High Speed Trading

High-frequency trading gives players the edge on JSE. A FIFTH of the JSE’s equity activity came from high-frequency computerised trading earlier this week, CEO Nicky Newton-King says. When the JSE launched its co-location centre in May, it accounted for about 5% of equity activity. In the past month co-location activity had accounted for 18%-20% of the JSE’s equity trading, Ms Newton-King said.

SEC Likely Won’t Enact Stand-Alone High-Frequency Trading Rules.
For all the controversy over the problems associated with high frequency trading, regulators don’t seem like they’re in much of a rush to fix things.

The FOX Business Network learned the Securities and Exchange Commission has all but ruled out enacting a separate set of laws to combat improprieties involving high-frequency trading. Instead, Wall Street's top cop will likely enact a broader set of market reforms to deal with a myriad market-structure issues, including the high-speed trading, sometime next year.
“I think that the big banks are going to wake up and now in the era of billion dollar fines they’re going to find that the money they make from their dark pools is so small and the regulatory risk is so large, I think a lot of people are going to say it’s not worth it,” Seth Merrin, the chief executive of Liquidnet, a global institutional trading network said.

High Frequency, Fat Target - Michael Lewis misses the competitive benefits of computerized Wall Street trading.The book review.

For the last five years, the press has been sounding alarms about high-frequency trading (HFT), a practice in which investors use fast computers driven by secret algorithms to rapidly trade securities. Time wondered in a 2012 headline whether the practice is "Wall Street's Doomsday Machine." Mother Jones in 2013 worried it could "set off a financial meltdown." In March of this year, 60 Minutes aired an infomercial-toned segment promoting the new Investor's Exchange (IEX) trading venue, which, according to IEX's website, is "dedicated to institutionalizing fairness in the markets" by slowing down trades.

Now we have Flash Boys, Michael Lewis' highly lauded attempt to explain the dark ways of Wall Street to the masses.

SEC announces first-ever market manipulation case against high-frequency trading firm.
On October 16, 2014, the US Securities and Exchange Commission (SEC) announced a settlement in the amount of US$1 million with Athena Capital Research LLC to resolve claims of market manipulation involving Athena’s use of complex trading algorithms to manipulate the closing prices of thousands of stocks by flooding the market with massive numbers of buy or sell orders during the final seconds of the trading day, a manipulative practice typically known as “banging the close.”1 This action represents the first-ever market manipulation case brought by the agency against a high-frequency trading (“HFT”).

Swiss Banks Letter, Canadian HFT Rules, Tesco Chair: Compliance. The article.

High Frequency Trading or Insider Trading? Is Michael Lewis just a disgruntled investor, or is there any merit to his claim? It would appear that more than just his harsh criticisms have moved federal agencies to dig deeper into the mystery.

What Is High Frequency Trading?
The Truth Behind High Frequency Trading And Its Impact On The Small Investo. The article.

TMX Group to install ‘speed bump’ to slow HFT traffic, ahead of Aequitas launch. Toronto Stock exchange owner TMX Group Inc. is introducing a “speed bump” to counter high-frequency traders.

Quants: The Alchemists of Wall Street - A Documentary about algorythmic trading
50 minute dicumentary video

High-frequency trading and the $440m mistake. Computers and clever maths enable traders to buy and sell in the blink of an eye. But does high-frequency trading make matters worse when things go wrong?

Major exchanges seek to dismiss high-frequency trading lawsuit. "Major U.S. stock exchanges have asked a federal judge to dismiss a lawsuit accusing them of costing ordinary investors billions of dollars by rigging markets to benefit high-frequency traders."

London Stock Exchange to freeze trading at midday to fend off high-frequency traders.
"Trading on the London Stock Exchange will be halted mid-session for the first time in more than 200 years in a bid to protect its biggest customers from “flash boy” high-frequency traders. The LSE has two “auction” periods at the beginning and end of the day’s trading when share orders are submitted, but stock prices are frozen while buyers and sellers are matched to fix an opening and closing price."

SEC's White: High Frequency Trading May Need New Rules. The video: SEC Chairman Mary Jo White speaks with Stephanie Ruhle about bank and market regulation under the governance of Dodd-Frank legislation, the market impact of high-frequency trading, and what the commission is focusing on in 2015. She speaks from the SIFMA conference on “Market Makers.”

