Algorithmic and high-frequency trading

A Taylor-Swift Lawsuit: ‘I’ve Got a Blank Space Baby.’

Mar 26th, 2015 | Filed under: Algorithmic and high-frequency trading, Derivatives, Hedge Fund Strategies, Technology, Today's Post

This is the story of one high-frequency trading firm suing one or more others and giving detailed credence to everything that has been said over the last year or so by those who bemoan the rise of HFT firms.


A Basis for Pursuing the Pursuers? Sonar-based Whale Hunts

Feb 17th, 2015 | Filed under: Algorithmic and high-frequency trading, Alpha Hunters, Derivatives, Institutional Investing, Regulatory, Today's Post

To the extent that high-frequency trading is analogized to 'insider trading,' it may be in trouble with securities regulators but still in the clear with commodities regulators. After all, the latter do allow hedgers to use non-public material information to protect themselves. But Gregory Scopino doesn't believe pinging and related HFT practices should be in the clear with the CFTC at all.


Should Governments Slow Trading Down by Taxing It?

Feb 5th, 2015 | Filed under: Algorithmic and high-frequency trading, Hedge Fund Strategies, Regulatory, Technology, Today's Post

A physicist recently suggested that exchanges might do well to change the nature of the trading they host, holding batch auctions every one-hundredth of a second to better serve their real economic functions. Then a commenter proposed that taxation could achieve the same effect. Our physicist went back to the drawing board to consider this.


ECB Beats SNB in race for the Bottom

Jan 19th, 2015 | Filed under: Algorithmic and high-frequency trading, Commodities, Currencies, Today's Post

An SNB announcement caused wild market moves Jan. 15th, not only in Forex but in commodity and equity prices as well. In the wake of the commotion, one key question has to be: why the announcement? Why this sudden change in the policy of Switzerland's central bankers?


The Quant Conundrum: Perfectly Repeatable or Repeatedly Imperfect?

Jan 15th, 2015 | Filed under: Algorithmic and high-frequency trading, Alpha Seekers, Hedge Fund Strategies, Risk management, Today's Post

Guest columnist Diane Harrison looks at both sides of the quantitative investment debate.


If You’re So Smart, Why Aren’t You Rich?

Jan 14th, 2015 | Filed under: Academic Research, Algorithmic and high-frequency trading, CAPM / Alpha Theory, Today's Post

A new paper by a senior market economist at BNP Paribas celebrates the invention of Learning Vector Quantization (LVQ), a machine-learning algorithm that could enable some smart economists to get very rich indeed.


Let’s Hope Nothing Comes of Sprecher’s Grand Bargain

Jan 13th, 2015 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology, Today's Post

Sprecher proposes that the exchanges and the investment banks enter into a deal, and that regulators confirm it by various tweaks in the NMS. The whole dynamic that the "grand bargain" represents is a disturing one, old-fashioned smoke-filled-room cronyism.


Thoughts on Futurology and its Perils

Jan 6th, 2015 | Filed under: Algorithmic and high-frequency trading, Hedge Fund Strategies, Technology, Today's Post

The Permal Group takes a refreshingly modest view of the eventual impact of Big Data on the business model of hedge fund managers. The better the data about a corporation, the more accurate the stress testing. Yes, that seems reasonable.


Plans for a Nickel-Tick Pilot: Trouble in the Details

Dec 15th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology, Today's Post

Observers of the slow slog toward an empirical test of larger tick sizes have raised concerns about the details of the three-track plan under consideration. In particular, there's an order-protection feature for one of the three "tracks" that has raised the hackles of Larry Tabb and the STA


Will HFTs force a market redesign?

Nov 12th, 2014 | Filed under: Algorithmic and high-frequency trading, Technology, Timely Research, Today's Post

One of the unintended consequences of high-frequency trading may be that it forces a market re-design. Guest columnist Ginger Szala looks at the issues.


Untangling the web of HFT

Oct 13th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology, Today's Post

What is the real issue behind intermarket sweep orders, and the recent dust-up over an NYSE rules change? Faille answers: Privilege.


Footnote 13: Barclays Did ‘Change the Number’

Oct 7th, 2014 | Filed under: Algorithmic and high-frequency trading, Institutional Investing, Regulatory, Today's Post

The most intriguing revelation in the exchange of briefs between the State of New York and Barclays appears in a humble footnote, where Barclays seems to concede that an employee was pressured to change an internalization number. But it was just the once....


