I got the impression that the front-running comes from the fact that the inter-market route outs have higher latency than the HFT guys.
so, is this a hft problem or is this a privatization of public exchanges problem? your implications throughout this thread is that hft's are to blame for this. as long as it's legal and more profitable for liquidity providers to take their books off market, then public liquidity will suffer. is the a hft issue? no. it's a market/exchange issue. punish the liquidity providers for making use of the tools given them makes no sense.
it's not a latency issue as much as it's a regnms issue. exchanges have to comply with regnms, so if you send a routeable order to the nbbo, the exchange has to use what's called a securities information processor (siac, uqdf) to check for regnms compliance of the order. siac/uqdf, however, are notoriously slow. so, while the sip is doing it's check, the exchange has already updated their data to show the nbbo is no longer there (as it's already been matched with the incoming order). due to this update, market makers will step their orders up to what they think is the new nbbo with iso orders, but since uqdf still hasn't reported back to the exchange, the exchange fills the new orders which technically are now first in line and do not need to be sent to the sip. MOST fills that transact in this way are INADVERTENT. something as simple as an iso pegged order would end up 'frontrunning' without even knowing it. again, people on this thread need to take some time and understand the issues thoroughly before running their mouths off about things they really have no clue about. there's a reason hft's are being targeted for all this and it has NOTHING to do with 'fairness'. when you jump on the bandwagon train without researching, you're inadvertently assisting the agenda of regulation that is being designed to HURT you as traders and ultimately to KILL competition in the marketplace. all before our very eyes.
sorry, but you don't know what you're talking about. uqdf/siac/cts/cqs and the exchange data feeds are all PUBLIC. ISO orders are WIDELY available. the situation you're incorrectly describing is NOT frontrunning. most times market makers/traders don't even know they're doing it. it's a regnms flaw. get your facts right before slathering all this bullshit all over the forum.
see, this is what i'm talking about. you have a guy, this achilles28 persona. who's already made up his mind that he's going to be dogging the hft industry, quotes out of context, and uses the GOOD information given by tradeworx and spins it into a bunch of worthless DISINFORMATION. however, i have to thank this idiot for bringing page 17 to everyone's attention. i STRONGLY encourage everyone to read it, because it goes into good detail the mechanics of what the alleged 'front-running' actually is. you can't 'front-run' publicly available data. you can outcompete, but you can't 'front-run' it. you can't 'insider trade' on data you pulled from a PUBLIC DATA STREAM. i can't believe the crap being spewed here. is it flawed? hell yes it's flawed, but not because of hft's. the question that's not being asked here and that should be the central theme is WHY IS IT FLAWED? it's FLAWED because it's the result of FLAWED REGULATION. this 'unfair' result is the byproduct of FAILED and ILLOGICAL REGNMS REGULATION and it's BOTCHED IMPLEMENTATION. so you hft bashers really want to fix it with MORE REGULATION?! give me a break.
It seems I was not that clear. I do blame the regulators and resulting market structure. I was also very clear that HFT companies are not breaking any laws. I just disagree with the laws.
You knowledge base is obviously in the stock world, whereas mine is moreso in the options world. I am by no means trying to present myself as a HFT expert. hft is just that: high frequency trading, ie trading a lot of times with computers. the BULK of high frequency trading is automated market making. period. HFT has become a bit of a catch all. As you point out I was not being very clear. I feel the payment for order flow, flash quotes, order internalization, and lack of equal dark pool regulation are the big issues. FWI, options HFT companies are NEVER market makers--mostly due to the payment for order flow which market makers pay, and customers collect. You are correct though, that in the stock world, the HFT companies are quickly adding quoting engines into their toolbelts. rebate programs are there for a reason: to attract liquidity by reducing transaction costs for market makers. it's not a 'payment for order flow game'. Again, you obviously come from the stock world. Payment for order flow is very distinct from liquidity rebates. It is not clear from your post that you understand this. In the options world, payment for order flow is the main weapon used by HFT companies to canabalize the market making liquidity. This one fee which every market maker pays when he trades with any customer order is largely responsible for the market making companies going out of business. It is for this exact reason that the CBOE has recently implemented the new professional customer order type. Options HFT companies do make markets in dark pools though. how are you not providing liquidity when getting rebates? your comments regarding this are contradictory and absurd. What is with your fixation on liquidity rebates? What comment on rebates do you find absurd exactly? flash quotes are a non-issue. what most people are referring to when they're demonizing 'flash orders' is the uqdf arb which only a tiny fraction of hft firms are exploiting. This is where we disagree. Flash quotes are an enormous issue. They are banned on public exchanges (almost) while dark pools and order internalization still allow the largest companies to front run orders. Perhaps this is a definition issue. what you, the majority of posters on this thread, and the media in general are doing, is demonizing the exploitation of exchange/market inefficiencies (legal btw) and associating it with an entire industry of which only a segment actually participate in. propaganda and scapegoatism at its best. it's a lot easier though, to follow the herd and bash a fall guy then to actually take the time to really understand the issues. What industry am I demonizing? If your answer is any but politics, then you are mistaken. I do think that the regulatory and current market structure encourages some very scummy HFT methods, which I feel are driving out those firms that provide actual liquidity to the marketplace. Future May 6th type of events, where most bids/offer disappear during periods of extreme one directional order flow, will be a natural result. Again this is the fault of regulators, rather than the trading companies. The market participants are merely doing what they need to do to stay in business. so you hft bashers really want to fix it with MORE REGULATION?! No. I want to fix it with PROPER regulation.