Apr 2014:Media coverage of High Freq Trading Stories after 'Flash Boys'

  1. HFT - WSJ op-ed ; HFT Hyperbole [Apr 2014 ]
    • "How do we feel about high-frequency trading? We think it helps us. It seems to have reduced our costs and may enable us to manage more investment dollars. We can't be 100% sure"
    • "ICE Chief Executive Officer Jeff Sprecher, has been a vocal critic of the overall stock market, saying it is too complicated and rife with conflicts of interest. Katsuyama would not comment on whether ICE had tried to buy his company. But he did say: "We're very aligned in philosophy and I have only good things to say about Jeff ".

    4. "why did the market in any given stock dry up only when he was trying to trade in it? To make his point, he asked the developers to stand behind him and watch while he traded. “I’d say: ‘Watch closely. I am about to buy 100,000 shares of AMD. I am willing to pay $15 a share. There are currently 100,000 shares of AMD being offered at $15 a share — 10,000 on BATS, 35,000 on the New York Stock Exchange, 30,000 on Nasdaq and 25,000 on Direct Edge.’ You could see it all on the screens. We’d all sit there and stare at the screen, and I’d have my finger over the Enter button. I’d count out loud to five.

    . . .

    “ ‘One. . . .

    “ ‘Two. . . . See, nothing’s happened.

    “ ‘Three. . . . Offers are still there at 15. . . .

    “ ‘Four. . . . Still no movement. . . .

    “ ‘Five.’ Then I’d hit the Enter button, and — boom! — all hell would break loose. The offerings would all disappear, and the stock would pop higher.”

The exchange in question...
“What do you use to price trades in your matching engine on Direct Edge?” Mr. Katsuyama asked Mr. O’Brien.


“We use the direct feeds,” Mr. O’Brien said.

Mr. Katsuyama, whose IEX dark pool markets itself as a haven for investors against high-speed traders, later brought up the issue again. “You use the SIP to price trades on Direct Edge,” he said. “That is not true,” Mr. O’Brien said.

    • Via Nanex, Between 8:00 and 9:20 on February 4, 2014, in the stock of The WhiteWave Foods Company (symbol WWAV, market cap $4 Billion), one or more High Frequency Trading (HFT) algos, generated 2.04 million top of book orders at Direct Edge. Most of these affected the NBBO (National Best Bid/Offer) hundreds of times per second. There were 3 trades     
    • "HFT lobbyist group Modern Markets Initiative (MMI).  In the article, MMI attempts to discredit the Wall Street Journal's A Suspect Emerges in Stock-Trade Hiccups: Regulation NMS, and seizes the opportunity to "revisit some commonly held misconceptions about electronic markets and high frequency trading (HFT)". We'll seize the opportunity to point out some intellectual dishonesty. "
    • "Sophisticated traders have been aware of CME's order-latency issue for years and have incorporated the information into their trading strategies, according to an official with Jump Trading LLC, a big Chicago high-frequency company.Officials with Virtu Financial LLC, a high-speed trading firm in New York, view a slight head start as good for the overall market, according to a person familiar with their thinking."
    • "Under an arrangement in use since the 1980s, discount brokerages sell most of their clients' orders to wholesale companies, which then trade against the orders without sending them directly to traditional stock exchanges. The wholesalers capture tiny profits on many of the trades, using superfast computers with complex algorithms to match orders."
    • "This practice is called 'payment for order flow', and it's not new to the market. Bernie Madoff used to do it by paying other brokers a penny per share. Then his firm would use that to trade with a better understanding price."
  6. HFT - Should high-frequency trading be regulated?  Washington Post Article Apr 6 2014
    • "What does this mean about regulation? To me, this means first that the state of knowledge is sufficiently ambiguous that at the current time I’m not persuaded that there is a case for regulation. But second, it also suggests a case for experimentation — which is to say that there may be a market for different markets, some of which permit HFT and some that don’t. If HFT increases market efficiency, then you’d expect parties to gravitate to those markets. If not, then you’d expect the opposite"
  7. Larry Tabb of Tabb Group: ‘No, Mr. Lewis. The Markets Are Not Rigged’
      • Takeaways : Now, is there a single best way to execute an order? Are brokers perfect? Are there conflicts in the pricing structure of trades that may push brokers to trade off-exchange in their own dark pool versus at a lit exchange? Absolutely. That said, investors, brokers, and third-party measurement firms are trying to help better analyze the problems, help investors shift flow toward better performing brokers and algorithms, and help traders better understand where there is leakage.We have not yet reached execution nirvana.
  8. HFT - Security Traders Assoc. of NY [ STANY] - Brainstrom Session
    • Key points 
      • Lots of rhetoric about a “broken” market structure 
      • Internal industry infighting has spilled into the public arena 
      • The media loves a good fight! 
      • My take on it: Our markets are (mostly) better, but they are different than before. 
      • Different imperfections 
      • Fail in different ways 
      • Need to work on these rough edges! 
      • What is broken 
      • Need better containment against technical failures 
      • The decline in the number of public companies: Need to experiment! 
      • Let issuers pick their own tick sizes – they have the incentives to get it right. 
      • Regulation: Push SEC to hire experienced market people and move SEC to NY. 
      • Volume drought 
      • Need more companies, more splits, longer trading hours for most active stocks
  9. Haim Bodek's book : The Problem of HFT - Collected Writings on High Frequency Trading & Stock Market Structure 
  10. HFT - Virtu Financial IPO prospectus
    • The chart below illustrates our daily Adjusted Net Trading Income from January 1, 2009 through December 31, 2013," Virtu writes in the filing. "As a result of our real-time risk management strategy and technology, we had only one losing trading day during the period depicted, a total of 1,238 trading days
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Apr 2014:Media coverage of High Freq Trading Stories after 'Flash Boys'



