There is no need to make any complicated tradeoff. For it to count as non-rigged, you simply need a system where:

* You cannot pay to gain privileged access.

* Abuse of the system (e.g. quote stuffing) gets you punished.

I find it amusing that you call us 'conspiracy theorists'. These aren't allegations of a government cover-up of alien UFOs - it's mundane criminal behavior with a very minor twist.

"Quote Stuffing" is not the nefarious activity that Nanex portrays it as. It's generally the result of your algorithm screwing up. It provides no benefit to the trader and exposes him to risk - specifically, an HFT who is quote stuffing will always be at the bottom of the book. As a result, he won't get any retail fills, he'll only trade with informed traders who are buying up the whole book. It also lowers your fill rate, which can result in a trading halt or financial penalties.

As a result, most HFTs put effort into reducing quotes and making their algorithms more stable.

I shouldn't have used the term "conspiracy theorists". I just find this topic frustrating since there are a large number of comments that display a complete misunderstanding of basic market mechanics and a complete unwillingness to be specific. No shortage of moral posturing, however.

Not to mention, an abundance of aggressive misuse of terms of art such as "insider trading", "front running", and others. These terms have a well-defined meaning in SEC and FINRA regulations, and it does no one any good to accuse HFT of doing things that it isn't doing.

Second, the "spirit of the regulation" about front running is about allowing people to trust their agents. Other regulations in the same spirit are lawyer-client confidentiality and "financial advisers can't take gifts from companies they give advice on" regulations.

There are no "you can't kick people's ass in the stock market" regulations, in letter or spirit. If you play the stock market everyone is trying to take your money. You are trying to take theirs.

For years, mil-spec GPS time was masked with randomness and unavail to the public. Why not do this with the markets? The regulators only care about mean prices being unbiased. They should equilibriate just fine with some non-sequential information introduced. Why or why not?

If the timing is perfectly tractable the system is gamed. A small amount of noise that prevents manipulation is a good thing over time for the market. It means the stock is going to have less vol which increases the value of the market equity given constant cash flows. That's another policy goal more broadly. That is, if it works this way.

I think you're overestimating the cost of running an exchange by several billion dollars.

>I don't know why it's bad that people who don't need low latency are allowed to not pay for it.

FRONT RUNNING

>"Quote Stuffing" is not the nefarious activity that Nanex portrays it as. It's generally the result of your algorithm screwing up

No, it's generally the result of an HFT intentionally trying to clog up the order stream (in order to push everybody else back), or trying to gain an information advantage.

>It provides no benefit to the trader

Now you're in cuckoo land.

> I just find this topic frustrating since there are a large number of comments that display a complete misunderstanding of basic market mechanics

Yes, i find it frustrating arguing with you too. What's worse is that you think using industry jargon will intimidate others into thinking you know better.

With the prices I am hearing it's not about those who don't need it but rather those who need it and would like to have it but cant afford it.

If I want to move 10k lots through the market, I can afford low latency.

Let me rephrase then.

Why would anyone but HFT traders need to move 10K lots through the market?

No worries at all. I certainly didn't mean to imply any sort of a judgement; I just needed clarification.

"Why would anyone but HFT traders need to move 10K lots through the market?"

To a first approximation, it's never the HFT traders that need to move 10K lots. In commodities, it's big producers and consumers - Chevron needs to secure crude stock, ADM needs to buy up a ton of corn, some mega-farm (or co-op of large farms) wants to lock in a price on what they're producing, &c. In equities, it's institutional investors, hedge funds, and possibly exceedingly wealthy individuals, who have decided they want to hold many more or many fewer of something. It's clearly going to be a big player - transacting 10k lots of a stock priced at $10 would be $10 million. Most people - including HFTs - aren't trying to move millions of dollars in one direction in a short time. Those who are have resources, almost by definition.

We could make the markets go super-slowly, but you know what will happen then? Correlated securities in other countries will trade at high frequency and dominate the price discovery process for "our" listings. That won't help our economy, it won't help reliability, and it won't help us assess taxes.

There is absolutely no reason to presume that. It could be one flat rate.

>We could make the markets go super-slowly, but you know what will happen then? Correlated securities in other countries will trade at high frequency and dominate the price discovery process for "our" listings. That won't help our economy, it won't help reliability, and it won't help us assess taxes.

If our intention is to kill HFT (and it probably should be), we could simply levy a very tiny transaction tax on trades. It would instantly render the practice unprofitable.

Retail and institutional investors wouldn't even notice the tax (although they would probably notice the fact that HFT isn't skimming money from their trades).

http://qed.econ.queensu.ca/pub/faculty/milne/322/IIROC_FeeCh...

Everyone would notice a 9% increase in spreads.

If you believe HFT is "skimming money from their trades", can you explain the specific mechanics (i.e., what orders are placed when)?

From what I learned from a guy who did HFT back in 2007 HFT skimming money from their trades, thats why they make more money when markets are volatile.

In some ways it's just a more sophisticated version of the traders who in the nineties made their money from each trade they made happen whether it went good or bad.

The more customers they go to investe, re-invest etc the more money they made.

Don't think thats a big secret.

If that happened because HFT market markets decided not to use the TSX anymore and instead haunt exchanges that were amenable to HFT, that's evidence that HFT was helping individual investors.

Sure but that is not really the point is it?

I'm simplifying a simplification, and I personally would be among the first to point out that this is still just a one-point sample of a horrifically multidimensional space. My point is not to specifically claim that HFT is good, a matter that I still have no personal opinion on, but to point out the question begging. If HFT is shown in fact to be a net gain for consumers, then you should not blithely carry on with the presupposition that it is bad.