What's to Be Done About High Frequency Trading? The article: "Instead of a financial transaction tax or a change in SEC rules, perhaps the first thing we should be thinking about to solve the high frequency trading problem and a plethora of similar criminal incursions into our economy is a massive effort to achieve campaign finance reform, probably through a constitutional amendment."

High-frequency trading: Considerations and risks for pension funds. "Potential negative effects of the subset of automated algorithm-based trading known as high-frequency trading have recently generated significant attention, including congressional hearings, regulatory investigations, lawsuits and widespread media coverage."

High frequency trading profiles on LinkedIn. Just in case you need someone.

How is algorithmic trading related to high frequency trading?
A. Algorithmic trading
1) What is an Algorithm?
an algorithm is a step-by-step procedure for calculations.
2) What is algorithmic Algorithmic trading?
Algorithmic trading is the use of electronic platforms for entering trading orders with an algorithm which executes pre-programmed trading instructions whose variables may include timing, price, or quantity of the order, or in many cases initiating the order by automated computer programs.
B. High-frequency trading
What is it?
High-frequency trading (HFT) is the use of sophisticated technological tools and computer algorithms to rapidly trade securities.

High-Frequency Trading (HFT): How does it work?

1. HFT firms choose the exchange they want to place the order on. Since they have direct access, they are not required to employ the services of a broker. They make the decisions pertaining to the trade on their own. Cutting out the middleman is what enables them to save time.
2. HFT firms then execute their trades themselves or have a computer with a set of instructions programmed into it to do it for them. Of course, in case there are any variances, a trader has to manually execute the trade. That being said, it still enables them to make traders faster than is manually possible.
3. Having intricate knowledge of how the market works and how trades are executed is important. You need to know how orders are placed and processed as you cannot get any additional help or assistance. Therefore, it is a given that HFT firms have the requisite knowledge to benefit from HFT

Flash Boys are getting put into the slow lane.

The Securities and Exchange Commission adopted new rules on Wednesday to keep exchanges and so-called “dark pools” safer by requiring more safeguards — a shift that will put more regulation on high-frequency trading platforms.

The rules come about eight months after the publication of “Flash Boys,” a book by Michael Lewis that argued that some tech-savvy brokers rig the stock market by taking advantage of the fastest trading technology.

The new rules, officially called Regulation Systems Compliance and Integrity, or Reg SCI, require more cybersecurity and backup systems, as well as more reporting to the SEC during market disruptions.

They affect exchanges like the New York Stock Exchange and the lightly regulated dark pools, like Credit Suisse’s Crossfinder system.
“The [SEC] simply cannot adequately exercise its oversight over market-impacting issues in the complex, high-speed systems of 2014 using a dated — and voluntary — framework,” SEC Chair Mary Jo White said in a statement.

The new rules are also aimed at preventing market mishaps, like Nasdaq’s botched Facebook IPO in May 2012.
Companies have almost a year to comply with the new rules, the SEC said.

The rules were first proposed in March, but were pushed back after being criticized by some commissioners as too broad.
Kara Stein, one of the SEC’s commissioners, argued that the new rules don’t go far enough in making the trading venues more transparent.
“We should be doing more in this rule,” Stein said in a statement. “I am disappointed in this missed opportunity because so many important trading centers are left out.”

the source

In this episode of the Keiser Report, Max Keiser and Stacy Herbert discuss the fact that we are all Jack Johnson now - bankrupted by those we trust or, in the case of the central banks - distrust - all in the name of property speculation and other non-wealth producing speculative pursuits. In the second half Max interviews the founder of Nanex, Eric Hunsader, about high frequency trading, market making and scalping markets.

The Problem of HFT - Collected Writings on High Frequency Trading & Stock Market Structure Reform
by Haim Bodek

This collection of previously published and unpublished materials includes the following articles and white papers:

1. The Problem of HFT - explains how HFTs came to dominate US equity markets by exploiting artificial advantages introduced by electronic exchanges that catered to HFT strategies

2. HFT Scalping Strategies - describes the primary features of modern HFT strategies currently active in US equities as well as the benefits these strategies extract from the maker-taker market model and the regulatory framework of the national market system

3. Why HFTs Have an Advantage - explains the critical importance of HFT-oriented special order types and exchange order matching engine practices in the operation of modern HFT strategies

4. HFT - A Systemic Issue - a discussion of the latest industry and regulatory developments with regard to exchange order matching practices that serve to advantage HFTs over the public customer

