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A comment on Norway Wealth Fund Outsmarts Flash Boys as Algorithms Abandoned. Parent comment

Re:Norway Wealth Fund Outsmarts Flash Boys as Algorithms Aba... by encoderer on Monday November 17, 2014 @04:42PM (#8620828)
I'm not a fan of the point-by-point redressing so I'll just say a few things and leave you the last word if you want it. And I'm sure that there are some fascinating differences when trading as a hedge fund, and maybe you can share more about them. The process I laid out is generally "how orders get filled" for just about everybody reading this. If you know enough about how your specific orders get filled, I suppose you're not the audience I was writing for.

1. Brokers don't only send orders to 3rd party market makers because they're being paid for order flow. You're right, they won't get order flow for free, but I didn't mean to imply that they did.

2. Quoting and buying at their published bid/ask is precisely their function. Possibly we're just disagreeing on terms. The SEC's website is fairly good at explaining this flow. http://www.sec.gov/investor/pubs/tradexec.htm

3. What I'm discussing is the actual mechanism for HOW nbbo is fulfilled. Competition in the marketplace -- third party market makers and arb firms -- absolutely play a role in ensuring the efficiency of the market. If brokers had to run this infrastructure themselves, it would be non-trivial and without any financial incentives that I can think of.

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Re:Norway Wealth Fund Outsmarts Flash Boys as Algorithms Aba... by PhantomGremlin on Tuesday November 18, 2014 @01:57AM (#8622747)
> Quoting and buying at their published bid/ask is precisely their function

I think he was making a little joke about this. He said:

   fill my buy orders at the bid
   and sell orders at the ask
I'm with him, I'd give all my business to someone who could do that. I could retire in one trading day if I could find someone to do that for me. This was exactly the downfall of Knight Capital Group. It only took about 45 minutes for them to lose $440 million.[1]

Of course, that wasn't what you originally said, which was

   a firm who agrees to buy at the bid
   and sell at the ask
hence the smiley at the end of his comment. There's a difference between "buy at the bid" and "fill my buy orders at the bid". :)

[1] http://en.wikipedia.org/wiki/Knight_Capital_Group#2012_stock...

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