HFT / Fund guy here.<p>This is marketing spiel.<p>If you just want to trade on a bunch of exchanges so no information flows between them, you can easily (TM) write a program that either a) lines up the orders at each exchange to execute at a specific time or b) delays the orders from a central server by the line delay.<p>So say NYC is 13ms from Chicago. You want to hit both at once. As long as you're not 13 ms late, nobody can see your order in one place and react at the other. You don't need an atomic clock for that, NTP will do just fine.<p>They're doing this because they have a reputation as a technologically advanced firm, and they know it will impress institutional investors, most of whom are still living in a time warp where spreadsheets are an advanced means of getting an edge over the market. They meet these guys, who are basically from another dimension of investing, and they suddenly need an explanation to their bosses of why RT can generate the most impressive returns of any strategy ever. The answer is "we have loads of PhD math geniuses building the strategies and amazing execution technology".
<i>Its invention, developed by the firm’s co-chief executive officers, Robert Mercer and Peter Brown, first sends an order to a central server, which breaks it up into multiple smaller orders. Those are then routed to venues that offer the best prices and most liquidity, much the same as brokers do now.<p>But before that happens, the smaller orders are sent to servers located as close to the exchanges as possible, along with instructions on the precise times they should be executed. The co-located servers sync their transactions so HFT firms won’t have enough time to identify an order on one exchange and then race to another to trade against it.<p>A crucial part of the system is the optical, atomic or GPS clocks that will be used synchronize those orders. Renaissance says in its application that GPS clocks are accurate to within nanoseconds and any time differences between them are “too small to be perceived” by HFT firms.</i><p>Maybe I'm missing something but sending orders ahead and releasing at a specific time is obvious is it not? If you add a really accurate clock suddenly it's patentable?
This reminds me of how Google uses atomic clock and GPS for Spanner [1]<p>Google:
"“We can commit data at two different locations — say the West Coast [of the United States] and Europe — and still have some agreed upon ordering between them,” Fikes says, “So, if the West Coast write happens first and then the one in Europe happens, the whole system knows that — and there’s no possibility of them being viewed in a different order.”"<p>Renaissance Technology:
"Replete with schematic drawings, the filing describes a novel way for “executing synchronized trades in multiple exchanges.” The invention consists of not only sophisticated algorithms and a host of computer servers, but atomic clocks -- precisely calibrated to vibrations of irradiated cesium atoms -- to sync orders to within a few billionths of a second."<p>To translate what Renaissance is doing in technical parallel, they are trying to do a synchronous commit at multiple locations/exchanges at the same time. Submitting a trade to an exchange can be viewed similarly to committing data to a data center. By using atomic clock, synchronize these writes across multiple locations in effect eliminating HFT from jumping in.<p>If anyone is looking into prior art on this, Spanner is probably the closest I can think of. (I am not a patent attorney and don't want to turn this into a patent debate).<p>[1] <a href="http://www.theverge.com/2012/11/26/3692392/google-spanner-atomic-clocks-GPS" rel="nofollow">http://www.theverge.com/2012/11/26/3692392/google-spanner-at...</a>
A few weird things stand out to me: (1) Renaissance is super secretive. If they want to use this strategy to make money, a patent reveals to competitors what they're doing and creates more issues than it seems to resolve. (2) Renaissance is an HFT firm. Why are they interested in thwarting HFT? (3) This really isn't that fancy an idea. It's fairly general: send orders ahead to co-located servers to be executed at specific times.<p>I wonder if what they're really trying to do is prevent banks or others from creating anti-HFT infrastructure, and then providing it as a service to market participants that want to place large orders. The patent would perhaps provide some protection in that case.
> its flagship Medallion Fund generate[d] average annual returns of 71.8 percent, before fees, from 1994 through mid-2014.<p>Jeezus. That is about the same OOM as Moore's Law.
If anyone hasn't already read Chris Stucchio's explanation of market-making/HFT, this is well worth a read.<p><a href="https://www.chrisstucchio.com/blog/2012/hft_apology.html" rel="nofollow">https://www.chrisstucchio.com/blog/2012/hft_apology.html</a><p><a href="https://www.chrisstucchio.com/blog/2012/hft_apology2.html" rel="nofollow">https://www.chrisstucchio.com/blog/2012/hft_apology2.html</a><p><a href="https://www.chrisstucchio.com/blog/2014/how_to_not_get_ripped_off_by_hft.html" rel="nofollow">https://www.chrisstucchio.com/blog/2014/how_to_not_get_rippe...</a><p>A basic summary is that market-makers add liquidity to the market and profit from their bid-ask spread, increasing the execution-speed and depth of the market. Many of the 'predatory' pricing strategies attributed to them by Lewis and others appear to be impossible when you try and write down the pseudo-code + order book that corresponds to the allegation.
RenTec's Medallion Fund has obviously done amazingly well - almost to the point where one wonders how it is even remotely possible. But their other funds have had more average performance. Maybe this move isn't about Medallion at all - maybe it about getting to better execution for their other funds in order to improve returns.
So, in theory, you get perfectly timed execution.<p>This assumes you're willing to trust their software and hardware.<p>I suspect they're right that this is a far more effective and comprehensive approach than IEX.<p>I think IEX is going to nail them to the wall because their target market understands and trusts a giant ball of cables having a particular length, but can achieve neither when faced with a giant ball of computer science.<p>Other than the first sentence, this comment was about potential customer response; I don't have an educated opinion about how trustworthy and/or effective any given exchange software is.
So one of the most famous HFTs is now going to offer a way to block the damage done by HFTs?<p>Despite the hilarity of such a thing, is this a sign that HFT is not nearly as profitable as it once was?
An exchange could work just as well and provide just as much liquidity if it accepted sealed bids into a queue for one minute, then settled and showed the full queue, while accepting sealed bids for the next minute.
HFT would no longer be a thing, and everyone would trade on more equal footing.<p>("One minute" is a guess. Could be right interval is 20 seconds or ten minutes or whatever... But needs to be slow enough to allow full dissemination and reasonable time for sealed bids.)
Atomic clocks? You can beat high-speed traders by only settling transactions, say, every five minutes. Whenever the time is nn:n5:00, look at the roster of orders and match bids with asks. Make it a complete black-box; no information is available about the current orders, only those from the previous five-minute period.
Atomic clocks have been in use in capital markets for a while. I was at National Physical Laboratory recently and they were demonstrating how they pipe their atomic clock output to the traders / exchanges.<p><a href="http://www.npl.co.uk/commercial-services/products-and-services/npltime/" rel="nofollow">http://www.npl.co.uk/commercial-services/products-and-servic...</a>
There is nothing patentable in their application. All is obvious, not novel or has prior art.<p>Case in point: gang switch in the era of voice brokers. Nothing says 'synchronized' execution better which is all this application is.
When HFT was new, amateur forums that discussed it (like this one) were full of apologists saying that it didn't matter, it somehow didn't really effect the market. Some even claimed it made the market better.<p>The tone of the conversation, the framing assumptions, seem different now.
Highly recommend reading Flash Boys [1] and it explains why time is so important and HFT firms. Great book for filling in the picture of what HFT is and I found it pretty entertaining too.<p>[1] <a href="https://www.amazon.ca/Flash-Boys-Michael-Lewis/dp/0393244660" rel="nofollow">https://www.amazon.ca/Flash-Boys-Michael-Lewis/dp/0393244660</a>