  1. Trade Tactics: Slow vs. Speed [Feb 2014]
    • Slow guy
      • At IEX Trading Group Inc., all orders are slowed down by a fraction of a second after they enter the trading system, a tactic designed to prevent fleet-footed trading firms from racing ahead of orders from large institutions and driving up prices. Some proprietary-trading firms have been known to use their greater speed to change their bids and offers based on activity they notice on other trading venues and exchanges. By slowing things down, IEX hopes to put all traders on equal footing.
    • Fast guy
      • LeveL ATS, a dark pool. The company in October launched one of the industry's fastest matching engines connecting buyers and sellers. Its average speed for an order acknowledgment is below 60 microseconds, according to the company. The firm saw an average of 23.3 million shares traded a day in January, it said. Mr. Conary argues that the best way to avoid information leaking about an order, which could be taken advantage of by other traders, is being as fast as possible. LeveL is essentially fighting fire with fire: Its new matching engine was built by Thesys Technologies, the infrastructure arm of high-frequency trading firm Tradeworx Inc.
  2. HFT in Australian Equity Exchanges.[ Apr 2014 ]
    • “ASIC’s study into high frequency trading in the Australian markets found no fundamental deterioration of market quality, or systematic abuse that threatens the integrity of our market. Rather, we found the Australian market, which is less fragmented than the US, to be one of high quality and integrity,” the spokesperson said in a written response to questions from Business Insider.
    • But profiting is neither abuse nor manipulation. If it consistently happens to one side, over another, due to some sort of advantage, it is just unfair.
  3. Trading Profits of HFT shops. - An academic study [Apr 2014]
    • "HFT traders do influence prices and outcomes for investors. A US research paper – The Trading Profits of High Frequency Traders [pdf], by Matthew Baron, Princeton University, Jonathan Brogaard, Foster School of Business, University of Washington and Andrei Kirilenko, Commodity Futures Trading Commission (CFTC) – found that HFTs make on average $0.25 per trade. “This equates to $18,799 per day for each HFT in the August 2010 E-mini S&P 500 contract alone,” the paper said."
  4. HFT Class Action Suit: City of Providence v. Bats Global Markets, Inc., et al. [Apr 2014]
    • The City of Providence, RI, filed a putative class action complaint in the U.S. District Court for the Southern District of New York, naming as defendants 16 different national securities exchanges, 12 major securities brokers, and 11 high-frequency trading (“HFT”) firms. The Plaintiff, in the case titled City of Providence v. BATS Global Markets Inc., et al., claims to represent every class of investor who bought or sold stock on a U.S. exchange from April 2009 through the present. The defendant class is only slightly smaller.   
    • The allegations in the complaint are generally derivative of Michael Lewis’s recent book, Flash Boys: A Wall Street Revolt, and the complaint repeatedly cites that publication. The Complaint alleges that the named HFT firms engaged in a number of trading behaviors that distorted stock markets and disadvantaged other market participants. The complaint alleges that the broker defendants allowed the HFT defendants access to their clients’ trade orders, which gave the HFT firms an informational advantage when trading against the brokers’ clients in the market. The complaint also alleges that the stock exchanges and alternate trading venues allowed HFT defendants to “co-locate” computer equipment, which allowed an informational advantage that enabled them to disadvantage other market participants.