5. Electronic Liquidity Strategy - proposes a conceptual framework for institutional traders to achieve superior execution performance in HFT-oriented electronic market venues

6. Reforming the National Market System - proposes a 10-step plan for strengthening the operation of the US equities marketplace in order to serve the needs of long-term investors

7. NZZ Interview with Haim Bodek - addresses current topics and proposals for US equities market structure reforms

8. TradeTech Interview with Haim Bodek - addresses the current status of the HFT special

Quantitative Forecast

Technical Forecast

• The quantitative forecast sees the USD as strengthening against the Euro, British Pound, and Japanese Yen, but weakening against the Swiss Franc.
• The technical forecast is slightly different, seeing the U.S. Dollar as likely to fall against the Japanese Yen, due to bearish price action.

the source

it is very interesting thank you

Mr Munger said that high-frequency trading was "the functional equivalent of letting a lot of rats into a granary".

The central thesis of Flash Boys, which is published, with an updated final chapter, in paperback this week, is that electronic trading has rigged the market against ordinary investors, particularly in America.

Computer algorithms allow high-frequency trading (HFT) firms to "get ahead" of institutions investing on behalf of our pension funds and savings schemes.

Because HFT firms execute deals in tiny fractions of seconds they are able to "front run" human traders who are buying stocks and make a small "skim" on the deal by pushing prices up or down.

Although each "skim" is tiny, the overall effect, according to Mr Lewis, is that billions of dollars are being lost by investors to HFT firms which have inserted themselves into the market.

This, Mr Lewis says, is tantamount to rigging the market. When his original book came out last year Entertainment Weekly said: "If you own stock you need to read Flash Boys - and then call your broker."

"It is inserting itself everywhere," he said.

"High-frequency traders pay for an advanced look at [market] information so they are in an unfair position. They know the prices before the ordinary investors they are trading against.

"If you can trade at light speed, you can make thousands and thousands of trades in a second.

"It is offensive to me that you have essentially rich traders skimming off of middle class savers. Weaving that unfairness into the financial markets especially at a time when inequality is a problem seems crazy to me."

Rebecca Healey, of the market expert Tabb Group, said in a blog last December: "Lewis did highlight the issue of predatory HFT activity [but] many participants have already addressed this issue and have adapted trading strategies and their use of technology in order to engage with HFT constructively.

"Automation delivers choice and fosters lower commissions - which benefit the end investor.

"The claims that the buy side have been ripped off for years may have held sway a decade ago, but I have sat in countless meetings with buy-side and sell-side firms and vendors - all working together to improve the market place.

"Here in Europe if you are not endeavouring to fix the problem, you are part of the problem."

Mr Lewis is not convinced, saying that perverse incentives to make ever greater profits means that culture change in financial services is glacial, if happening at all.

"When the incentives are screwed up the behaviour is screwed up," he said. "And it creates a culture where screwed up behaviour is normal, it is even praised because it increases profits.

"Unless you change the incentives, you won't change anything else."



the source

From a modest stucco house in suburban west London, where jetliners roar overhead on their approach to Heathrow Airport, a small-time trader was about to play a hand in one of the most harrowing moments in Wall Street history.

Navinder Singh Sarao was as anonymous as they come -- little more than a day trader by the standards of the Street.

But on that spring day five years ago, U.S. authorities now say, Sarao helped send the Dow Jones Industrial Average on the wild, 1,000-point ride that the world came to know as the flash crash. By regulators’ account, he was responsible for a stunning one out of five sell orders during the frenzy. On Tuesday, he was arrested by Scotland Yard and charged in the U.S. with 22 criminal counts, including fraud and market manipulation.

The following day, the 36-year-old Briton appeared in London court to contest the extradition bid, a move that could delay the U.S. case for years. Clad in a long-sleeved yellow t-shirt and white sweatpants, he told Judge Quentin Purdy that he wouldn’t consent to the U.S. request.

The news of his arrest left many grasping for answers. Sarao has no record of having worked at a major financial firm in the U.S. or the U.K. At the time of the flash crash, Sarao was renting space from a proprietary-trading firm and clearing his transactions through MF Global Holdings Ltd., the now-defunct firm headed by Jon Corzine, said a person with knowledge of the matter. One of Sarao’s neighbors in Hounslow, 11 miles from central London, said what neighbors so often say: He was quiet, kept to himself, never caused trouble.

