries up just like all the other instruments of "financial engineering" have done in the past. And it isn't really about bits of code but about being able to sting trades by acting faster than the trades can. This has as much to with laying optical cables in straight lines between exchanges than anything else.

    Banning it would only encourage workarounds, taxing it into uselessness makes more sense.

  6. Anonymous Coward
    Anonymous Coward

    HFT is just a financial Arms race

    Better to bring in a Tobin tax to filter-out trades that have no real-world economic purpose.

    1. I ain't Spartacus Gold badge

      Re: HFT is just a financial Arms race

      Increasing market liquidity is a real-world purpose. There are risks in doing it, market makers will sometimes lose. Therefore market makers need to make profits to offset this. As well as to pay for expensive champagne, cocaine and hookers...

      Increased liquidity = increased transparency. It's therefore good for investors. Particularly in niche areas.

      HFT may not be the best way to do this, but a tobin tax punishes all market makers. And therefore all pension funds. Because costs will be passed on. As well as pension funds getting stuck with shares they are unable to sell at a good price quickly enough. This will have undesirable side-effects.

      Tobin taxes will stop some 'unwanted' trading. Although unwanted by who is a fair question here. But it will also penalised market actors who are definitely fulfilling a social good, and damage the econony. Even the European Commission's own report into its own Tobin Tax proposals said that it would reduce European GDP by much more than it would raise.

    2. Richard Jones 1

      Re: HFT is just a financial Arms race

      Yes if you really want to destroy most of the investment as opposed to gambling industry a Tobin tax is a great idea, perhaps you should read up on the real effects that it will produce. It is interesting that areas that had no pension industry to think of, dreamed up what should really be called the nightmare tax or even the wealth destruction tax plan.

      Thank goodness I have been drawing my pension for sometime, however, I would like to be able to continue to draw it for my remaining years.

  7. RISC OS

    My heart bleeds for these wankers... sorry bankers

    1. Sir Runcible Spoon Silver badge
      Trollface

      ...sorry bankers

      Why are you apologising to the bankers?

  8. Gordon Pryra

    Utter crap

    Your pension pot is worthless now anyway, all the author in this article is advocating doing is backing the one set of people to personally make money from the banking crisis, the thiething scum in the banks.

    If there was ever an industry that should NOT be in private hands its the finance industry. All these banks/institutions just carry a modern version of a letter of marque.

    Why NOT reduce the amount of automated systems that allow them to turn small errors into massive errors?

    What do we actually get from these guys that is worth us getting screwed time after time? We even have to smile and pretend to like it.

    1. frank ly Silver badge

      Re: Utter crap

      " ... the thiething scum in the banks."

      I read that as ' ... tithing scum .." and smiled while nodding in agreement.

    2. I ain't Spartacus Gold badge

      Re: Utter crap

      What have the markets ever done for us. Other than roads, railways, hospitals, the industrial revolution, pensions...

      Where do you think all the money comes from to invest in stuff? It comes from savers - who are willing to accept some risk, in return for reward. People who take the smaller risk of government-guaranteed bank savings accounts get less reward. People willing to accept more risk go to the markets. Much of that capital gets mis-allocated of course.

      One of the major reasons that the industrial revolution happened in Britain, was because we had well-developed markets to allocate capital to innovation. One of the reasons it spread round the world was that Britain invested much of the profits abroad in doing the same thing. Which reduced the industrial lead, but led to a massive increase in global trade and the growth of the City of London as a global trading hub.

      1. Anonymous Coward
        Anonymous Coward

        Re: Utter crap

        "What have the markets ever done for us. Other than roads, railways, hospitals, the industrial revolution, pensions"

        All of these done before HFT, again, who exactly HFT benefits from besides its players? The "liquidity" myth is widespread, but let me suggest another way of providing it: making easier for sellers and buyers to get in touch instead of relying on artificial barriers which are only able to be surpassed by a few privileged actors?

      2. Charlie Clark Silver badge
        Thumb Down

        Re: Utter crap

        One of the major reasons that the industrial revolution happened in Britain, was because we had well-developed markets to allocate capital to innovation…

        Yes, the bubbles and crashes (from the tulip bubble onwards) have been so much fun.

        1. Ledswinger Silver badge

          Re: Utter crap

          "Yes, the bubbles and crashes (from the tulip bubble onwards) have been so much fun."

          Schumpeter, mate.

          Are you arguing that we should have called off the industrial revolution, and continued a poverty stricken crofting existence, with infant mortality of one in three live births, life expectancy of mid 30s? If you want that you can still have it by moving to Wales.

      3. Tom 7 Silver badge

        Re: Utter crap

        Spartacus - you are making the mistake of believing correlation is causation. The industrial revolution - as all other growth spurts are fed by innovation. The reason why the markets boom at the same time is the same as unwanted fire insurance on your asbestos Italian restaurant. You need finance because if you dont take it someone else will and leave you stuffed.

        It may have fed growth once but there are easier ways to make money so they do that instead.

      4. Mage Silver badge

        Re: Utter crap

        Trading in Shares isn't investment. The company that issued the shares gets little or no value from subsequent share trading, except sometimes a beneficial increase in what price it can sell EXTRA shares at.

      5. Anonymous Coward
        Anonymous Coward

        Re: Utter crap

        None of this - investment, the industrial revolution etc. - needs HFT or the kind of casino finance we have now. Most of the money in the economy is actually debt; with vast amounts of interest going to banks and very little to savers. Even the bank owners - the shareholders (often pension funds) - don't get their fair share.

        There's nothing wrong with true free market capitalism, but most of the profiteers in the finance industry don't want that because they're happy with their rigged markets, milking the rest of the economy.

        For many decades, the productivity of British industry has been damaged by lack of investment; part of the blame for this is due to a financial sector that would rather put money into gambling and inflating asset bubbles like the housing market, and another part of the blame goes to tight-fisted bean counters running companies, who have no knowledge or interest in the business other than sweating the assets and running them into the ground while the founders spin in their graves.

      6. Random Q Hacker

        Re: Utter crap

        "Ain't Spartacus", you're conflating actual long-term fundamentals investment with high frequency gambling on technicals. Roads, railways, and hospitals were built on long-term investment.

    3. Anonymous Coward
      Anonymous Coward

      Re: Utter crap

      "What do we actually get from these guys that is worth us getting screwed time after time? We even have to smile and pretend to like it."

      Interest and Fee Free banking.

    4. Bugs R Us

      Re: Utter crap

      What do we get? Are you kidding or do you truly have no understanding of how the world works? How do you think major global projects are funded? Taxes aren't enough to cover the cost of running a country.

      Reduce automated systems? What next, do away with financial instruments and trade services and hand made products?

      Sheesh. Some people don't live in reality.

      What we get is capitalism; It ain't perfect but it works. It just needs some improvement in regulation. No system is perfect, but capitalism works well for most of the time. If not for capitalism, global poverty would be a much bigger problem today that it was 20 to 40 years go.

      1. Anonymous Coward
        Anonymous Coward

        Re: Utter crap

        "What we get is capitalism; It ain't perfect but it works"

        Utter tosh.

        The US and the UK haven't got capitalism and haven't had for decades.

        The US and the UK have got feral corporatism, with banks and other financial institutions officially "too big to fail" (and therefore being bailed out by Joe Public in circumstances when other businesses would routinely be allowed to fail).

        See also Princeton's recent fact-based analysis purporting to show that the US is an oligarchy:

        http://www.bbc.co.uk/news/blogs-echochambers-27074746

        .

        Personally I see it more as a kleptocracy.

  9. Graham Cobb

    Try harder

    Sorry, Tim, you have not managed to get your argument across (to me, at least).

    I still don't see the need for HFT. Sure I like low spreads and high liquidity but higher spreads just means I have to make fewer trades and keep stocks longer. Lots of trading may be good for investors but you haven't shown any evidence at all that it is good for the companies issuing the shares or the economy as a whole.

    I know that trades bring information to the market. But the HFT algorithms are bringing very, very little information -- they are just arbitrage machines. I am willing to be convinced by real evidence but, for now, I still believe HFT is a drain on real finance and that either a Tobin tax or something like a minimum hold period (say, an hour) would make real improvements to stability and the ability of the market to gather, hold and process information, and provide information to the economy as a whole. HFT makes so much noise that the "information" in the market is being lost completely.

    Of course, I agree with you that the attempt to have regulators approve algorithms is stupid -- obviously written by someone who does not understand software development.

    1. Tim Worstal

      Re: Try harder

      "But the HFT algorithms are bringing very, very little information -- they are just arbitrage machines."