    • The Complaint alleges three counts, all under the Securities Exchange Act of 1934: (i) violation of the anti-fraud provisions of Section 10(b) and SEC Rule 10b-5 promulgated thereunder; (ii) violation of Section 6(b) of the Act, as pertaining to registration of National Exchanges; and (iii) “insider trading” allegations for alleged violations of Section 20A of the Act.
  5. HFT Book - Broken Markets 
    • If you know little of financial markets you might find "Broken Markets" difficult to follow. But the Arnuk's and Saluzzi's thesis is not all that complex. The authors argue that our financial markets are thoroughly broken. They explain how stock exchanges have been taken over by high frequency traders who use sophisticated computer algorithms to scalp pennies off nearly every share traded. This has essentially transformed stock exchanges from facilitators of capital formation to arbitrage driven casinos that are rigged in favor of a class of speculators, the high frequency traders, who account for 50 to 70 percent of the volume traded on stock exchanges and, still more ominously, 80% of the profits.
  6. HFT Book - Dark Pools a book featuring Haim Bodek
    • Manipulating the order flow can be done by placing very low bids or very high offers for stock, which jump to the head of the order queue. When counterparties disappear as the computers cancel orders at superhuman speed, which often happens in turbulent markets, stocks can sell for one cent or $10,000 per share. Disappearing orders can be placed to test the market flow, and orders invisible to other participants in the market are also possible.
    • As yet, this high-frequency trading has not led to anything like 1987's one-day 22 percent fall in the Dow Jones industrial average. But the occasional "flash crash" is alarming, as is the effect on large orders. These have become more expensive to execute, thanks to front-running computer-piranhas which move the price before big orders can be fully executed. Thus effective liquidity, the ability to buy and sell large institutional positions at close to the market price, has been greatly impeded - needless to say producing large additional profits for the algo traders.
    • In response, big orders are increasingly broken into smaller bits to avoid algo-detection. Patterson cites research, commissioned by the Financial Times, according to which average order size declined by 67 percent on the New York Stock Exchange and by 68 percent on Nasdaq between 2005 and 2010
  7. HFT - By Rishi K. Narang ; Another good writings on HFT ; From Quantitative perspective.
    • Narang co-founded and was president of Tradeworx, Inc., a quantitative hedge fund manager, from 1999-2002
  8. HFT trading shop - Meet Getco HFT Trading King. [ Aug 2009]
    • "Traders at Getco, a private company with fewer than 250 employees, use powerful computers and algorithms to engage in high-frequency trading. "
    • "They are probably the biggest market maker in the U.S. stock market," said Justin Schack, a vice president at Rosenblatt Securities Inc. who closely tracks high-frequency trading. A market maker is a firm that always stands ready to buy or sell a stock.
         