US $40million Illicit Profits

That picture, according to U.S. authorities, belies a years-long history of lightning-quick computer trading that netted Sarao $40 million in illicit profits.

Sarao didn’t cause the flash crash single-handedly, authorities say. Nonetheless, Tuesday’s developments fly in the face of the prevailing narratives of what happened. Regulators initially concluded that a mutual fund company -- said to be Waddell & Reed Financial Inc. of Overland Park, Kansas -- played a leading role. Many in the industry countered that a confluence of several forces, including high-frequency trading, was probably behind the crash.

By all accounts, the flash crash was more than a mere technical glitch. It raised fundamental questions about how vulnerable today’s complex financial markets are to the high-speed, computer-driven trading that has come to dominate the marketplace.

Whistle-blower Tip

Little is known about Sarao and his trades, beyond what was said in London court and contained in a complaint filed by the U.S. Department of Justice. A related civil suit filed by the U.S. Commodity Futures Trading Commission provides a few additional glimpses into his supposed activities. The case stemmed from a whistle-blower who brought “powerful, original analysis” to the CFTC’s attention, said Shayne Stevenson, a Seattle lawyer representing the whistle-blower.

According to U.S. authorities, Sarao spent the past six years thumbing his nose at regulators while using software designed to manipulate markets. In addition to fraud and manipulation, he was charged with spoofing -- an illegal practice that involves placing orders with the intent to cancel before they’re executed.

In May 2010, Sarao’s actions created imbalances in the derivatives market that then spilled over to stock markets, exacerbating the flash crash, according to the CFTC.

Introverted Trader

“We do believe and intend to show that his conduct was at least significantly responsible for the order imbalance that in turn was one of the conditions that led to the flash crash,” Aitan Goelman, the CFTC’s director of enforcement, told reporters Tuesday.

When he was trading, Sarao kept to himself, often tuning out noise and distractions with headphones, according to a person who knew him. Sarao’s computer screen almost always flashed futures data tied to the Standard & Poor’s 500 Index and his interactions were typically limited to workers installing new trading algorithms, said the person, who spoke on the condition of anonymity.

When he started his allegedly manipulative trading in 2009, Sarao used off-the-shelf software that he later asked to be modified so he could rapidly place and cancel orders automatically. At one point, he asked the software developer for the code, explaining that he wanted to play around with creating new versions, according to regulators.

Canceling Orders

In the year leading up to the flash crash, Sarao popped up on regulators’ radar. Exchanges in the U.S. and Europe saw he was routinely placing and then quickly canceling large volumes of orders, according to an FBI affidavit unsealed Tuesday by a federal court in Illinois.

The CME Group Inc., which operates an exchange for one of the most common derivatives tied to the S&P 500, contacted Sarao about his trades after concluding that some of his activities appeared to have had a significant impact on opening prices.

Sarao explained some of his conduct to the CME in a March 2010 e-mail, as “just showing a friend of mine what occurs on the bid side of the market almost 24 hours a day, by the high-frequency geeks.” He then questioned whether CME’s actions regarding his activity meant “the mass manipulation of high frequency nerds is going to end,” according to the FBI affidavit.

Spoofing Markets

On May 6, 2010, the day of the flash crash, CME sent Sarao another message. All orders to CME’s electronic exchange were to be “entered in good faith for the purpose of executing bona fide transactions,” CME said, according to the FBI affidavit.

That same day, Sarao and his firm, Nav Sarao Futures Limited Plc, used “layering” and “spoofing” algorithms to trade thousands of futures S&P 500 E-mini contracts. The orders amounted to about $200 million worth of bets that the market would fall, a trade that represented between 20 percent and 29 percent of all sell orders at the time. The orders were then replaced or modified 19,000 times before being canceled in the afternoon.

The imbalance on the exchange due to Sarao’s orders “contributed to market conditions” that saw the derivatives contract plunge and later also the stock market, according to the CFTC.

The crash spooked investors, became front-page news around the world and left regulators wondering how it happened.

About three weeks later, Sarao told his broker that he had just called the CME and told them to “kiss my ass,” the affidavit said.

No one put an end to Sarao’s trading for another five years. Among the nearly two dozen charges, one is tied to trades from March 2014.

Wire fraud is punishable in the U.S. by maximum prison term of 20 years, commodities fraud by a sentence of as long as 25 years, and commodities manipulation and spoofing by terms of as long as 10 years or a $1 million fine.

Source : Bloomberg