      Yes, they are, and we like arbitrage. It's how Ricardo's Iron Law of One Price functions. A very desirable thing to have in an economy too.

      1. LOL123

        Re: Try harder

        While arbitrage and true price discovery are great ends, the means matter. HFT trading adds to the noisiness around the true price, and with technology, delays convergence to the true price, and would also permit large deviations from it, particularly if the parameters of the created algorithms en masse encourage this. Presently there is no reason this won't be the case. Correlation not causation dominates. One stupid implementation from a too big to fail type entity can dramatically move pricing very quickly. The implied positive undertone of "one price" and a "true" price is where the price discovery and risk is focussing on fundamental economic criteria, and not simply movement/differential profit.

        The HFT landscape is artificial, and like an arms race, creates illusions of value in making supply and demand cases just like nukes were justified.

        If you have ever worked with control and multi-order feedback loops, hFT is the equivalent of unfiltered glitched samples. They're never far away but It throws off your convergence, and your loop response is very poor, and can even oscillate and collapse but hey, there's movement and it's fast, so it must be good!

  10. Tom 7 Silver badge

    If you model the financial markets like you would an electrical system

    HFT looks more and more like a larger and larger transformer put in between the power line between the producer and the consumer - there can be both at each side of the transformer.

    Which is presumably why the want greater instability - they get to tap off more wonga that way.

    A stable economic system is an anathema to these eedjits.

  11. Anonymous Coward
    Anonymous Coward

    Headline

    Didn't you think that "EU: Let's cost financial traders 0.198% a day, because EVIL BANKERS. Right?" was a good enough headline for your rant?

  12. unitron
    FAIL

    You might be able to buy at £4.26 and sell at £4.24, though.

    (but not for long)

    Let me guess, you lose £0.02 on each individual trade but you make it up on volume, right?

    1. Mark 65 Silver badge

      Re: You might be able to buy at £4.26 and sell at £4.24, though.

      non-market maker pricing vs market maker pricing. They win, you lose.

  13. Steve Crook

    Testing the algorithms?

    "To minimize systemic risk, the algorithms used would have to be tested on venues and authorized by regulators"

    So they're going to set up an artificial market, install all that software and specific hardware that the companies have practically under armed guard because it's so secret, test it and then write a report? Really?

    Regardless of the sense or otherwise of actually implementing controls, the practicalities of having a central body that checks the software and authorises it as fit for purpose is mind boggling.

    What happens if the auditors mandate a change and their change to the algorithm actually causes problems that cost money?

    It sounds like a massive pigs breakfast in the making...

    1. Ledswinger Silver badge

      Re: Testing the algorithms?

      "So they're going to set up an artificial market, install all that software and specific hardware that the companies have practically under armed guard because it's so secret, test it and then write a report? Really?"

      No, they'll rubber stamp an EU directive saying that, but leave it to local parliaments to draft the legislation and the regulatory structures. In most of Europe the "testing" will comprise two questions that have to be answered "yes": Are you a locally domiciled bank? and Does your algo work OK for you?

      Meanwhile, the British government will ask the British civil service to draft some legislation. The civil service will strain itself like a constipated bear for two years, and eventually squeeze out a zillion pages of incomprehensible, illogical, bureaucratic, ill informed value destroying verbiage, which after brief "consultation" and a completely made up impact assessment, will be pushed into UK law.

      France and Germany have always believed (respectively) that Paris and Frankfurt should be the epicentre of world finance, and see anything that happens out of London as an outrage to the whole European superstate project. Ergo, anything that they can convince themselves harms London banks must therefore be a good thing, and in this case it is yet another instance of rheumy eyed old worlders convincing themselves that HFT is a ghastly anglo-saxon plot by the Yanks and Brits. They could be right, but as architects of the economic collapse of most of Southern Europe I don't think they are really in any position to form a valid judgement on anything.

    2. Apriori

      Re: Testing the algorithms?

      Well, these are the guys who brought you the euro. How could anything possibly go wrong.

  14. Tim Hughes
    Thumb Down

    Investors != Traders

    IMO it helps to separate these two activities whenever people are talking about the financial markets, as they seem to be two very different types of animal although both trying to make money.

    In many of the above arguments people seem to be arguing from either of two very different views, without clearly differentiating between them.

    To me, putting some money into a company to support their (real world?) activities, and hoping that they provide a return on that money via some form of income stream or increase in value constitutes investing. The timescales tend to be at a human recognisable level, the return on investment is not necessarily dependent on the equivalent loss on someone else's part, and this will likely require entry into some market once, i.e. buy in, then cash out. Doing the required trade(s) is part of the act of investing.

    HFT and algo trading systems seem to be very much a thing of the market itself, with no reference to the real world, or any value adding activities outside, except as a source of information to drive the behaviour of the market. Timescales can be extremely small and may have little relation to the actual physical activity of the entity being traded, and it is likely to be a zero sum game where no value is being inherently added, so any gain will be directly related to another's loss.

    Call me naive, but I think HFT only really benefits the financial institutions themselves, and then only those with the deepest pockets.

    1. Bugs R Us

      Re: Investors != Traders

      HFT may happen at market level time scales, but the profits (and losses) from the liquidity have a wider impact for regular mid to long term investors. In other words, HFT liquidity does also generate liquidity that ripples out into the wider markets.

    2. I ain't Spartacus Gold badge

      Re: Investors != Traders

      I'm not sure there's anything inherently more 'moral' in investing than there is in trading.

      For a start, most investors aren't actually helping companies. If you buy a Vodafone share, you're not giving money to Vodafone to put into R&D, or new infrastructure. That ship sailed when Vodafone floated and got its money off the markets. You are of course indirectly helping, because if no-one was willing to buy shares, then no-one else would be willing to invest in new IPOs (with no-one to sell to) and therefore there'd be much less venture capital hoping to cash out at IPO time. But there's often very little direct relationship between your investment and a good to society. You're investing to make you a profit.

      In the same way HFT is about profit to the trading companies that use it. Although also their shareholders, who might be the 'good' investors. But HFT does some good for society in allowing trading to be cheaper. So for example, an increasing amount of cash is saved in tracker funds. As these don't outperform the market, but also aren't as crap as many human-directed funds can be. No chance of being above average, but average is better than around half of the human traders...

      This lowers the barriers to stock market investment for ordinary folks. Who can get a shares ISA in a tracker fund with very low fees.

      Of course there's an unplanned downside to this. More shares in big companies owned by robot-controlled tracker funds means fewer shareholders who understand the company. Therefore fewer people who just might vote sensibly on CEO pay - or exercise any oversight over the board.

      Basically it's all terribly complicated. Of all the bodies that could be in charge of controlling it, the European Parliament has got to be the worst. It's just as unaccountable as the City doing its own self-regulation. But has far less understanding of the issues. So the chances of unintended consequaences zoom upwards. It's also prone to childish political grandstanding. It also sufffers from one of the biggest weaknesses of the EU - which is that there's no reverse gear. There seems to be a phobia in EU circles for revisiting regulation that's gone wrong. This is because the international negotiation process is so long and painful, and subject to vetoes and horse-trading. Sometimes a country with no real interest in the outcome will do a deal to get what it wants in another area, or threaten to block what it doesn't care about in this one. So if the EP or Commission buggers something up, like the recent central banking regulation (in which case they've even admitted it was a mistake) they won't re-open it. This is also fundamentally undemocratic, but then the EP is a bit of a retirement home for failed national-level politicians.

  15. Anonymous Coward
    Anonymous Coward

    Oh so the line has changed from "more regulation is costing us money" to "more regulation is costing YOU money"? Come on, they were trotting that one out years ago.

    I have yet to see a convincing argument for HFT. 'Because liquidity' seems to be the sum of it, which translated from gutterspeak actually means 'Because volatility' which is where HFTs make their money. HFT EXISTS to make markets more volatile. The only winners are the bank's algo teams. When it all goes tits up again it'll be our tax money paying for it.

    1. Bugs R Us

      Um, nope. Liquidity benefits more people than just the algo traders and the finance houses. I'm neither but I get to benefit from the liquidity in the markets as a result.

      1. Anonymous Coward
        Anonymous Coward

        You realize that you also, as a taxpayer, get to pay for when these things go titsup? Liquidity benefits everyone, but if there are other ways of achieving it other than having high tech parasites sucking a bit of money each time they exploit a price difference, we should be using it.

        1. Vladimir Plouzhnikov

          "if there are other ways of achieving it other than having high tech parasites sucking a bit of money each time they exploit a price difference, we should be using it"

          Are you hoping for some kind of economic perpetual motion? A work done at no cost?

