Jerkstore, I should start by saying that it's nice to see somebody on the forum who knows what he is talking about. Couple of comments: I agree that internalization should not be legal. This business is heavily regulated and in fact you can find 605 fillings to see that while Getco is the top HF company they don't do internalization. As I explained in the other thread, internalization is conceptually opposite to HFT, since there is no competion on the open market. You don't need to be smart or fast, you just need to pay for the order flow. Your second example is about options. It does not have a lot to do with HFT. Market makers at Chicago have unfair advantages of being able to see the order flow, so it's not an open market either.
Hey guys, if you cannot compete with market makers try something else in your life. You sound like the guy whose horse died and he asked his government to kill the neighbor's horse so they compete on a plain level field. You focuss on what works against you due to HFT and you purposely avoid discussing the benefits to the market from having many HFT firms competing with each other. Low spreads, higher liquidity, more participants, which are the basic requirements for a good market. Markets were not designed so that you can compete with people who invest millions in infrastructure. You just try to impose socialist views on capitalism. You know the end result? You will kill the market and you will be happy with that. Then you will move to your neighbor's horse.
I am probably not using the term internalization as it is legally defined. However, Getco definitely makes trades against order chicago order flow in their ping destination dark pool, which only they see. Sounds like internalization to me. I am curious as to why you say this is not, though. Regardless, it is scummy, while also perfectly legal. Regarding MM and HFT, I am fully aware that I am further conflating these two terms, making the discussion more difficult. My bad. I was pointing out an obvious piece of MM scumminess that still occurs.
The low spreads are an illusion. They increase the price impact of liquidity, which equals LESS liquidity not more. They are driving out the trading strategies that provide real liquidity. My company does invest millions and we compete just fine. We are also creating algo execution tools for non-HFT companies that can't invest millions, so that they may protect their executions from the HFT scumminess. This doesn't mean that the system doesn't need serious revamping...and quickly. Ok, this is good humor! Not only do you make a lame attempt at character assassination of anyone that disagrees with you, but you seem to fail to understand the term socialism. This was meant as Colbert-esque sarcasm right? It is hard for me to imagine anyone being this dense.
Well, whether Getco operates such pool or not, it's not relevant to the main topic. I am pretty sure they don't, but even if the do, nobody is forcing you to send the order the first. If the "smart" order router of your broker is in fact stupid, don't blame HFT for it. Among all the complains I heard of the only one that I buy is ISO orders as described in the Tradeworx's comment letter. As I said earlier the irony is that RegNMS was introduced by regulators to protect "retail investors"
You are wrong. Your statements are not based on facts. 30 seconds of research will show you that. http://blogs.wsj.com/marketbeat/2009/05/18/dark-pool-market-share-battle-intensifies/ "GETCO Execution Services, the dark pool run by Chicago market maker Global Electronic Trading Co., started in March 2008 and was the fourth largest pool last month. Roughly 162 million external orders crossed a day in the largest pool, Goldman Sachs Group Inc.âs Sigma X. The next three largest, Credit Suisse Groupâs CrossFinder; Knight Capital Group Inc.âs Knight Link and GETCO were all between 140 million and 150 million a day. Both Knight Capital and GETCO offer an âImmediate Or Cancelâ feature, whereby orders never ârestâ on their books. That feature attracts money managers who worry that their orders may not be entirely invisible, even in a dark pool, if they are left open too long, Morgan said. Thatâs helped GETCO move rapidly up the charts and challenge for the number-one spot in recent months. GETCO is also a market maker that operates using similar strategies to âhigh-frequencyâ hedge funds. These funds, which use computer programs to construct speed-of-light electronic-trading strategies, are thought to have emerged from the recent stock-market crash on one end or the other of more than half of overall U.S. daily volume."
internalization of market order should be illegal since you can be filled at other than "true" market price. But price limit orders filled internally should be legal since you should not care who buys you stock at the price set by you.
The rest of the argument stands though. If you think that information regarding your order flow is not used properly, don't route there.