Metamorphosis in HFT: Update with Brad Katsuyama of IEX, Central Figure in ‘Flash Boys’

Sep 18th, 2014 | Filed under: Algorithmic and high-frequency trading, Alpha Hunters, Hedge Fund Strategies, Today's Post

Guest columnist and intrepid reporter Doug Friedenberg talks to Brad Katsuyama about HFT, Michael Lewis and more.


Responding to a Challenging Tweet about Front-Running

Aug 19th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology, Today's Post

What do I mean by "front run," asked a reader. I use the term for a range of situations in which one party trades on the basis of advance [non-public] information of another party's upcoming trade, Faille replies.


SIP and the Law of Unintended Consequences

Aug 12th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology, Today's Post

Christopher Faille reviews the basic facts about SIP, the Securities Information Processor, and cites (with some incredulity) a new contention in some quarters that SIP isn't all that important because nobody really relies upon it.


Winner Takes All, and Liquidity Takers Win

Jul 22nd, 2014 | Filed under: Academic Research, Algorithmic and high-frequency trading, CAPM / Alpha Theory, Derivatives, Today's Post

It does appear that speed is helpful in generating alpha. How is it helpful? Here there are two views, and the less HFT-friendly of these views has received some scholarly/empirical support.


SEC Officially Pressing for Nickel-Tick Trials

Jul 1st, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Today's Post

Neither liquidity nor a small spread is the be-all and end-all of markets. A spread is a sort of price and, like other prices, spreads can sometimes get too small because someone is cutting corners.


‘I, Algorithm’ Or, Can the Mindless be Reckless?

Jun 19th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology, Today's Post

Who or what is responsible if an ATS' self-learning behavior drifts into terrain that, performed by a human, would constitute manipulative behavior? Does it matter than another algorithm has lately passed the Turing test?


Private Lawsuits Over Order Types Used to Facilitate HFT

Jun 2nd, 2014 | Filed under: Academic Research, Algorithmic and high-frequency trading, Legislation/Court rulings, Today's Post

HFTs and trading venues alike have worked hard to fit their practices into the Reg NMS framework. As a consequence, violations of NMS “are unlikely” Dolgopolov writes, “to provide a basis for civil liability of HFTs who use such orders because of their compliance – however formalistic – with this regulatory norm.”


MiFID Implementation Consultation: A Rocky Start

May 28th, 2014 | Filed under: Algorithmic and high-frequency trading, Derivatives, Regulatory, Today's Post

ESMA defines HFT as “a special class of algorithmic trading in which computers make decisions to initiate orders based on information that is received electronically, before human traders are capable of processing the information they observe and of taking a decision in relation thereto.” It then decides that needs further definition.


McGonagle Testifies to the Michael Lewis Hearings

May 15th, 2014 | Filed under: Algorithmic and high-frequency trading, Legislation/Court rulings, Regulatory, Technology, Today's Post

After some preliminaries, McGonagle got around to the central subject of his testimony, the Concept Release on Automated Trading that the CFTC had issued back in September 2013. Much of his testimony was designed to give Congress an inkling of the range of reactions the CR has since elicited.


The Illusion of Conscious Investing Decisions

Apr 15th, 2014 | Filed under: Algorithmic and high-frequency trading, Today's Post

Consciousness did evolve. Why? I submit that there is no good answer to this question unless consciousness makes a difference to behavior. Trading and investing must be included as "behaviors" in that generalization.


Thoughts on Lewis and Flash Boys

Apr 8th, 2014 | Filed under: Algorithmic and high-frequency trading, Media Coverage of Hedge Funds, Today's Post

Michael Lewis portrays Aleynikov, the Russian born coder convicted of two counts of theft in 2010 and imprisoned, then released by decision of an appeals court two years later, as a central figure in this dramatic tale about high-frequency trading. Aleynikov is not one of the bad guys, as such: but he is a self-blinkered tool of the bad guys. Some sympathy is extended: not much.


IP Rights in Software: From Settlement Risk to Data Compression

Apr 7th, 2014 | Filed under: Algorithmic and high-frequency trading, Alpha Hunters, Legislation/Court rulings, Risk management, Technology, Today's Post

The patent dispute at issue before the Supreme Court March 31st involved a computerized escrow system that serves as a third party to a deal, eliminating settlement risk. A business-method patent, in short: nothing at all to do with speed of execution, or data compression, or other such trading-infrastructure-related feats.


Unintended consequences: a not-so random walk down Wall Street

Apr 6th, 2014 | Filed under: Algorithmic and high-frequency trading, Book review, Today's Post

Guest columnist Ginger Szala on Michael Lewis' new book.


