Browsing: Algorithmic and high-frequency trading

Algorithmic and high-frequency trading

Academics:  No, Navinder Sarao Did Not Cause the Flash Crash 

Oct 25th, 2016 | Filed under: Algorithmic and high-frequency trading, Business News, Finance & Economics, Hedge Fund Operations and Risk Management, Newly Added, Operations, Personalities in AI, Risk management, Risk Management & Operations, Technology

Mid-October news reports tell us that Navinder Sarao has lost his effort to avoid extradition from Britain to the United States. So he will face charges in the U.S. in connection with the “flash crash” of May 2010, the incident in which the DJIA fell 998.5 points in less thanRead More


Tick Pilot Program: A Progress Report

Oct 4th, 2016 | Filed under: Algorithmic and high-frequency trading, Business News, Finance & Economics, Newly Added, Regulatory Environment, The A.I. Industry

The long-awaited nickel-tick pilot program, an effort to test an alternative to the penny-or-less tick sizes that now prevail, , officially gets underway on October 3, and is scheduled to continue for two years. Securities have been selected and the phase-in schedule is set. The pilot is of significance, becauseRead More


ESMA’s Greybeards Ponder Blockchains

Sep 11th, 2016 | Filed under: Algorithmic and high-frequency trading, Business News, Currencies, Digital currencies, Emerging Alternative Investments, Finance & Economics, Newly Added, Other Topics in A.I., The Global Economy & Currencies

There has been a flurry in recent days of activity about blockchains among the graybeards of the financial world, those who ponder the Really Big Picture and who have the ear of important regulators. Let us start from the beginning. What is a blockchain? It is a chronological, virtual, andRead More


UC Berkeley: Stale Prices Not a Threat to Liquidity Takers

Sep 7th, 2016 | Filed under: Algorithmic and high-frequency trading, Alpha Strategies, Business News, Equity Hedge Funds, Finance & Economics, Hedge Funds, Newly Added

Two scholars associated with the University of California, Berkeley, have argued in a recent paper that there is less to latency arbitrage, or at least to a certain paradigmatic sort of latency arb, than meets the eye. Robert P. Bartlett III and Justin McCrary used data from the Securities InformationRead More


Lewis’ Heroes Get an Exchange for Their Speed Bump

Jun 26th, 2016 | Filed under: Algorithmic and high-frequency trading, Business News, Equity Hedge Funds, Hedge Fund Strategies, Hedge Funds, Newly Added

On Friday, June 17, the Securities and Exchange Commission approved the promotion of IEX from an ATS to a proper exchange. Thereby it gave a new ending of sorts to Michael Lewis’ book, Flash Boys. One of the big issues for both proponents and opponents of IEX’ application to becomeRead More


Bollerman Addresses IEX’s Critics

Feb 9th, 2016 | Filed under: Algorithmic and high-frequency trading, Business News, Newly Added

IEX, the institution created by Michael Lewis’ “flash boys,” began life as an ATS. But as its name, a shortening of “Investors’ Exchange,” suggests, it has always aspired to be an exchange. One of its core principles is its “speed bump,” a system of delaying the availability of market pricingRead More


Overtrading and the Danger of Pro Rata

Jul 30th, 2015 | Filed under: Algorithmic and high-frequency trading, Commodities, Currencies, Derivatives, Forex

Guest columnist Ginger Szala looks at pro rata and what happens if...Read More


Aleynikov Again: State Jury Conviction Set Aside

Jul 8th, 2015 | Filed under: Algorithmic and high-frequency trading, Legislation/Court rulings, Technology

The judge's ruling setting aside the jury's guilty verdict is, of course, grand news for Aleynikov. It is also the curtain on a sometimes farcical spectacle. But let us not forget that there are issues of principle involved. Read More


Spoofing: The ‘It’ Enforcement Action

Jun 17th, 2015 | Filed under: Algorithmic and high-frequency trading, Derivatives, Hedge Fund Strategies, Regulatory, Technology

Spoofing is probably about as ubiquitous as texting-while-driving. And it is possible to make an example of a spoofer caught red-handed. But it isn't clear what purpose that will serve. The real problem is that a broken market contains a broken set of incentives. Read More


The Forrest or the HFTrees? ‘Preferred Data Customers’

May 7th, 2015 | Filed under: Algorithmic and high-frequency trading, Hedge Fund Strategies, Legislation/Court rulings

It is of course possible to “question the wisdom of the SEC’s stance on this issue and its fairness to ordinary investors,” said the Judge in the Lanier/HFT decision. But the court isn’t in the business of second guessing the wisdom of regulation. Lanier's claims are dismissed. Read More


Authorities Offer Revisionism About Flash Crash

Apr 22nd, 2015 | Filed under: Algorithmic and high-frequency trading, Derivatives, Indexes

Authorities now claim that the shenanigans that set off the flash crash of May 2010 were the work of Navinder Singh Sarao. Does this mean Waddell & Reed were unjustly maligned? Almost certainly. Read More


Aleynikov’s Trial and My Cousin Vinnie

Apr 21st, 2015 | Filed under: Algorithmic and high-frequency trading, Intellectual Property, Legislation/Court rulings

A party seeking to employ an expert witness is supposed to let the other side know who the expert is in advance of trial. Fans of a classic Joe Pesci movie will remember that it isn't necessary to join the prosecutor in a hunting lodge. Read More


Reflections on the MS Internet Explorer, R.I.P.