The Machines That Ate the Market Bloomberg Businessweek May 20, 2010 â⦠Hysterical Thursday did no apparent long-term harm. Some venerable stocks dropped to a penny apiece before bouncing back. Overall, the Standard & Poor's 500-stock index declined 6.2 percent, from 1,136.16 to 1,065.79, in a 20-minute spanâan $862 billion paper lossâbefore recovering to finish down 3.2 percent. Still, the brief crash threw up a flare that illuminated a financial topography that was unfamiliar even to many experienced investors. A Bloomberg Businessweek investigation into those harrowing minutes revealed the extent to which the market is now dominated by quick-draw traders who have no intrinsic interest in the fate of companies or industries. Instead, these former mathematicians and computer scientists see securities as a cascade of abstract data. They direct their mainframes to sift the information flows for minute discrepancies, such as when futures contracts fall out of sync with related underlying stocks. High-frequency traders (HFTs), as they're known, set an astonishing pace. On May 6, 19 billion shares were bought and sold; as recently as 1998, 3 billion shares constituted a very busy day. The HFT wizards argue that all that extra buying and selling provide the liquidity that makes the market more efficient. As long as the machines are humming, electronic bids and offers abound. On May 6, however, we saw what happens when digital networks follow conflicting protocols and some of the mighty computers temporarily power down. Liquidity evaporates. Panic combined with automation leads to much faster panic. The decline began midmorning as skittishness intensified over the Greek economic debacle spreading elsewhere in Europe. A closely watched gauge of volatility calculated by the Chicago Board Options Exchange hit a high point for the year at 2:08 p.m. The volatility index, or VIX, is derived from options on the S&P 500, and it measures investor perceptions of market risk. When the VIX surged again, in its biggest gain in three years, some high-frequency programs may have automatically slowed their normal pace to limit losses, according to a May 15 research note by Nomura Securities. Sell orders piled up much faster than buys, an imbalance that worsened over the next hour. During the period of heaviest selling, starting around 2:30 p.m., the NYSE paused electronic trading in certain stocks and switched to computerized auctions conducted by human traders. This caused electronic sell orders to be rerouted to other trading venues, where there were few, if any, buy orders to absorb them. As Mary L. Schapiro, chairman of the Securities & Exchange Commission, put it in congressional testimony five days later, some high-frequency firms "withdrew their liquidity after prices declined rapidly." During the next few hours of confusion, exchanges began canceling trades in hundreds of stocks. NYSE Arca, an electronic platform operated by the Big Board, erased transactions in 295 companies. A surge in trades rejected by exchanges constitutes another trigger that automatically causes some high-frequency firms to slow down, says Ethan Kahn, a principal at Wolverine Trading, an electronic market-making outfit in Chicago: "You disable. You shut down." Wolverine pared back activity in equity futures because of concerns about the accuracy of data it was receiving, he adds. In Washington, the staff at the SEC began reviewing up to 10 terabytes of market data to figure out what happened. Twelve days later, on May 18, the agency conceded that it still couldn't offer a firm answer. That uncertainty in itself suggests the disquieting complexity the stock market now presents. The SEC and the Commodity Futures Trading Commission issued a preliminary report in which they outlined six hypotheses that could explain the scare. "We continue to believe that the market disruption of May 6 was exacerbated by disparate trading rules and conventions across the exchanges," Schapiro said upon the report's release. As one response, the SEC proposed that exchanges halt trading in individual stocks that swing more than 10 percent during a five-minute period. The new "circuit breaker" rules are subject to commission approval after 10 days of public comment. While temporarily slowing trading during periods of investor high anxiety makes sense to regulators, at least some high-frequency traders disagree. "I don't think that's the right solution," Wolverine's Kahn told Bloomberg News after the SEC announcement. "It could cause a lot of complications. On a busy day where the market is making major moves, you'd have a handful of [stock] names where it's circuit breaker-on/circuit breaker-off all day.ââ¦"
RE: ad hominem Agree with zdreg Whenever someone uses that as a defense I know Im dealing with 1) A girlie man 2) someone who voted for Hussein Obama 3) A generally limp wristed Liberal. RE HFT It would be impossible for so many of these clowns to make money if there wasn't some SYSTEMIC edge. Why are the exchanges allowed to SELL that edge ( Co Location) and who knows what else As Rocky of Bullwinkle might have said, Unfair to Local 12