          That will violate the 1st and 2nd laws of thermodynamics, don't you think?

          1. Anonymous Coward
            Anonymous Coward

            No, there's no perpetual motion. There's good old, solid economic theory that states that markets reach their peak efficiency when all the players share the same information. This is an unachievable ideal, but one that we should strive for if we want "the market" to work for everyone instead of a privileged minority.

            HFT is a violation of that principle, because some players have the information before others and thus can react before others. As a consequence, economic theory states that we should be better off without them.

            I could follow your thermodynamics metaphor, saying that we're better with HFT is similar to saying that two bodies can exchange energy more efficiently by putting some intermediary in the middle that levels the demand and supply of energy. Which is... patently false, but you'll always could introduce the idea of putting some device between the two that can modulate the capacity of the two bodies (one to release energy, the other to absorb it) so that one could release all energy it wanted to without the other having to risk self destroying itself by absorbing more that it can. Sorry, but at at that point the nice metaphor breaks because the actors participating in the market do have some free will that thermodynamics does not allow, and thermodynamic middle men are not greedy and don't play for their own advantage.

            But you don't need economic theory to know that. You only need to look at what the stock market has become to know that anything that separates the stock market even more from economic reality (not the electronic flow of transactions, but the concrete goods and services that are exchanged on real life) is making it even more of a casino gamble than ever, with a few privileged players allowed to cheat at the expense of everyone else.

            1. Ledswinger Silver badge

              "HFT is a violation of that principle, because some players have the information before others and thus can react before others."

              And this differs from the real world how? The HFTs are betting that markets will move in a given way, just as a retail day trader concludes that a share will go up or down. They have access to the same information feeds as anybody willing to subscribe to the various information services.

              Just because a machine takes the decision and executes the trade in a microsecond doesn't make it more or less evil than the bloke at his home PC considering news and prices, and concluding that a share is under or over valued, and then buying a few hundred quid of spreads or options. Maybe you disagree and think it is evil, but it seems to me that anybody arguing that machine trading is evil are reading and posting on the wrong web site.

              1. Anonymous Coward
                Anonymous Coward

                "And this differs from the real world how?"

                A few key areas. In the real world, things don't happen in microseconds. In the real world you can't post a buying offer and cancel it two milliseconds later. In the real world you don't see the offerings from other participants before anyone else. In the real world if takes you a while to analyze feeds from other markets, news agencies, twitter or whatever.

                "Just because a machine takes the decision and executes the trade in a microsecond doesn't make it more or less evil than the bloke at his home PC considering news and prices, "

                That of course assumes that the bloke with the PC and the HFT have the same information, which is not true. Or that they can analyze it in the same amount of time. Again, false. HFT benefits from privileged connections that allow them to see trades before anyone else and applying massive amounts of computing power.

                What I'm understanding from you is that these systems are inevitably going to win, and that there is nothing wrong with that. But there is a key flaw: in order for these systems to win, someone has to lose. Are you willing to engage in a game that you know you can't win? Because I'm not, and don't think the rest of the world is.

                So perhaps what we need to do is to have these HFTs battle each other and leave the real economy alone, which for those of us that need to eat everyday would be a good thing.

              2. Anonymous Coward
                Anonymous Coward

                They have access to the same information feeds as anybody willing to subscribe to the various information services.

                Eh - Yes, true, The HFT people with many millions to spend can pay "market makers", for example GS, for the privilege of peeking into the order queues and they can pay for special access so they can insert their in the order flow. Which means that most investors will not get the price quoted in "The Market", but some other price, determined by the HFT-algorithms.

                HFT's are not "betting", they are front-running and manipulating market prices.

                1. Anonymous Coward
                  Anonymous Coward

                  "Eh - Yes, true, The HFT people with many millions to spend can pay "market makers", for example GS, for the privilege of peeking into the order queues and they can pay for special access so they can insert their in the order flow. Which means that most investors will not get the price quoted in "The Market", but some other price, determined by the HFT-algorithms.

                  HFT's are not "betting", they are front-running and manipulating market prices."

                  There's a massive difference between the problems in the US market created by the national best bid-offer system that covers dozens of separate exchanges thus making it liable to manipulation through ghost quotes (along with the rules that encourage it) and the system in operation in Europe. The front-run comes from the the order being routed to the participating exchanges with relative locations leading to timing differences that become exploitable. The market price thus disappears. Market makers also use HFT which narrows spreads and provides greater liquidity. They have quoting obligations and thus cannot just jump out of the way of an incoming order. They must quote within certain offsets. Bad HFT is predominantly a US market issue. If you want real shenanigans you should look into the largely unregulated FX markets.

                  If you think computerised HFT started any of this, and that it should be banned, then you should do a little reading about the liquidity providing locals on the LIFFE exchange when it was open outcry and how they effectively used to just jump in front of institutional orders coming into the market.

            2. Vladimir Plouzhnikov

              "HFT is a violation of that principle, because some players have the information before others and thus can react before others. As a consequence, economic theory states that we should be better off without them."

              When you make a trade that action by itself provides information to the market. It's no different in the case of HFT.

              When it buys it moves the market up, when it sells it moves it down. When it buys and sells in one market it narrows the bid/offer spread there, when it buys and sells across different markets it equalises the prices between those markets. That is the function of arbitrage which is necessary for efficient markets. Please note that it is not an opinion, it's axiomatic.

              Continuing the thermodynamics analogy, you can consider HFT as a conductor between 2 systems isolated from each other (either temporally or spatially), which allows them to achieve equilibrium according to the 2nd law.

              One can argue if HFT is a particularly efficient implementation of this mechanism or is manual market-making somehow a better choice. On the face of it, HFT looks more efficient and the fact that it is squeezing out traditional market-making also suggests the same.

              The money that you lament HFT is apparently charging the markets for providing that function has also been charged before, except the total cost with manual market-making must necessarily have been higher for the markets than with HFT.

              The big difference is that the HFT has entered the public imagination on the crest of the FUD wave and the "machines are taking over the world" hysteria, while the exchange locals were largely unknown outside the trading world and the public largely did not even know of their existence.

              1. Anonymous Coward
                Anonymous Coward

                "When you make a trade that action by itself provides information to the market. It's no different in the case of HFT"

                Surprised that you fail to see the difference. It is different in two keys areas. My trading (or yours) reflects some opinion on the market, or some expectation, or perhaps some crystal ball predictions, or just that we've gone crazy and want to throw away money. HFT reflects a machine trying to take advantage of either some price difference between two exchanges (arbitraging) or taking advantage of information that is know beforehand by the HFT system (buy and sell orders and prices) and not you or me. And of course HFTs are able to do it a million times faster than you and me.

                "Continuing the thermodynamics analogy, you can consider HFT as a conductor between 2 systems isolated from each other (either temporally or spatially), which allows them to achieve equilibrium according to the 2nd law"

                Ah, because the stock markets are no longer a valid conductor for trading? Excuse me, but was the idea that the market existed for that very specific reason? So now we don't need stock exchanges but suddenly need fiber optics and high speed computers to do exactly what the stock exchange should do by itself? Makes one wonder how things have worked out in the past 200 years or so.

                "The money that you lament HFT is apparently charging the markets for providing that function has also been charged before except the total cost with manual market-making must necessarily have been higher for the markets than with HFT

                That's quite a change. So HFT is not an innovative space age instrument in the financial trade but merely a replacement for something that already happened, only a bit cheaper? Arbitraging and using privileged information didn't add any value to the market in the past, are merely weak points that should be fixed if we want the free market to work as expected.

                What about if the direct market participants pocket that money instead? Or perhaps split it? Oh, no, that would mean that HFT is no longer necessary.

                I'm starting to think your views are tainted somewhat, because I can't think of anyone defending this idea that is not directly earning profits from HFT.

            3. Mark 65 Silver badge

              " There's good old, solid economic theory "

              What, the sort that has given us quantitative easing? Most economics is utter bollocks and comes with a plethora of caveats that prevents application to the real world.

              1. kmac499

                Yup from what little I know of economics, the base 'theories' are little more than opinions, almost none of which would survive a nanosecond in the real world.

                The whole point of a theory is to propose an explanation of how something works which can then be tested by experiment.

                If the experimental results are not what is predicted, the theory is wrong simple as that.

                Do we have any recent examples of where reality defies economic theory...

  16. airbrush

    Cost of markets

    Wasn't the problem that certain banks were taking advantage of the time differential between stock exchanges shifting the price up for pension funds?