*"...If that happened because HFT market markets decided not to use the TSX anymore and instead haunt exchanges that were amenable to HFT, that's evidence that HFT was helping individual investors..."

Which claims that because people move to places that are not regulated/taxed it's a proof that HFT was helping individual investors.

That was in return in the context of me asking whether the reason why the Canadian market lost out was because it did so alone.

In other words. If ALL markets included taxation would the same drop happen? Or in even other words. If something can't handle being taxed is that an argument for not taxing it? Wouldn't it just be evened out.

I am not assuming HFT is bad or good. I am actually trying to figure out what exactly it's good for.

I understand how it's good for those who trade on the market, what I have not yet seen is any examples of how that transcends to society as a whole. And until someone can give me obvious examples of that I don't believe it's irrational for me to be sceptic.

Most Canadian stocks are not traded on US exchanges. So no.

As for "skimming", I'll repeat my question: can you explain the specific mechanics (i.e., what orders are placed when)? Note: if you believe FIX/OUCH has a "SKIM" command, can you link to it?

That would also kill a lot of mutual funds, exchange-traded funds, asset managers, and others. These depend on the availability of frequent rebalancing of portfolios at low transaction cost. Add in a tax to this and you penalize it significantly.

I'm not sure what you mean by "one flat rate." Exchanges already charge a flat rate for connectivity (the rate is per month, usually a couple thousand bucks or so).

Actually the exact opposite will happen.

Only the HFTs will want to move away, the rest will want to move to such a market. For the rest of them, operating in a market that allows HFT is pretty much the same thing as operating in a market for lemons: https://en.wikipedia.org/wiki/The_Market_for_Lemons

Asymmetric information in markets means 'the bad drives out the good'.

Just as running an honest used car market will attract buyers and sellers, running an honest stock exchange will attract traders.

This is what I can't understand about this stories, and makes me doubt the claims against the HFTs.

You should consider asking yourself why most such trading networks actually go to great effort to encourage HFTs to trade on them. (Hint: no liquidity no customers.)

And it wasn't just Tradebot doing it. There were many firms already active with similar styles in the early 2000s like GETCO, ATD, Madison Tyler (now Virtu) and a bunch of smaller guys. HFT does not depend on Reg NMS, fragmentation, or rebates. HFT firms are super successful in futures markets with a consolidated limit order book and fees for both sides of the transaction.

So "super slowly" isnt exactly what he was doing

http://thedailyshow.cc.com/extended-interviews/o7grtj/exclus...

As I understand it, that link is only good in the US. So for everyone else, that is the extended interview of the April 1 episode. I'm sure it can be found somewhere.

It works fine from Denmark. I've never had problems watching it from a non-US country.

Also, pro tip if you want to avoid ads between segments: right before the video gets to a horizontal line (ad break) on the seek bar, skip to the part right after the horizontal line. You'll skip the ad. Also: if you work as a web developer at Comedy Central, you never saw this comment.

>>To avoid payment for access, presumably access would need to be free

(Also, high frequency trading can't have much to do with finding the price points of stuff.)

I don't have a horse in this race (I don't know the subject area), but most of that comment was a straw man argument.

I realise that was probably a mistake in reading, but even I can see the implementation ought to be somewhere between simple and possible: Publicise the algorithm for a random delay between a tenth of a second and (more seldom) ten seconds for all buys/sells. Or something similar.

Make certain to have good random number generators.

Edit: If it is a good thing (or possible) to do this I don't know.

For one example, partitioning comes in degrees. You can accept partitioning up to a certain threshold and only then choose to sacrifice availability until partitioning crosses below the threshold again.

Secondly, you are not being constructive in your questioning, as you have already marked any answer I would give as 'complicated' (as if the system isn't complicated already).

Thirdly you are unfairly asking for 'specifics', where you yourself are arguing in generalities. Why won't you be specific: explain why the market is not rigged? 'The market' is not 'innocent until proven guilty' or 'efficient until proven otherwise'. You claim the market is fair: prove it. Please be specific.

Fourthly, as long as you are asking: I think we don't need the amount of Availability the system currently has. Quote stuffing is currently possible and you can get rid of that by reducing the availability of the system. Any form of rate limiting is a deliberate sacrifice of availability to achieve some other goal. Rate limiting the number of orders per licensed party, per instrument, per unit of time is eminently doable.

In conclusion, from the whole of your posts here on HN, I think you are way too infatuated with capitalism and unable to see her for the bitch she sometimes is. Your response was uncivil and uncalled for.

I don't know why you feel I was "uncivil" - I merely asked a question. However, please accept my apologies.

If you want to see assorted defenses of specific aspects of HFT, I have quite a few on my blog. I just posted a new one today. If you look way back, you'll also find a tutorial explaining the basic mechanics of HFT. I'm planning to publish an explanation of "quote stuffing" (aka screwups in your algorithm) shortly, as well as a takedown of Mark Cuban's idiotic article on the topic.

http://www.chrisstucchio.com/blog/tags/high%20frequency%20tr...

I can't see how it can ever be possible to give everyone the same information at the same time. Latency will always be there, and renting rack space in a building near to the exchange will allow the information to reach you before the opposite coast of the country. Although this might mean that the owner of the neighboring building is the one making money, and not the stock exchange itself.

So, I had rather it would be designed in a different way which does not benefit the people with more money. For example, sacrificing latency so that there is no partition. This way, everybody has the same information at the same time, which is the basic tenet of an equal market.

Also, having different routes for different actors (as per the graphs) does not look like a road map to equality.

BTW: I do not get why you have been downvoted although in some sense your comment might be seen as a misunderstanding of the text. But I am surprised.