Who left the wrench in the markets engine? Maybe the SEC…

Mar 20th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology, Today's Post

There is an arm's race aspect to the trend toward ever-higher speeds in trading, and this has created a "latency risk" in the markets that has an adverse impact on liquidity, a new study shows. This feeds into some ongoing arguments.


The Struggle Against Latency: Four Layers

Feb 27th, 2014 | Filed under: Algorithmic and high-frequency trading, Hedge Fund Industry Trends, Technology, Today's Post

Cutting latency in any one layer is a task distinct from that of cutting it in any of the others. For the physical or interface layer (the ground floor of our ziggurat), optimization involves fiber optics and efficient queue management.


Really Fast Information Processors or Tippees?

Jan 27th, 2014 | Filed under: Academic Research, Algorithmic and high-frequency trading, Alpha Strategies, Regulatory, Today's Post

A forthcoming paper by Goldstein et al opens a window onto the convergence of two market-structure issues that, until quite recently, had not even been thought very similar.


What Will SCOTUS ‘See’ and Know, in Alice?

Dec 11th, 2013 | Filed under: Algorithmic and high-frequency trading, Legislation/Court rulings, Risk management, Today's Post

The U.S. Supreme Court has now agreed to hear arguments about Alice, litigation that squarely raises a question with which lower courts have struggled ever since the Bilski decision in 2010 failed to offer them any guidance: is all software 'abstract' in the legal sense, and thus as such unpatentable? If not, then what is the legal sense of "abstract"?


Dark Pools: Volume, Volatility and Disclosure

Dec 2nd, 2013 | Filed under: Algorithmic and high-frequency trading, Today's Post

The share of equity trading volume accounted for by dark pools has risen steadily in the U.S. in recent years. What have been the preconditions of this? what are its benefits and what are its costs?


The Chicago Fed Explains Bitcoins

Nov 12th, 2013 | Filed under: Algorithmic and high-frequency trading, Currencies, Today's Post

The key to understanding the mechanics of bitcoin is that at ten minute intervals the 'miners' gather up the recent proposed transactions and try to add them to the block chain, the universal ledger of bitcoin transactions.


Rowady’s Thoughts on Volatility, Data and Crowds

Oct 21st, 2013 | Filed under: Algorithmic and high-frequency trading, Performance, Analytics & Metrics, Today's Post

A recent article on the use of catalytic events to predict volatility, written by Paul Rowady of the TABB Group, provides food for thought for derivative traders, crystal-ball gazers, and compliance officers alike.


The Great Expertise Leveling: NYSE Edition

Oct 2nd, 2013 | Filed under: Algorithmic and high-frequency trading, Asset pricing, Today's Post

Anshuman Jaswal, senior analyst, Celent, has prepared a report on execution quality in the NYSE market that measures such quality along two axes: pricing and speed. Speed is straightforward, the metric for price as an execution issue is a bit trickier.


The Concept of ‘Throttling’ High-Frequency Trades

Sep 10th, 2013 | Filed under: Algorithmic and high-frequency trading, Today's Post

The CFTC has issued a thoroughly researched report, or 'concept release,' on algorithmic trading, high frequencies, and related issues in todays derivatives markets. Christopher Faille looks at the report and marvels at the term 'execution throttle,' employed for a monitoring system the report suggests.


The CFTC/HFT Rumors and Some Reflections

Sep 2nd, 2013 | Filed under: Algorithmic and high-frequency trading, Commodities, Regulatory, Today's Post

The CFTC is said to be close to issuing a concept release on high-frequency trading, pushing the regulatory process beyond the agency's earlier talkfests. Christopher Faille muses about an approach the concept release will almost certainly not advocate.


CME Section 8 Data Wants to be Free!

Jul 21st, 2013 | Filed under: Algorithmic and high-frequency trading, Commodities, Derivatives, Today's Post

Summary/excerpt: If Clark-Joseph is wrong in his worries about the "exploratory trading" of high frequency traders, he should be shown to be wrong with the use of facts and reason. He shouldn't be shushed, directly or indirectly.


New Tweaks to MiFID/MiFIR Recall College Daze

Jun 18th, 2013 | Filed under: Algorithmic and high-frequency trading, Regulatory, Today's Post

MiFIR includes provisions that allow for "dark pools" and that limit the size -- or, if you will, the depth -- of such pools. On June 10, 2013, authorities in Brussels released a new proposal for tweaks of MiFIR in general and these provisions in particular.


The Cauldron of Contemporary Trading Technology

May 8th, 2013 | Filed under: Algorithmic and high-frequency trading, Today's Post

With a wide range of troubling issues on my mind, I recently consulted a sage of the trading-algorithm world, Greg Woods, the head of algorithmic execution, listed derivatives and foreign exchange for Deutsche Bank Securities. He has more than twenty years of experience in the broad IT area.