    1. Ledswinger Silver badge

      Re: Cost of markets

      "certain banks were taking advantage of the time differential between stock exchanges "

      Any trader who can has always sought to use information outside of trading hours to make a buck. That's how and why markets work. So if there's an earthquake in Japan in the middle of the night, somebody in New York will go short on Japanese stocks. Doesn't require HFT, just needs a man to think and push a button, or a machine setup to do it for him. If the pension funds want to trade in local daylight hours only, then that might work for them, and any consequences may be acceptable, if not then they need to move with the herd and engage in HFT. Given the long term investment and liabilities of pension funds, the impact of not engaging in HFT shouldn't be too much of a problem, unless they are just as much rancid speculators as "the banks" are deemed to be.

      1. airbrush

        Re: Cost of markets

        Thats not the point I'm making, the banks have been caught screwing the pension funds by buying and selling shares to institutions for a fast buck : http://www.theguardian.com/business/2014/apr/06/michael-lewis-flash-boys-high-frequency-traders. That's naughty of them to say the least!

  17. I am a machine (says Turing test)

    Here is an idea

    If my pension can only be saved using these pathetic speculative tricks then here is an idea: tax those who get rich thanks to these speculative tricks and use the money to give us a decent state pension. If you have plenty of money and want to speculate to make even more, good for you but you take the risk, not me with my small pension pot.

    The state will collect tax and use it to pay pensions to the normal people who can't afford to take risks.

    PS: I am fed up with the "free market" religion.

    1. I ain't Spartacus Gold badge

      Re: Here is an idea

      PS: I am fed up with the "free market" religion.

      Tough. Free markets have made you, and billions of people all over the world considerably richer. All other systems so far tried have sucked more than free markets do. Of course not too free. Free markets don't work without property rights for example - which need government and independent judiciaries. So in fact there's no such thing as a free market really.

      What we need is a balance between making markets as free as posible, with governments to hold the ring and stop abuse. Plus the same governments to take some of the profits away from everyone in the form of taxation to do stuff that markets are crap at, like social welfare and defence.

      As for "pathetic speculative tricks", a lot of HFT isn't speculative at all. It's replacing arbitrage desks run by humans. So the idea is to find small price differences and make tiny profits from closing them in high volumes. Theoretically there should be no risk at all, if this is done correctly. This is a good thing, as it makes markets work better.

      There's then a second big use of HFT, which is speculative. That's the idea that the article talks about, sugar has gone up, so sell (or short) shares in Coca Cola, Mars, Cadbury's etc. This is trying to get the jump on human traders who are doing exactly the same thing. It's less good for society - although it's not bad for society so long as it doesn't go horribly wrong. Even when it does go horribly wrong though, there's not as yet any evidence that society has suffered. Knight Capital lost some money due to crapness, but it's unlikely to have had much permanent effect on the prices of the stocks they bid down, so they just moved some money from their accounts to those of other people they bought from. And then got taken over. Hopefully lesson learned.

      HFT will have effects. Some bad some good. Not all understood yet, I'm sure. But so will legislation. Therefore legislation ought to be done carefully. Also at national level. The European Parliament doesn't have skin in the game, if it all goes tits up. They know they can pontificate and go for popular gestures on this, because most of the consequences are likely to fall on the UK. With the biggest financial sector in the EU. Yet this legislation isn't accountable to UK voters. So it's doubly bad, from an organisation with a reputation for being rubbish already.

      1. Tim Brown 1

        Re: Here is an idea

        "Free markets have made you, and billions of people all over the world considerably richer."

        Bollocks - this is a fallacy frequently peddled to try to preserve the status quo. Although as you rightly point out, there are very few truly 'free' markets in the world economy.

        The wealth gap between rich and poor is now bigger than it's ever been and "The 85 Richest People In The World Have As Much Wealth As The 3.5 Billion Poorest" (source: http://www.forbes.com/sites/laurashin/2014/01/23/the-85-richest-people-in-the-world-have-as-much-wealth-as-the-3-5-billion-poorest/ )

        Real wealth is created through effort and invention (and the wholesale exploitation of the world's limited natural resources, but that's another discussion), not by mindless and parasitic behaviour in the financial markets. That is all geared to trying to get rich by taking wealth away from other people and institutions.

        1. Don Jefe

          Re: Here is an idea

          There are no free markets outside textbooks. Anybody in business (successfully) will tell you that. It's deluded people who just want to believe they exist that muck it up.

          Play in reality or go play your fantasy game somewhere else. I've got money to make and it doesn't happen because the 'free market' is just posting multi million dollar checks to me.

          1. Squander Two

            Re: Here is an idea

            > I've got money to make and it doesn't happen because the 'free market' is just posting multi million dollar checks to me.

            Blimey. Can't believe it took Don Jefe so long this time to get around to telling us all about his squillions of dollars. He must have been too busy making them.

        2. Nick Ryan Silver badge
          Joke

          Re: Here is an idea

          "Free markets have made you, and billions of people all over the world considerably richer."

          So has (currency) inflation. Millio, millio, millio...

    2. Ledswinger Silver badge

      Re: Here is an idea

      "The state will collect tax and use it to pay pensions to the normal people who can't afford to take risks."

      On what model? The existing pure Ponzi scheme where the state pension schemes have no real long term assets, only liabilities backed by future tax payers?

      The welfare state started off with a National Insurance fund that was supposedly separate from general taxation, but that hypothecation has always been illusory because surpluses are loaned back to government, and because it isn't a fund at all, simply a current account. State pensions are a politician's promise, and as retirement goes up and benefits are eroded people might start to understand that government do not work for them, and such a scheme only works as the working population expands, just as a Ponzi scheme needs new "marks" to put cash in.

    3. Squander Two

      Re: Here is an idea

      > If you have plenty of money and want to speculate to make even more, good for you but you take the risk, not me with my small pension pot.

      What you're demanding already exists. Did you not see the bit on your pension application form where it gave you exactly this option?

    4. Apriori

      Re: Here is an idea

      I think you will find the government already takes something like 50% of your income to provide its empoyees with an excellent pension scheme.

      I don't think giving more to this destroyer of value is going to make things better.

  18. Anonymous Coward
    Anonymous Coward

    I used to work in HFTs...

    But I'm not going to pretend like I know what the best solution is. For starters its so easy for HFT shops to adapt and game the system using a fresh workaround. Sometimes that can be done in a morning with a semi-automated trading spreadsheet i.e. Cantor's eSpeed.

    But it strikes me that just like the 10-day get out of jail free period for Hedge Funds (see below), we need something tailored to the likely abusers. Simply punishing everyone by forcing wider spreads on us all, makes no sense...

    What we need to do is structure a penalty around those doing rapid baskets of transactions, especially those that are known to trade heavily during past and future flash crashes.

    http://www.bloombergview.com/articles/2014-04-22/why-give-hedge-fund-raiders-10-days-to-disclose

  19. Anonymous Coward 101

    "Average spreads on the New York Stock Exchange have fallen from 0.2 per cent in the mid 90s to 0.002 per cent today, a drop of two orders of magnitude. That's 0.198 per cent of the value of each trade that we're not being stung for any more. With NYSE trading volumes at $200bn or so a day, that's $400m a day that investors are saving. That's real money, even in the financial world."

    How much of this $200bn is HFT? If the HFT never existed at all, presumably trading volumes would be lower, and so therefore would the $400mn saving? Also, there is an implicit assumption in the paragraph above that HFT is solely responsible for the reduction in spreads.

    I suggest that if HFT really does save the economy money, the actual figure is much lower than $400mn per day.

    1. Dave Bell

      There's another simplifying assumption being made, and that is that HFT is an all-or-nothing deal. It could be that there will be a reduction in the amount of HFT, depending on the change in the Tick, which in turn affects the Spread. But will either of those relationships be linear?

      I make my own assumptions. That M$400 saving is all from HFT. The HFT volume halves because of the changes. If the spread less than doubles, is it costing investors less?

      We have economies of scale here. We also have diminishing returns and things such as sigmoid curves which approximate to straight lines locally.

      The guys writing this software are better able than I am to understand what is happening, but I hope they're not pointing and laughing at me. I'm less hopeful about some people in this comment thread.

      And I have serious doubts about the intellectual capacity of some politicians.

      But I will venture to suggest a rule of thumb: if somebody is explaining something with a simple straight-line graph, they are very likely to be wrong. And if all the data is exactly on the line, they are likely to be liars, even if they have used logarithms.