Apr 5th, 2015 | Filed under: Algorithmic and high-frequency trading, Legislation/Court rulings, Technology

The U.S. Department of Justice typically brings high-profile antitrust actions against 'monopolists' by piling its legal theories on top of dubious micro-economics. A recent announcement by Microsoft sends Faille down memory lane, to two 1990s era actions by the D of J against MS in the days when Bill Gates was still a great media ogre. Read More


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

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. Read More


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

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. Read More


Should Governments Slow Trading Down by Taxing It?

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

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. Read More


ECB Beats SNB in race for the Bottom

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

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? Read More


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

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


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

Jan 14th, 2015 | Filed under: Algorithmic and high-frequency trading, CAPM / Alpha Theory

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. Read More


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

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

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. Read More


Thoughts on Futurology and its Perils

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

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. Read More


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

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

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 STARead More


Will HFTs force a market redesign?

Nov 12th, 2014 | Filed under: Algorithmic and high-frequency trading, Technology

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.Read More


Untangling the web of HFT

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

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


Footnote 13: Barclays Did ‘Change the Number’

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

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.... Read More


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

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


Responding to a Challenging Tweet about Front-Running

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

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. Read More


SIP and the Law of Unintended Consequences

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

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. Read More


Winner Takes All, and Liquidity Takers Win

Jul 22nd, 2014 | Filed under: Algorithmic and high-frequency trading, CAPM / Alpha Theory, Derivatives

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. Read More


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

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

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? Read More


Private Lawsuits Over Order Types Used to Facilitate HFT

Jun 2nd, 2014 | Filed under: Algorithmic and high-frequency trading, Legislation/Court rulings

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.”Read More


MiFID Implementation Consultation: A Rocky Start

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

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.Read More


McGonagle Testifies to the Michael Lewis Hearings

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

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. Read More


New Tweaks to MiFID/MiFIR Recall College Daze

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

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.Read More


The Cauldron of Contemporary Trading Technology

May 8th, 2013 | Filed under: Algorithmic and high-frequency trading

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.Read More


Unlocking Alpha in the New Normal

May 6th, 2013 | Filed under: Algorithmic and high-frequency trading

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


Australian News: Part I

Apr 24th, 2013 | Filed under: Algorithmic and high-frequency trading

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.Read More


HFT-Limiting Experiment Underway in Germany

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

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.Read More


B of E Studies HFT: Begins and Ends with Ambivalence

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

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


Mixed Report on HFT from Brits’ Foresight Project

Oct 31st, 2012 | Filed under: Algorithmic and high-frequency trading

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. Read More


Hull Warns of HFT Cancellations & the Illusion of Liquidity

Oct 17th, 2012 | Filed under: Algorithmic and high-frequency trading

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.Read More


People as Market Makers Were Never Crash Insurance Either

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

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.Read More


Citi: Systematic Component in CTAs Dominate over Discretionary Bits

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

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.Read More


Poisoning the Goose while Taking its Alpha Eggs

Jul 9th, 2012 | Filed under: Algorithmic and high-frequency trading

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. Read More


CFTC Working Group Tries to Define High Frequency Trading

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

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).Read More


The Ultimate in High-Frequency Trading

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

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. Read More


No Federal Prohibition on Stealing Code for Trading Infrastructure

Apr 18th, 2012 | Filed under: Algorithmic and high-frequency trading, Regulatory

Chief Judge Dennis Jacons said that the statutory language refers on the one hand to products that have “already been introduced into [placed in] the stream of commerce” and on the other hand to those that “are still being developed or readied” [produced for] such placement. The words evoke two distinct sets of products with a sequential relationship to one another, which satisfies well-established rules of statutory construction. The district court had upheld the indictment against challenge along these lines, because the district court had construed the language to include the production of anything whose purpose is “to facilitate or engage in such commerce.” The appeals court panel found error here.Read More


Looking for Abnormal Market Activity

Apr 3rd, 2012 | Filed under: Algorithmic and high-frequency trading, Derivatives

Cinnober has sold a customized form of its Scila Surveillance software -- a product designed to detect abnormal market behavior -- to the Qatar Exchange. One of the purposes of Scila Surveillance is the detection of harmful variants of algorithmic trading, such as the trading "snipers" who drive off market makers and reduce liquidity. Read More


Conversing with the Oracles of The Daily Delphi

Mar 26th, 2012 | Filed under: Algorithmic and high-frequency trading

The Internet and technology have changed the face of trading forever. To get a glimpse of the future we sat down with the oracles of The Daily Delphi to see what the next newest thing might be.Read More


Axioma to Quants: Beware of Cherry Picking by Optimizers

Mar 15th, 2012 | Filed under: Algorithmic and high-frequency trading

Reliance on optimization tools that in turn rely on standard “user risk factors” will make factor alignment worse, caution three executives of Axioma. An optimizer will cherry pick “the aspects of the model of expected returns that it deems desirable when gauged on the yardstick of marginal contribution to systemic risk.” This amounts to making, and betting on, the erroneous assumption that a lack of correlation with the used risk factors is a lack of systemic risk altogether.Read More