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Apr 2014: Media (Video) coverage of High Freq Trading Stories after 'Flash Boys'

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Movies - non fiction

All the President's Men [1976] @ Wikipedia

  • All the President's Men is a 1976 American political thriller film based on the 1974 non-fiction book of the same name by Carl Bernstein and Bob Woodward, the two journalists investigating the Watergate scandal for The Washington Post. 

Bugsy - [1991] @ Wikipedia

Bugsy is a 1991 American crime-drama film directed by Barry Levinson which tells the story of mobster Bugsy Siegel. Based on Benjamin Siegel (February 28, 1906[1] – June 20, 1947) was an American mobster with the Luciano crime family. Nicknamed "Bugsy" Siegel was known as one of the most "infamous and feared gangsters of his day". Described as handsome and charismatic, he became one of the first front-page-celebrity gangsters. He was also a driving force behind the development of the Las Vegas Strip.

Nixon [1995] @ Wikipedia 

  • Nixon is a 1995 American biographical film that tells the story of the political and personal life of former US President Richard Nixon as a complex and, in many respects, admirable, though deeply flawed, person. Nixon begins with a disclaimer that the film is "an attempt to understand the truth [...] based on numerous public sources and on an incomplete historical record."

The Insider - [1999] @ Wikipedia

  • The Insider is a 1999 American drama film directed by Michael Mann, based on the true story of a CBSs "60 Minutes segment" about Jeffrey Wigand, a whistleblower in the tobacco industry. 
  • The CBS's 60 Minutes story originally aired in November 1995 in an altered form because of objections by CBS' then-owner, Laurence Tisch, who also controlled the Lorillard Tobacco Company. The story later aired in a complete and uncensored form on February 4, 1996.

Good night and Good Luck - [2005] @ Wikipedia

  • Good Night, and Good Luck. is a 2005 American drama film portrays the conflict between veteran radio and television journalist Edward R. Murrow and U.S. Senator Joseph McCarthy of Wisconsin, especially relating to the anti-Communist Senator's actions with the Senate Permanent Subcommittee on Investigations.
  • Based on Edward R. Murrow, a pioneer of television news broadcasting, Murrow produced a series of TV news reports that helped lead to the censure of Senator Joseph McCarthy.

Charlie Wilson's War - [2007] @ Wikipedia 

The ides of March - [2008] @ Wikipedia

  • Based on Farragut North  a 2008 play written by Beau Willimon, who worked for Sen. Charles E. Schumer (D-NY) and former Governor of Vermont and 2004 Democratic presidential candidate Howard Dean,  loosely based on the 2004 Democratic primary campaign of Howard Dean. 
  • The play is billed as "a classic tale of hubris set against a contemporary landscape – about the lust for power and the costs one will endure to achieve it". It is titled after Farragut North, a Washington Metro station, on the Red Line. Farragut North serves downtown Washington and is located just north of Farragut Square near Connecticut Avenue. 
  • Titled the play for the Metrorail station located nearest the district's center for think tanks, lobbyists, and advocacy groups.

W. - [2008] @ Wikipedia

  • W. is a 2008 American biographical drama film based on the life and presidency of George W. Bush. It was produced and directed by Oliver Stone, written by Stanley Weiser, and stars Josh Brolin as Bush.

The Informant! - [2009] @ Wikipedia

The Informant! is a 2009 American biographical-comedy-crime movie based on a true Story about Mark Whitacre's involvement as a whistle blower in the lysine price-fixing conspiracy of the mid-1990s Mark Whitacre, a rising star at Decatur, Illinois based Archer Daniels Midland (ADM) in the early 1990s, blows the whistle on the company’s price-fixing tactics at the urging of his wife Ginger
Based on the 2000 nonfiction book The Informant: A true Story, by journalist Kurt Eichenwald.

Extraordinary Measures - [2010] @ Wikipedia



      Fair Game - [2010] @ Wikipedia

      • Fair Game is a 2010 biographical spy drama film directed by Doug Liman and starring Naomi Watts and Sean Penn.[3] It is based on Valerie Plame's memoir, Fair Game: My Life as a Spy, My Betrayal by the White House,[3] and Joseph C. Wilson's memoir, The Politics of Truth: Inside the Lies that Led to War and Betrayed My Wife's CIA Identity: A Diplomat's Memoir. 