  20. auburnman

    "in order to prevent HFT traders from making money they're going to artificially increase the tick size. Thereby, inevitably, increasing the size of the spread."

    Has it been conclusively established that they will INCREASE minimum tick size as opposed to locking it from going below a certain level? And if it has what will the increase be relative to the typical spread?

  21. Gordon 11

    But what does it actually create??

    We really are just noting correlations then trading upon them until it doesn't make money for us any more.

    The "us" here being the bankers/traders. The trading doesn't create any "new" wealth.

    Obviously, the spread has to be at least the tick size....

    No, it doesn't. With multiple traders there will be lots of them in at different current prices. If the tick size were less than the spread this would just mean that some traders could not in the market for that commodity at the moment.

    ...fixed costs are paid for out of more trades, so the margin on each can be lower.

    But the number of trades is higher, so the cost of all trades needn't change much, so you probably aren't "saving" $400m a day, you've just pushed up the trade volume to one with a similar overall cost to the wealth-creating economy.

    1. Sir Runcible Spoon Silver badge
      Headmaster

      Re: But what does it actually create??

      "Obviously, the spread has to be at least the tick size....

      No, it doesn't. With multiple traders there will be lots of them in at different current prices. If the tick size were less than the spread this would just mean that some traders could not in the market for that commodity at the moment."

      So, original statement says "minimum spread >= tick size"

      You contradict and say "if tick size < spread " when what you've actually done is misunderstood the original statement, because you've actually agreed.

      It is possible for tick size < spread, in fact that's pretty normal, but how are you going to measure the spread if it is less than the tick size? It can't be done.

  22. DavCrav Silver badge

    "The life cycle of an algo is a few weeks at present"

    Is that why they don't have enough time to say 'algorithm'?

  23. kmac499

    Conservation of value..

    Being raised via a humble science education, all this money stuff is way above me.

    But my understanding is.

    A bunch of computers in braces are swapping shares\equities\contracts between each other by buying and selling the net effect being at the end of the game they have moe chips\cash on the table than they started with, If they didn't, no matter, because of that magic ingredient commission (sorry professional fees.) the more times they are 'paid' to play by others on their behalf the more they extract from the game.

    Simply increasing the frequency of the plays is nothing to do with trades per minute but about making a trade before the other guy, A bit like duelling, anyone shooting on the 'F' of 'Fire' improves their chances, assuming they can shoot straight of course.

    Now for the science bit. If at the end I now have more chips than I started with , then somebody else must have less chips. A concept familiar to all scientist\engineers like conservation of energy, momentum. etc.. Or doesn't finance follow such physical laws..

    It's called trading because it doesn't create anything new, unlike growing or making stuff. All cash money 'made' by the city and the finance 'industry' is taken directly from someone elses pocket.

    1. Vladimir Plouzhnikov

      Re: Conservation of value..

      "All cash money 'made' by the city and the finance 'industry' is taken directly from someone elses pocket."

      It would have been true if the economy was a zero-sum game, which it isn't...

      1. I am a machine (says Turing test)

        Re: Conservation of value..

        Real economy in the western world grows 2-3% in a year at best. So discounting that element there is indeed no money made, just money stolen.

      2. wankeler

        Re: Conservation of value..

        HFT is close enough to a zero sum game. Longer timespans obviously not or we wouldn't have growth (but that's a whole other argument about system boundaries).

    2. Ledswinger Silver badge

      Re: Conservation of value..

      "It's called trading because it doesn't create anything new, unlike growing or making stuff. All cash money 'made' by the city and the finance 'industry' is taken directly from someone elses pocket."

      So by that definition, services have no value? Rather a pity, then, that "making" is simply a service applied to primary commodities. And where does the money "made" by a farmer come from? Did the fivers grow in his field, or has that money merely come out of his customer's pocket?

      VP: You don't think we're wasting our time here on Daily Mirror readers?

      1. Vladimir Plouzhnikov

        Re: Conservation of value.. @Ledswinger

        I think we are, I'm afraid...

      2. kmac499

        Re: Conservation of value..

        That's why I drew a distnction between cash and value. I freely admit to being an economic ignoramus. I am trying to get my head around the concepts of fractional reserve banking , money as value, store of wealth and means of exchange etc.. Most of it only seems to work if you throw the rules of algebra and arithmetic out of the window allowing yourself to count the same thing twice, or equate different things as though they are the same thing (Cash in hand, Buildings, GoodWill, Patents porfolio, Future Sales etc)

        The distinction I see between primary production, manufacturing, services and trading is quite simple. At the end of the day there is more stuff than at the beginning of the day, Although it is quite possible that it's value as perceived by others in a market has fallen.

        I don't see where traders increase the quantity of stuff they trade. Sure they repackage it slice it, dice it. (Sub Prime mortgages) and sell the same physical thing repeatedly for delivery in 10 days, a month, 3 months etc. But is still a glorious shell game of pass the parcel. A bit like the business plan in 'The Producers" sell a 10% share a few hundred times go bust and laugh all the way to the beach..

        Shame about the catchy songs " Springtime for ,,,,,, Hmm Hmm Hmm"

  24. Anonymous Coward
    Anonymous Coward

    Ineffective

    There are too many reasons why this is going to be ineffective. What is to stop anyone from implementing algorithm based trading in, say, MetaTrader and running it from their home computer? Sure, the latency will be a little higher, but that's not as big a deal as it is made out to be; it's an optimization, not a show-stopper.

    Many HFT outfits are big enough to run their own internal markets known as dark pools which are both unregulated and unregulatable because they are for private trading between members.

    And finally, if you are doing it for the gain of an individual or a small group, there are many, many ways you could break it up from a single account to many individual accounts indistinguishable from those of small home-based traders, and disappear in the noise.

    I foresee the net result from all this political posturing being effectively non-existant.

    1. Steve Todd

      Re: Ineffective

      You're kidding right? Latency is not an issue for HFT? Why on earth are the banks paying millions to co-locate their servers in the same machine room as the exchange systems, then going that extra step by using FPGA based devices to work out whether any given piece of data has arrived first on the primary or backup network link?

  25. Ian Ringrose

    What a waste of skilled programmers…

    Today a lot of programmers spend their life getting rich writing the software for HFT.

    Thank how much better off we would be if these programmer were doing something of benefit to the world. E.g. better usage of resources, cutting down on the time governments take to process forms etc.

    In the UK the top university students go to work for the banks, they don’t create much employment for “normal” people. In other part of the EU, the top students go to work for engineering companies that make products and employ a lot of “normal” people. The UK bankers then spend their money buying these top quality products….

    1. TheVogon Silver badge

      Re: What a waste of skilled programmers…

      "Thank how much better off we would be if these programmer were doing something of benefit to the world"

      Unfortunately useful things like writing ICBM guidance software or the NSAs latest Spyware don't usually pay so well...

  26. Anonymous Coward
    Anonymous Coward

    the whole financial 'industry' is a fallacy

    The fallacy is that the financial markets create any wealth at all. They don't. It's amazing that they've managed to convince the public that men shouting down telephones in a room full of other men (and it normally is men) is some kind of creative or productive enterprise that in some way creates usable wealth.

    The financial markets redistribute wealth, while taking a huge chunk of the wealth being transferred for themselves. Generations of government has manipulated the economy to allow them to do this, the quid pro quo being high-paid city consultancy jobs (aka pay-offs) once you get dumped from public office.

    I recall visiting the Soviet Union in its dying days, and being told that the economy failed and because it failed to allocate resources properly. This was undoubtedly true; the arguments to justify this revolved around the poor salaries doctors and scientists got compared to factory workers or coal miners.

    Yet western capitalism is doing the same, because the pervasive money of the super rich banks is being used to influence politics such that bankers are allowed to gamble, dodge tax with impunity, and receive public funds to bail them out if they lose their gambles. And the absurd salaries reflect the fact that scientists and engineers (who do create wealth) are valued less than those who device complex artificial schemes to obtain even more wealth out of an ever diminishing pie.

    It's true that a free market is an efficient way to allocate resources. However, western capitalism has long since stopped being a free market when banks were bailed out, using tax payer's money to pay the gambling debts they built up. Profits privatized, losses nationalized.

  27. pacman7de

    What's wrong with high-frequency trading ..

    "An Adaptation From ‘Flash Boys: A Wall Street Revolt’ by Michael Lewis"

    1. Mage Silver badge

      Re: What's wrong: "Flash boys"

      Very interesting read.

      1. Vladimir Plouzhnikov

        Re: What's wrong: "Flash boys"

        Readers reviews on the Amazon page for that masterpiece are even more interesting.

