I thought this was going to be interesting but it turns out it was just an advertisement for IEX. They brought out a) guy selling a book about IEX (Michael Lewis) b) CEO of IEX (Brad Katsuyama) c) Chief Strategy Officer of IEX (Ronan Ryan) and d) IEX investor (David Einhorn). No shit they are going to make it sound like the markets are rigged and IEX is the answer.
Instead of being angry about hyperbole and ignorance, my new policy for HN story's touching HFT is to just answer questions. I build HFT systems for a living. My experience is only in commodities futures but I can try to explain equities markets as well. Ask away instead of passing on bad info.
Two big problems with the market:<p>- Shutting down overnight, lots of schemes happen after hours or pre-market, why don't we have an always on market?<p>- HFT has run amok and they aren't that smart yet or they are too smart: <a href="http://buzz.money.cnn.com/2014/03/26/whoops-shares-named-oculus-spike/" rel="nofollow">http://buzz.money.cnn.com/2014/03/26/whoops-shares-named-ocu...</a> + <a href="http://kotaku.com/people-are-accidentally-buying-stocks-with-the-name-oc-1552319497" rel="nofollow">http://kotaku.com/people-are-accidentally-buying-stocks-with...</a> (people aren't buying these, machines did)<p>It is no longer a market a small investor can make money in except for buying after bad news and long term. Investors need HFT to compete now.
Hahaha. Yes. When big brokers can peek at trade data before the public and do HFT before you can even look at a chart and click "buy," it's pretty damn rigged.
Their solution at IEX was to coil a bunch of fiber so that high speed traders' orders get slowed down...I'd have to know more about why they thought that was necessary, but on its face this seems like complete overkill. Obviously there are probably reasons that I don't understand but it seems like this problem would be really easy to solve in software. For instance, I don't see why they don't just trade on a step interval. Basically everyone who arrives within 1 second of each other should have their trades executed simultaneously. Thus you have step of 1 second - nobody can get ahead of you because the travelling time between any two exchanges for even the slowest person is much, much less than 1 second. Does this make the market too slow? Just make the step interval whatever the slowest latency is for any given round trip at any given moment. That would still be on the order of milliseconds but nobody would be able to front-run you because any trade you make will be ahead of theirs or at the very worst at the same time as theirs.
Question for kasey_junk, seeing as s/he is taking questions :D<p>Lewis: "This form of front running is legal. It's legalized front running. It is crazy that it's legal for some people to get advance news on prices and other --[information on] what other investors are doing. It's just nuts. It shouldn't happen."<p>Do you agree or disagree with Lewis' assessment of the state of HFT?
the thing i like about this story is that they found a problem (front running) and are trying to create a better company. rather than trying to get the government involved.
I always thought that the digital stock market should take a page from the cryptocurrencies and add a digital proof-of-work that will cap the speed of a transition. A "temporal tax" would keep the system from wild swings and reactions, similar to what we saw a few months back.
I understand how HFTs are making their money; however, how does this drive up market? Would they not be able to make the same money in a downmarket (a delta is a delta, whether you are going up or down)? All I can see this affecting is the billions (trillions?) of dollars in HFTs amplifying whatever the market is doing.
Katsuyama says: "When I'm trying to place a large order, the price goes up!" So, what's wrong with that? Have we cancelled the laws of supply and demand now? Let's beat up Adam Smith now!