          Nothing but Truth - [2010] @ Wikipedia

          • Nothing but the Truth is a 2008 American drama film written and directed by Rod Lurie. According to comments made by Lurie in The Truth Hurts, a bonus feature on the DVD release, his inspiration for the screenplay was the case of journalist Judith Miller, who in July 2005 was jailed for contempt of court for refusing to testify before a federal grand jury investigating a leak naming Valerie Plame as a covert CIA operative, but this was merely a starting point for what is primarily a fictional story. In an April 2009 interview, Lurie stressed: "I should say that the film is about neither of these women although certainly their stories as reported in the press went into the creation of their characters and the situation they find themselves in."
          • Inside Job is a 2010 documentary film, directed by Charles H. Ferguson, about the late-2000s financial crisis.  In five parts, the film explores how changes in the policy environment and banking practices helped create the financial crisis.. 

          J. Edgar [2011] @ Wikipedia

          • J. Edgar is a 2011 American biographical drama film directed, co-produced, and scored by Clint Eastwood.Written by Dustin Lance Black, the film based on the career of FBI director J. Edgar Hoover. 

          Game Change - [2012] @ Wikipedia

          • Game Change is a 2012 American HBO political drama film based on events of the 2008 United States presidential election campaign, directed by Jay Roach and written by Danny Strong, 
          • Based on the 2010 book of the same name documenting the campaign by political journalists Mark Halperin and John Heilemann. 

          The Wolf of Wall Street - [2013] @ Wikipedia

          • The Wolf of Wall Street is a 2013 american drama film directed by Martin Scorsese, based on Jordan Belfort's memoir of the same name. Belfort, a New York stockbroker who ran a financial services firm that engages in securities fraud and corruption on Wall Street in the 1990s was convicted of fraud crimes related to stock market manipulation and running a penny stock boiler room, for which he spent 22 months in prison. He recounted his life in his memoir, The Wolf of Wall Street.

          Citizen Four - [2014] @ Wikipedia

          • Citizenfour is a 2014 documentary film directed by Laura Poitras concerning Edward Snowden and the NSA spying scandal. Shot in the cinéma vérité style. The film features Glenn Greenwald and was co-produced by Poitras, Mathilde Bonnefoy, and Dirk Wilutzky, with Steven Soderbergh and others serving as executive producers. Citizenfour won the Academy Award for Best Documentary Feature at the 2015 Oscars..




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          Apr 2014: Media Coverage of High Freq Trading Stories



            • "Reg NMS, as it is often called, grew out of an effort nearly a decade ago to keep the U.S. abreast of financial centers such as London, Frankfurt and Hong Kong that were leaping ahead in embracing electronic systems. Securities and Exchange Commission officials worried that control of U.S. capital markets could begin to shift offshore if the U.S. didn't evolve."
          1. HFT - Brad's IEX ; WSJ article Orginally appeared on Jun 29 ,2013

            "IEX also will forgo the so-called rebates that many exchanges pay firms that help provide buy and sell orders. The payments, typically about 25 to 30 cents per 100 shares, primarily benefit high-frequency trading firms that provide orders".

          2. HFT - Birth of an Electronic Trading Venue - TradeBot - WSJ article pub. on Dec 15 2006
            • "In Mr. Cummings's world, the fundamentals of a stock are of little consequence. His firm favors large stocks, such as Microsoft, because it can trade in and out quickly. On one recent afternoon, a computer screen in Tradebot headquarters indicated that the firm accounted for more than 10% of that day's trading in Microsoft. On many days, Tradebot's trading totals account for as much as 5% of all Nasdaq trading, on par with trading levels at such giant firms as Fidelity Investments."
          3. HFT trading shop - Meet Getco HFT Trading King. [ Aug 2009]
            1. "Traders at Getco, a private company with fewer than 250 employees, use powerful computers and algorithms to engage in high-frequency trading. "
            2. "They are probably the biggest market maker in the U.S. stock market," said Justin Schack, a vice president at Rosenblatt Securities Inc. who closely tracks high-frequency trading. A market maker is a firm that always stands ready to buy or sell a stock.
          4. NYSE's Fast-Trade Hub Rises Up in New Jersey - WSJ.com [Jul 2009]
            • MAHWAH, N.J. -- The future of the New York Stock Exchange is inside the red-brick building that is rising from the ground here about 35 miles from Wall Street.
            • The exchange is building a similar facility outside London, which will cater to clients who want access to overseas markets. The combined price tag for the two data centers will be about $500 million, according to people familiar with the matter.
            • The NYSE is seeking to stem a slide in market share from more than 80% in 2004 to about 40% this year, according to data from Equity Research Desk, a research company in Greenwich, Conn. Second-quarter earnings are expected to slide 40% from a year ago to 45 cents a share, according to a survey of analysts by Thomson Reuters.