  28. Truth4u

    algo trading

    algo trading is so important and amazing that the stocks being traded are irrelevant. might as well shut down apple and exxon and dutch royal shell and send the employees home but continue to trade the stocks at ever increasing prices because who cares right? If the computer says you're rich then it must be true. If you can sell facebook stock then why go to the trouble of inventing facebook in the first place? I have a new website called mostpopularwebsite-co that i want to sell for billions, and if your algorithm can double the price in 3 days then we all win right? Why would I even need to hire staff or buy servers when the stock exchange is run by computers that don't buy my products anyway?

    1. Ledswinger Silver badge

      Re: algo trading@ Truth4u

      " If you can sell facebook stock then why go to the trouble of inventing facebook in the first place?"

      You miss the point of the secondary equity market by so much that I'm surprised you can even operate a keyboard.

      Stock markets exist because those who funded companies in the first place may (quite reasonably) not want to have their cash tied up in the same business forever, and because other companies/people may equally reasonably wish to buy an interest in listed companies in order to share in future profits, or simply because they think they can buy something cheap and sell it later at a higher price.

  29. Don Jefe

    Ignorant Politicians?

    Ignorant politicians aren't the problem. Ignorant politicians are crucial to the functioning of any democracy as all democracies have an enormous quantity of ignorant people in them. It's representational government after all. The problem lies in politicians who are pussies (although I realize most countries have a lot of those too, they are over represented in most democracies).

    When I was young I thought banks and financial institutions were actually in charge of things. They control the money, and you go to them to beg for it. As I became older and grew into my Jefe role, I saw that I had been mistaken. The banks and financial institutions were there to serve me and my interests. They still had control of the money though. So I spent a few years decades figuring out the best ways to work within their processes and make getting the money as easy as possible.

    As I got even older I realized I had been wrong again. The banks didn't control the money. Their power lay in the fact they intimidated people and did everything possible to make people (including politicians who aren't Lizard People) believe they had control of the money. It was the next to the last step in receiving the 'Don' appellation.

    I realized I was being duped, and being a pussy myself, if I ceded control of my money to the banks. Make no mistake that's exactly what was occurring, and is still occurring to many people. All the money I had shuffled through banks throughout my life up until that point had always been my money, never the banks money. If they were going to charge me for the service of sending their kids to college, then I was going to charge them for the service of sending poor kids to the same colleges as their kids. I let them play with my money, and charge me for it, I'm going buy little plots across the street from their banks and pay undereducated staff to cash poor people's pay checks (for free - unlike their own fucking bank) and I just deposit them directly into my account (can't do away with 3rd party checks can you Mr Greedy Banker?). The list goes on. It costs me less to harass multinational banks and have them beg for mercy, or injunction, than it costs me to be a me member of a few country clubs I visit two or three times a year.

    It doesn't matter how much money people have, or how much money banks have, that money belongs to the people who put it there. Be it deposits from paychecks and birthdays for regular deposit banks or pension funds managed by investment banks. The overwhelming majority of 'their' money isn't theirs, it's yours. A large investment bank is actually only worth somewhere between 7-11% of their last 8 years profits (deposit banks are worth significantly less). All those huge numbers they toss around are bullshit, but they're accepted bullshit, so OK. Nobody is going to say much about it as long as the banks are doing their thing, but that's all 100% based on people continuing to give them money to play with.

    The banks know that, anybody who deals with significant amounts of money knows that. Some politicians know it, but they're too busy getting gussied up to administer oral pleasure to the next banker that comes (Ha!) in their office to care. As previously noted, some are too ignorant to know they don't know how things with. The rest are just great big weepy pussies who believe it when the banks (or codwallace journalists) journalists tell then everything will fall apart if they don't just keep on sucking.

    What a bunch of pantywaists! These are the people who are supposed to be representing our countries in fucking wars, and they're backed into a corner by powerless bankers and low rent journalists? What the hell is that? Well, honestly it explains why actually dealing with terrorism isn't a viable option doesn't it. That would mean actually dealing with people firm in their convictions and that's scary, better just attack their citizens instead. Hey! HOLY SHIT!. It's a twofer, find politicians who aren't scared of terrorists and you'll find politicians who aren't scared of bankers. Keep that in mind next time you vote. If you bother to do so.

    Banks aren't going to do diddly damnit. They can't do diddly damnit because to do so means they aren't getting rich, it also means they aren't doing their jobs. Their profits are tied to low borrowing rates and if they aren't paying that money back as agreed then margins fall. Something can sure as shit be done about that can't it? You find a banker who won't throw his boss to the wolves to be the next CEO then you've found an alien. Capture or kill it for instant fame and glory (and money).

    Banks(ers) can be dicks, useless appendages of productive societies and instigators of conflict all they want. But they can't not do their jobs. People like me are just salivating to shitcan those pricks the minute they drop the ball. Smarmy little fucks. You deal with them until they screw up, but there's a price to pay for those attitudes and low morals, you've got nobody to turn to for help when the shit hits the fan. I'll tolerate you if you're making me money, but that's all you're getting from me. I'll vote, strongly, to see you gone and everybody at the quarterlies and annuals feels the very same way.

    The bankers know it too, better than anyone really, so they're not going to do shit that will jeopardize their positions. They're just greedy little shits supported by pussies in office out there by the pussies that voted for them. You want to keep the banks under control you put people in charge who are capable of controlling them.

    1. Squander Two

      Re: Ignorant Politicians?

      It's getting increasingly difficult to tell whether Don Jefe really is the Multi-squillion-dollar World-bestriding Business Colossus he keeps crowbarring into every conversation or just a fourteen-year-old fantasising about it.

      1. auburnman

        Re: Ignorant Politicians?

        It's entertaining reading either way. Do you have a website Don?

  30. Nick Ryan Silver badge

    Faster and faster HFT systems...

    Faster and faster HFT systems is all very well, but what do they interact with? An external system?

    If so, what are the speed of these systems because in any correct systems you should have transactions, and the negotiation "promise" stages leading to completion. Far more likely to be concurrency / queuing issues with these rather than a trader's systems. As these systems are dealing with trading finite resources ("resource" can be quite an abstract term, but even shares are finite) there should be a register of who owns what to ensure that duplication, and therefore fraud, is not committed where multiple parties claim ownership of a resource or more of a resource is being traded than in reality exists.

    Just some thoughts that come up from these kind of systems...

    1. wankeler

      Re: Faster and faster HFT systems...

      It's all asynchronous message based, closer to an optimistic transaction system.

      Ownership register impractical or would lead to very substantial changes / costs in the market.

      1. DrBobMatthews

        Re: Faster and faster HFT systems...

        What you are really saying is it would slow down the process, expose any duplication and fraud and worst of all reduce value of the "cut" that the pigs with their snouts in the trough think they are entitled to.

  31. wankeler

    HFT != Algo. Baby and bathwater

    Please lets be clear that there's a lot more to algo trading than HFT.

    There are very good reasons why it saves your pension funds [your] money to use algo trading - they are often doing large trades which, if they were simply placed on the market, would skew the price and get you a very bad deal. Algo trading for efficient execution is entirely reasonable and I find it hard to believe anyone is arguing with that, yet people are suggesting eliminating all automated trading.

    What next, dump payroll runs on mainframes and go back to an army of accounts clerks?

    Now, the question of whether the latency arms race of HFT is good for the market by levelling prices, reducing speeds and increasing liquidity (at least in normal times), or bad by shaving fractions of a percent off everyone else on the market and sinking lots of capital and IP in a zero sum game, is a tough one to come to an informed and unbiased conclusion on.

    There's clearly plenty of emotion and hate on the bankers = wankers side, but that shouldn't cloud decision-making that could have a very real impact on all our future wealth or otherwise. Do a few rich people get richer through HFT and other market structure loopholes? Sure. Is that enough of an issue to constrain the market? Probably not. Is the fuzzy scary risk feeling around HFT impact in unusual market conditions enough to legislate against it compared to the arguable benefits it brings in normal times? Quite possibly.

    And it doesn't need some kind of complex and ineffective algo certification scheme, a combination of basic breaks and some slight tweaks to legislation (minimum order dwell time?) should be enough.

  32. This post has been deleted by its author

  33. Anonymous Coward
    Anonymous Coward

    Check your facts before writing articles like this

    Pension funds aren't allowed to engage in HFT. Actually, pension funds have some very strict regulatory constraints as to what types of securities they can trade, and how they can trade these securities.

    That is something you should have checked before writing this article. So, your hysterical by-line about pension funds being destroyed by this HFT trading tax has no basis in reality or fact.

