A veteran programmer explains how the stock market became “rigged”

Re:A veteran programmer explains how the stock market became... by jzwinck on Monday April 07, 2014 @07:23AM (#7545813)

Thanks for pointing out the tax idea (a fairly popular one these days). It has some of the same issues as slowing the market down. For example, a transaction tax on one market will push transaction volume to other markets, like squeezing a water balloon. A lot of securities have correlated or even 1:1 equivalents in other jurisdictions (e.g. Europe vs. US), which results in a tricky situation. Basically, whatever market pushes their costs up first risks suffocating itself.

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).

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Re:A veteran programmer explains how the stock market became... by crdoconnor on Monday April 07, 2014 @07:29AM (#7545830)

>For example, a transaction tax on one market will push transaction volume to other markets, like squeezing a water balloon.

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.

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Re:A veteran programmer explains how the stock market became... by icebraining on Monday April 07, 2014 @07:41AM (#7545871)

Then why hasn't a stock exchange that imposes a transaction fee appeared and pulled in all traders, leaving the HFTs behind?

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

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Re:A veteran programmer explains how the stock market became... by crdoconnor on Monday April 07, 2014 @07:48AM (#7545904)

network effects work heavily against new exchanges. it's not like starting a SaaS to deliver email.

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Re:A veteran programmer explains how the stock market became... by yummyfajitas on Monday April 07, 2014 @08:29AM (#7546047)

This is nonsense. There is a lot of competition in exchanges, a new one is sprouting up every few months. Not all of them are able to get Michael Lewis to shill for them, but a new ATS/Dark Pool/etc sprouting up is hardly uncommon.

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.)

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Re:A veteran programmer explains how the stock market became... by cpwright on Monday April 07, 2014 @08:20AM (#7546015)

But there are already 13 of them that are regulated. At this point BATS owns 4 of them, the only reason to have 4 different exchanges is to have slightly different rule sets and fee structures. Any one of the existing exchanges (especially the small ones) could change their rule set or fee structure if they thought it would bring volume.

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Re:A veteran programmer explains how the stock market became... by yxhuvud on Monday April 07, 2014 @07:44AM (#7545885)

A transaction tax will increase spreads. That is a really big argument against that such an exchange would be popular.

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Re:A veteran programmer explains how the stock market became... by crdoconnor on Monday April 07, 2014 @08:03AM (#7545939)

HFT did not reduce spreads. electronic trading did. actually sometimes hft can be a liquidity taker and thus increase spreads.

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Re:A veteran programmer explains how the stock market became... by hft_throwaway on Monday April 07, 2014 @09:19AM (#7546285)

I don't know where this meme started, but it's clearly untrue. Nanex likes to make this claim, but they claim "HFT" only started with Reg NMS in 2007. Tell me this doesn't sound like the most stereotypical HFT-style trading in 2005: http://www.bizjournals.com/kansascity/stories/2005/01/17/sma...

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.

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