          5. Fast Trader's new Edge is Light Speed - WSJ.com [Jun 2010]

            • Critics call the practice the modern day equivalent of looking at share prices listed in tomorrow's newspaper stock tables today.
            • "It is a rigged game," Sal Arnuk, co-founder of brokerage firm Themis Trading, said Wednesday at a Securities and Exchange Commission roundtable discussion in Washington, D.C., referring to the trading activity, which some call "latency arbitrage."
          6. HFT - Flash Crash - Most likely cause - Initial suspect
            • Fund managers at Waddell & Reed Financial Inc. in Overland Park, Kan., moved to hedge their U.S. stock holdings, which total more than $7 billion, by betting that the S&P 500 would fall. Waddell decided on a large short sale of futures contracts known as E-minis, which mimic movement of the S&P 500. As Waddell's computers began parceling out the trade, other investors also were trying to hedge their portfolios, so trading volume in E-minis shot up to six times the usual volume. 
            • But liquidity, the ability to buy or sell easily, was drying up. Between about 2:35 and 2:45, the six "market-making" firms that were most active that afternoon in E-mini trading—they step in as buyers or sellers on many trades—cut back their trading. Some pulled out altogether.
            • As a result, traders say, the big Waddell trade accelerated the sell-off. Waddell says it did not intend to "disrupt" the market.
          7. HFT - Flash Crash - Did Shutdowns Make Plunge Worse?
            • "Some high-frequency traders, including Mr. Cummings at Tradebot, say their moves didn't accelerate declines. He says other firms selling large positions caused the market turmoil and that Tradebot would have been risking losses if it had continued trading. He says exchanges need to install better systems that automatically stop or slow trading when the market becomes overly chaotic."
          8. HFT - Flash Crash - Trading-Firm Breakdowns Accompanied Market Chaos - Wsj.com May 2010
            • As the stock market spiraled out of control two weeks ago, two major firms that handle trades for retail brokerages suffered trading breakdowns.
            • One, the big Chicago hedge-fund firm Citadel Investment Group, stopped taking orders for a number of securities, according to an internal email and people familiar with the matter. Shortly after the market plunged, Citadel asked clients, including discount brokers such as E*Trade Financial Corp. and TD Ameritrade Holding Corp., to route orders elsewhere.
          9. HFT - Haim Bodek Story - An insider narrative of HFT market participants - WSJ.com [Jun 29,2013]
            • "Haim Bodek told the SEC what he had learned about order types. His sword was a gift from a friend who said he would need it in business.
          10. "HFT - charles schwab position on HFT [Apr 2014]
            • "The integrity of the markets is at the heart of our economy. High-frequency trading undermines that integrity and causes the market to lose credibility and investors to lose trust. This hurts our economy and country. It is time to treat the cancer aggressively."
          11. "HFT- What Goldman Sachs President[@Apr 2014]  (gary cohen) thinks about HFT ?[ Apr 2014 ]
            • "Three powerful forces have been at work: technology, regulation and competition. The result has been narrower spreads, faster execution and lower overall explicit costs to trading stocks."
          12. HFT- What Mark Cuban's thinks about HFT ? [ Apr 2014]
            • "The output of the algorithms, the This Then That creates the trade (again, this is a simplification — I'm open to better examples), which creates a profit of  some relatively small amount. When you do this millions of times a day, that totals up to real money. IMHO, this is the definition of high-frequency trading. Taking advantage of an advantage in speed and algorithmic processing to jump in front of trades from slower market participants to create small, guaranteed wins millions of times a day. A high frequency of trades is required to make money. Therein lies the problem. This is where the game is rigged



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