    The only types of hedge funds who would be affected by this tax are HFT hedge funds. These are not pension funds. These are millionnaire and billionnaire play-pens.

    There is no statutory or moral obligation for any society to help enrich HFT hedge fund managers, or their clients. HFT does not create wealth. At best it enriches certain individuals. Having these individuals pay a tax on income is not a new concept. You should spend some time researching this concept.

    Perhaps this article was sponsored by Goldman Sachs. It certainly reads that way.

    1. Squander Two

      Check the article before writing replies like this.

      > Pension funds aren't allowed to engage in HFT.

      Which is completely irrelevant to the point of the article. Really. Read it carefully, then try again.

      > Having these individuals pay a tax on income is not a new concept.

      No, it's not; it's called "income tax" for some reason, and already exists. And what the EU are proposing here, and what the article is about, is not an income tax or an increase in income tax or any change whatsoever to income tax or even to any other tax; in fact, it's not even tangentially related to taxation. It is a minimum tick size. Again, try reading.

      1. Anonymous Coward
        Anonymous Coward

        Re: Check the article before writing replies like this.

        I read the article. It's pure rubbish. Your reply is even worse. You're now denying your own hysterical by-line about pension funds.

        If you are the author of the article, perhaps you would consider taking some journalism classes online. Alternatively, you could go work for Fox News.

        Having said that, I have exceeded the maximum amount of time I'm wiling to waste on your drivel.

  34. Britt Johnston
    Mushroom

    good old leadership

    In the good old days, leaders said "don't do that or I have it cut off".

    Now they have to do their own programming?

    No wonder nobody wants to be emperor of Europe.

  35. Anonymous Coward
    Anonymous Coward

    The problem with HFT seems to be frontrunning actual bids/asks

    Rather than reduce the tick (increasing the spread) or implementing transaction taxes, how about reduce the frequency of the execution clock and execute trades received in parallel at the end of a clock cycle ?

    Removing the ability to cancel a trade mid cycle would be a good idea as well, you bid and you buy, if you bought in error then you can sell on the next cycle.

  36. Schultz

    God protect us from ignorant journalists.

    Go study economy, Tim Worstall. When you come back you can have a go at the problem. Your article is painfully off the point as indicated in many comments above.

  37. Carl

    ha ha what pension fund

    You put in your hard earned $ and when its time to cash in its "Oh dear, its all gone. Of course the market's not done well and then there were all those fees. The value of your investments can go down as well as up. Anyway, old boy it's been splendid talking but I really must chip along to the Lambo showroom. Nigel and I are buying matching Gallardos. Toodle pip."

    Fucking "money men". Best thing we can collectively do is yank our pensions and starve the fucking lot of them. And yes I am bitter. With good reason.

    1. Apriori

      Re: ha ha what pension fund

      Nothing to do with a one eyed idiot former chancellor / prime minister.

      "Let's have an enormous, harmful public sector and spend money on subsidies to windmills which produce no power. While we are at it we can sling a few billion a year over to Brussels to pay for even more unelected, unaccountable unwanted rubbish. PS now we can overpay NHS staff to keep on murdering, can't we?"

      Politicians, is there anything they don't know?

  38. Gary Bickford

    It's not about the HFT - it's about tax revenues

    IMHO the real purpose of putting a fee on transactions has nothing to do with the value or risk of HFT, it's just a very attractive way for governments to extract more money from the system in a way that will be invisible to everybody except a tiny few, who can be safely ignored, since they are 'evil HFT traders'.

    It's also a very nice example of how the primary, first-order effect of government in an economic system is basically to generate frictional heat. As a second order effect, the funds generated may or may not be utilized beneficially, for example unemployment insurance, which time-shifts some income to act as a low-pass filter that reduces feedback from job loss that would deepen a recession. I suppose a similarly beneficial effect might be accomplished with the funds here, but I don't know what it might be offhand.

    1. Dave Bell

      Re: It's not about the HFT - it's about tax revenues

      That's an interesting way of thinking about such things. I know I have sometimes seen something as an essentially noisy signal, and have wondered if the HFT trading is down amongst the noise, profiting from a spread which is less than the noise, and from reversions to the short-term mean.

      Remember, it is hard for any trader to beat random choice or (not quite the same thing) the indexes.

      And if it is depending on the noise signal, how is anyone actually making money? It must be the spread, but where is the money coming from that they end up paying their bills with?

    2. DrBobMatthews

      Re: It's not about the HFT - it's about tax revenues

      In a word Rubbish A transaction fee is a way of ensuring that the scum who claim that they are to big to fail are made to contribute to a fund so that the Taxpayer doesn't get shafted again by bailing them out. Tough, live with it and at least try and become a useful contributing member of the human race instead of a corrupt on the make spiv.

  39. chris lively

    The entire system is intentionally set up to be incredibly complicated and I question why it needs to be that way and whether there exists a better route.

    The back and forth discussion on whether HFT is necessary or not shouldn't even be a discussion. It should be readily apparent what value, if any, it adds to the system. However, that's obviously not the case.

    So the question becomes: Is there a solid verifiable purpose for our money system to be so complicated? When something becomes complicated then only experts are able to benefit directly from it while non-experts have to depend upon people they really have no way of vetting to guide them. My belief is that our money system is complicated for no other purpose than to allow one group of people to legally steal the resources of another group.

    To me, it seems that the only correct answer is to simplify the entire thing. As a business owner, I understand that companies sometimes need access to cash in order to facilitate growth. I also understand that its preferable to share the risk on any venture. Next I understand that the Value of a thing is entirely dependent on what two people (one buying, one selling) agree to.

    So, I can understand why the need for a trading system. However, the system should be freely open with no preference given to any individual entity. The entire fee system and ability to essentially buy access to information before it's generally available means that only those with the deepest pockets will ever win and the individual person may as well go back to reading the stock price once a day in a newspaper.

    Getting back to answering my question: the only reason for the complications is to allow the rich to play with their money while not being worried about what the average Joe does.

    Should this change? Maybe. We could just leave it alone and allow the rich people to continue making money off of each other and the rest of us; which is the way it's been throughout history. We could mass together, torch wall street and wander aimlessly for some amount of time trying to figure out what to replace it with...until we realize we've been living on Animal Farm.

    I'd rather hope that the whole thing would be simplified to make it fair for all players. However, there is just too much power involved in keeping things at the status quo. I'd be astonished the the EU is doing anything at all here, except for the fact that my understanding of the proposed changes will in effect change nothing. So a few HFT players have to slow down just a bit. Yawn.

    Quite frankly I think the changes would benefit them the most as it means they'll be able to reduce their R&D costs quite a bit.... I wonder who started the quest to get HFT changed at all?

  40. Mitoo Bobsworth

    For anyone interested...

    read "FLASH BOYS: A WALL STREET REVOLT" by Michael Lewis (ISBN 9780393244663) for a bit of insight & background.

  41. Johan Bastiaansen

    Your worries about my pension fund are heartbreaking

    But I hope the people managing my pension fund are trying to make wise, long term investments, not flip my money several times a day.

    Therefore, this will not hit my pension fund where it hurts.

    There's only one thing worse than ignorant politicians, and that's journalists with a (not so carefully) hidden agenda.

    1. Squander Two
  42. armster

    Pension Fund

    So if the spread went down due to HFT why is that good for my pension fund. This really meas that some high frequency traders are vacuuming up the profit (was that 400M) and the pension fund still has the same cost. I actually think this is much worse since the HFT guys are vacuuming up much more than the 400M in reduced spread, so people who trade on the value of a company, and not on the microsecond fluctuation thereof get shorted.

    I happen to like the idea of a tax on trades. If my pension fund has to pay a fraction of a percent of the value of a share that they (hopefully) make a several percent gain over the course of the year I won't notice. If a HFT has to pay even a minuscule fraction of a percent he can't operate.

  43. Goat Jam

    HFT add zero value to the economy, they are nothing but parasites. They will buy and sell shares within a period of a few seconds and cream a profit from doing so. The few seconds they held the share for does not constitute an "investment" in any publicly traded business which is what the share market was originally intended as.

    Share markets are/were meant to be places where business could raise capital by selling shares in themselves to investors.

    HFTs are not investors. They make profits by buying and selling shares at a rapid rate and creaming a profit from each transaction.

    It should be understood that every cent of profit taken by these bloodsuckers comes at the cost of the true investors who have made good faith investments in businesses in the old fashioned sense of the market.

    1. Vladimir Plouzhnikov

      "they are nothing but parasites."