Unlocking Alpha in the New Normal

May 6th, 2013 | Filed under: Algorithmic and high-frequency trading, Today's Post

Guest columnist Louis Lovas looks at data management in the world of algorithmic trading.


Australian News: Part I

Apr 24th, 2013 | Filed under: Algorithmic and high-frequency trading, Today's Post

Dark trading in Australia is becoming more multilateral and 'market-like' over time, a task force has found. That doesn't sound especially alarming, but ASIC believes the situation may encourage breaches of the Market Integrity Rules and the Corporations Act.


HFT-Limiting Experiment Underway in Germany

Mar 7th, 2013 | Filed under: Algorithmic and high-frequency trading, Regulatory, Today's Post

The Germans seem prepared to experiment with limits on high-frequency trading, as we see in a recent Bundestag vote that leaves the particulars to BaFin. I spoke recently to David Weild, a former vice chairman of NASDAQ, about this experiment and about related issues.


B of E Studies HFT: Begins and Ends with Ambivalence

Jan 6th, 2013 | Filed under: Algorithmic and high-frequency trading, Alpha Strategies, Today's Post

Bank of England white paper on high-frequency trading yields little in the way of return.


Mixed Report on HFT from Brits’ Foresight Project

Oct 31st, 2012 | Filed under: Algorithmic and high-frequency trading, Today's Post

The report seeks to alleviate certain concerns about both high-frequency and algorithmic trading. In particular, "The evidence available to this Project provides no direct evidence that computer-based HFT has increased volatility in financial markets." Still, the absence of evidence is not the evidence of absence, and the Project does acknowledge prudential concerns.


Hull Warns of HFT Cancellations & the Illusion of Liquidity

Oct 17th, 2012 | Filed under: Algorithmic and high-frequency trading, Today's Post

The real problem behind the 2010 flash crash, Hull says, is that again as in 1987 (in a different way of course) traders were working within a market structure that allowed “the illusion of liquidity” to displace the real thing. He cites an authority, because as he says his firm, Ketchum, likes to stay close to the academic literature.


People as Market Makers Were Never Crash Insurance Either

Aug 30th, 2012 | Filed under: Algorithmic and high-frequency trading, Alpha Strategies, Today's Post

The new technologies make less difference than some might think. "Even back in the days of physical market makers, when things went bad, as for example in the crash of '87, the market makers would head for the hills," said James Angel. Nowadays the computers go dark. Or (worse) they don't.


Citi: Systematic Component in CTAs Dominate over Discretionary Bits

Jul 24th, 2012 | Filed under: Algorithmic and high-frequency trading, Commodities, CTA, Today's Post

There has been a perhaps-unexpected consequence of the disappearance of the old-fashioned floor traders. Floor trading used to serve as a training regimen, "from which many of the industry's leading discretionary traders originated." Without the floors, the talent pool has dried up.


Poisoning the Goose while Taking its Alpha Eggs

Jul 9th, 2012 | Filed under: Algorithmic and high-frequency trading, Book review, Today's Post

What happened after decimalization? Spreads did fall, but these authors say that “displayed liquidity at the National Best Bid and Offer” also fell, at least in part because there were 100 price points for each dollar now, where once there had been eight or 16, so limit orders no longer come in clusters. This in turn made “pinging and sniffing for order flow” a lot easier, heralding the rise of the sort of algorithmic trading that is to the ordinary retail investor what a hawk is to a mouse.


CFTC Working Group Tries to Define High Frequency Trading

Jul 5th, 2012 | Filed under: Algorithmic and high-frequency trading, Commodities, Today's Post

Here is a draft definition of high frequency trading presented to the CFTC on June 20. HFT is a form of automated trading that employs: (a) algorithms for decision making, order initiation, generation, routing, or execution, for each individual transaction without human direction; (b) low-latency technology that is designed to minimize response times, including proximity and co-location services; (c) high-speed connections to markets for order entry; and (d) high message rates (orders, quotes, or cancellations).


The Ultimate in High-Frequency Trading

May 9th, 2012 | Filed under: Algorithmic and high-frequency trading, Alpha Strategies, Today's Post

Quite aside from the neat through-the-planet short-cuts they might allow: how fast is a neutrino? This turns out to be a very controversial matter. Last year, scientists working at CERN set off weeks of feverish speculation with reports indicating that neutrinos travel faster than light. If I understand this at all, it would mean if true that a New York or London trader could in theory accept a Tokyo trader’s offer before the offer had actually been made. Now that would be the ultimate in HFT: negative latency.