I don't share your sentiments obviously but it is a fair rebuttal. What are your thoughts on internalization and quote stuffing?
IMO this is over-simplification. This is a fragmented exchange design flaw that you're attempting to explain away under the guise of "arbitrage" as if we're dealing with completely autonomous exchanges (e.g. CME vs ICE). We already have a centralized SIP which is supposed to serialize all of this but it clearly doesn't work this way because the exchanges *serialized by* the SIP are selling data out the back. Regulators are complicit as everyone is aware of it yet nothing is done.
Quote stuffing is just flat wrong and is certainly market manipulation. It's important to note that this practice is rarely employed by trading firms as it is highly illegal and fairly easy to get caught. Any behavior that diminishes market quality should be eliminated. In its natural setting, HFT, and in particular, electronic market making, do improve market quality. On the contrary, quote stuffing, spoofing, and similar behaviors do the exact opposite. Internalization is more of a grey area . I believe that market participants should be able to choose their desired routing. However, in the absence of desire to choose said routing, your broker should seek the best fill possible. There must be clear systems in place that ensure execution quality.
The are several exchanges for many reasons. One such reason is varying fee structures to incentivize trading on said venues, and to encourage liquidity. The concept of multiple exchanges is not inherently flawed. The SIP seeks to consolidate the books on each of these exchanges to arrive at an NBBO. It faces considerable delays in doing this. Reg NMS dictates how one can interact with the NBBO. The quality of the SIP is not sufficient to market make, therefore, direct feeds are provided on a subscription basis. These subscriptions are offered to any interested party. There's no "scheme" here. Regulators are aware of it and it is entirely legal. You can have a HFT feed if you want too.
Wouldn't he need 10 or more feeds at a cost of roughly 50k per month all in order to have his developer consolidate quotes and create an accurate NBBO? This is what I'm gathering from your prior posts.
Yes, perhaps less if he can write all his own feed parsing. But I don't see how this is unfair though. The SIP is sufficient for a simple use case like most retail investors require, and is there is a higher tiered, expensive feed for more robust use cases. This is true in most industries.
But this isn't the case for most centralized exchanges such as CME or SGX. One feed only and plenty of ISVs offer a reasonably priced option. For example, if a customer wanted to quote on CME, there are several options in the 1500-4000 a mo/ range. Those aren't trivial costs but well within the realm of a well capitalized small business. Compare that with a cost of $100,000 or more a month just to aggregate multiple feeds in order to get an accurate NBBO! Equities have become a two tier market with a huge disparity between large and medium/small size firms. This is not the norm in other markets. Not even close. And frankly, I don't think it is good for the market.
Seriously dude? You're trying to play this off like there's some kind of equal rights to the same data equation in play when it's obvious to anyone there is a clear dichotomy in play? The problem is with the implementation of the SIP and you're justifying that workarounds (which heavily benefit HFT) are somehow good for the market when in reality they're simply good for lat-arb HFT. As far as the "regulators being aware" that doesn't mean squat. They can be aware all day of it but if they're not working to stop this situation it's clear to anyone who butters their bread. In any split brain architecture (which the equity markets clearly are) there needs to be an arbiter that both reconciles and serializes the various entities to produce a single consolidated book. It's *this* book that all involved entities (either retail or HFT) should *only* have access to. You're not going to convince me that the current setup is some kind of a feature when it's clearly kept broken for insidious reasons.
Also I should also add that latency itself isn't the actual issue. In a case like CME or ICE there's no problem if people want to pay thousands of dollars a month to sit 2 feet away from the exchange - they're not arbing anything, they're simply just faster at reacting than others. The issue is specifically about arbitrage amongst multiple equity exchanges vs the SIP (which is what retail actually sees/uses). To give an analogy, if CME sold spread book related implied pricing updates to external parties before disseminating it to the outright books people would flip their shit because it would no longer result in a level playing field amongst all participants (i.e. people would arb the exchange itself). This is similar to what's happening in the equities markets. Individual exchanges are selling market data to directly connected entities who then buy/sell a given security off a particular exchange and flip it to helpless retail orders priced off the SIP. This is in addition to sub-pennying and other bullshit games being played. Then HFT apologists show up and try and slyly convince everyone that this is how it's supposed to work and how it's for everyone's good (liquidity, yadda yadda).
What is it with the stock folks? So much skullduggery and arb and fast fast fast executions or all is lost. I don't understand the cutthroat nature of it all. If you think the price of the stock is going to go up, then buy the thing and hold it for a bit. Going down? Sell it and cover it later. Just be mellow, man.