      You forgot the Dragons. Ask Mage here - [s]he knows all about Dragons...

    2. Squander Two

      > Share markets are/were meant to be places where business could raise capital by selling shares in themselves to investors.

      Actually, no. You're conflating the primary and secondary share markets. Without the secondary market, exchanges really wouldn't be necessary.

      That aside, we also need to remember that there is a difference between the reason something was invented and what its purpose is now -- they diverge. A computer's only purpose is not to break Nazi codes; GPS's only purpose is not military maneouvres; astronomical observatories' only purpose is not to give better horoscopes. I see no reason why share exchanges' purpose should be set in stone. They are for whatever they're useful for, same as every other human invention.

  44. Random Q Hacker

    Tim Worstall, Devil's Advocate

    Funny, every time I read some bshit article defending Wallstreet, monopolies, or multinational tax dodgers, it's the same damned writer. Hard to believe one person could be so consistently wrong on so many topics. Trying to defend high frequency trading as saviour of the market takes the cake though. IMO, rather than regulate it just put a per transaction tax on all short term trades and be done with it!

    Oh wait, Tim disapproves of that solution too in a prior article. Seriously Register, is this author even real, or do you ghostwrite him as some kind of craven devil's advocate?

    1. Vladimir Plouzhnikov

      Re: Tim Worstall, Devil's Advocate

      Bam! You have just killed your strawman. You are hereby charged with aggravated murder-death-kill of an economic argument by drowning it in a flood of unrelated ideological manure.

  45. DrBobMatthews

    Having examined on behalf of the regulators the algorithms involved in HFT and the systems that operate them, there are glaring discrepancies in the control structure. HFT was designed for one reason and one reason only to give traders in the City and the markets an edge over true investors. One only has to run the financial market data through an analysis on a late Friday at close of business and then do the comparison on the next trading day to say the results of HFT speculation. No market intelligence just pure manipulation. Those that speculate as traders for their companies should face penalties for creating losses rather gleefully socialising the losses. The ideology of "Too big to fail" has moved on to "To big to prosecute" both should have been killed at birth and the trading and banking licences of companies who exploit honest investors revoked. In a real world "the polluter pays" I n the bent and corrupt financial world the polluter walks away with their ill gotten gains win or lose.

  46. CheesyTheClown Silver badge

    I don't think investor is a fair term anymore

    I have been trying to learn more about investors over the past decade. I've talked with starters, educators, millionairs and a billionair. What I have concluded is that stock trading is not investing. Stock trading is gambling. A large group of people, a generally under-educated "mob" simply follow trends and attempt to gamble on the gossip related to a company.

    Until high speed trading, people would watch the news, read the papers, read blogs, etc... and wait for anything to be said publicly about a company. The news would then cause people to buy or sell, generally stocks related to companies they don't even slightly understand (such as Google, Cisco, etc...) and a trend will hopefully occur. The trend could then be used for short-selling shares on the way down or quick trading on the way up.

    High speed trading removed rumors and gossip and simply algorithmically trade based on much narrower trends which have no logic or reason behind them. Traders/Investors would then simply gamble on a developer's ability to write a system that might statistically identify trends and act upon them.

    So now, even less than ever before is the stock market based on the actual performance of a company. Instead it's based on the behavior of the trends. No education is needed by the investors and just a "big ol' set of balls" is needed to gamble and risk large amounts of money.

    Here's the kicker. I was asked to write a trading system for high frequency trading. I was asked to do it irresponsibly and on insane timelines. The investor would provide the money (considerable amounts), I would provide the tech. I explained the importance of dry run, monitoring systems, cut-off systems, micro-accounting systems and more. I explained that there is no such thing as perfect code and an algorithm like this needs to be tested not just in the context of monitoring the market, but relative to how it would impact the market. He said ... "You're full of shit. I talked to a guy last week who said he could do it in two months". He hired the other guy. Yes, four years later, the system tends to make barely a profit.

    This type of system and code is irresponsible. The thought process behind it is irresponsible. If people want to make a living gambling, then make a new BitCoin currency and gamble on that. But these people gamble on food, they gamble on our livelihoods and no... they don't produce profit for the planet. Only for themselves.. at the expense of those around them.

    They always talk about pension money. Let's be really honest here. What good is tripling the value of a pension when the result is to increase the inflation before they retire by 3.5 fold. Their behaviour causes artificial inflation in the market which exceeds the growth of their investments. They leave their customer with less purchasing power than they started with. But they do however collect healthy commissions for doing so and are able to spend the short-term gain while it's still worth something.

    1. Vladimir Plouzhnikov

      Re: I don't think investor is a fair term anymore

      "High speed trading removed rumors and gossip and simply algorithmically trade based on much narrower trends which have no logic or reason behind them." and "So now, even less than ever before is the stock market based on the actual performance of a company."

      This is simply not true. Without saying whether algo trading is good or bad, no one has banned you from trading according to whatever system you like. You want to buy? You want to sell? Follow the chart? Use technicals? Read the FT? Throw dice? I guarantee you will not notice any impact of algo (or HFT) trading at all unless you day trade.

      "No education is needed by the investors and just a "big ol' set of balls" is needed to gamble and risk large amounts of money."

      Do you believe that stock markets were originally the abode of high scholars and professors of fine art?

  47. Anonymous Coward
    Anonymous Coward

    I worked in HFTs for a time...

    But I'm not going to pretend like I know what the best solution is. For starters its so easy for HFT shops to adapt and game the system using a fresh workaround. Sometimes that can be done in a morning with a semi-automated trading spreadsheet i.e. Cantor's eSpeed.

    But it strikes me that just like the 10-day get out of jail free period for Hedge Funds (see below), we need something tailored to the likely abusers. Simply punishing everyone by forcing wider spreads on us all, makes no sense...

    What we need to do is structure a penalty around those doing rapid baskets of transactions, especially those that are known to trade heavily during past and future flash crashes.

    http://www.bloombergview.com/articles/2014-04-22/why-give-hedge-fund-raiders-10-days-to-disclose

  48. Henry Wertz 1 Gold badge

    HFTs cheat

    HFTs do not save investors $400 million a day -- they remove $400 million in profits from the hands of day traders, and give it to themselves.

    The big, BIIIIIG thing that really has to be changed with HFTs: Eliminate cheating.

    What do I mean by cheating? At present, the HFT systems (at least the successful ones) on NYSE and NASDAQ exploit software flaws in the electronic trading systems to watch orders come in and place it's AHEAD of already in-queue orders placed by everyone else. So, you place an order to sell some stock for at least $5.00 a share, and someone else places a buy order at $5.03. Great, $0.03 per share profit for you! Not so fast -- the HFT system will see your orders come in (NOT predict them, actually see the trades become enqueued), and then use software exploits in the trading floor software to force it's orders ahead of your already enqueued orders and take away your profits. Instead of you selling your stock to the other guy at $5.03, it will buy your stock at $5.01 and sell it to the other guy at $5.03.

    Apparently this has been brought to the attention of NYSE and NASDAQ -- they don't care, they are privatized (so they don't have to serve public good or anything), and HFTs (due to trading numerous times a second) are their primary customers, not legitimate stock traders.

    The SEC (Securities and Exchange Commission) seems to simply be able to wrap their heads around electronic trading in general, let alone do anything to help make HFTs play fair.

    In reality, HFTs would still be formidible traders even if they played it straight, but not as profitable as they are now by cheating.

    The proposed EU rules don't sound like they'd help much. Well, hopefully the software approval rule, they would have kind of a "type approval" -- make sure the code that actually interacts with the trading floor does not use exploits to cheat, and don't even look at the actual trading logic (which will be frequently changed, needs fast turnaround on changes, and should be proprietary to the trading firm anyway.)

    1. Vladimir Plouzhnikov

      Re: HFTs cheat

      Front running is normally illegal and in most cases unethical but to blame HFT for it is naive because front-running existed long before even electronic trading was invented, let alone HFT.

      Buses sometimes run over people but it would be stupid to say that it is their primary function and that buses should therefore be banned.

      1. Henry Wertz 1 Gold badge

        Re: HFTs cheat

        "Front running is normally illegal and in most cases unethical but to blame HFT for it is naive because front-running existed long before even electronic trading was invented, let alone HFT."

        I blame HFT for it because the existing HFT systems invariably do it, just as I would blame any other trader who frontrunned day in and day out. If the FTC enforced the law and prevent HFTs from doing this, these HFT systems would still do very well due to their superior speed and data processing capabilities, but would be doing it fairly.

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