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Crackdown On Hft - What Effect On The Market?

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I have been reading that the Yanks are cracking down on HFT - high frequency trading where computers nip in and buy or sell a share just before an order is placed. I read that at one point this practice accounted for as much as 70% of all market volume.

If this HFT 'volume' is removed surely that will have a big impact on the indexes? Anyone here up to date with what the US Sec is doing and whether this will affect London or just NY?

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I have been reading that the Yanks are cracking down on HFT - high frequency trading where computers nip in and buy or sell a share just before an order is placed. I read that at one point this practice accounted for as much as 70% of all market volume.

If this HFT 'volume' is removed surely that will have a big impact on the indexes? Anyone here up to date with what the US Sec is doing and whether this will affect London or just NY?

Where the US leads, the UK follows on this sort of stuff. I don't really see how HFT can be banned as such, but the US may introduce rule changes that would make it pointless (e.g. all orders on electronic exchanges to be be delayed by a random amount of time). If that happens then spreads will increase a bit and liquidity will decrease. I don't think that this will make things better for end purchasers of shares though - the profits currently being made by the HFT people will go to the brokers and other market makers instead.

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What the HFT firms are doing is properly called skimming which is already banned. The real question is why are the authorities acting now? A market crash is coming and they need a fall guy.

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Denninger talks about this a lot. Proposes a law where all orders are visible for 2 seconds or somesuch to allow price discovery (at least thats how i read it)

So they cream off 0.01% or something off people who willingly enter a market.

Meanwhile money debasement of 5% a year represents the real theft.

The latter bothers me more.

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Banning HFT would have zero effect since HFT firms would just relocate to countries which dont have silly laws.

If it was cracked down on globally then the effect would be to remove liquidity from the market which would increase transaction costs for everyone else. Look at the bid-ask spread on illiquid financial instruments where HFT isnt present (eg OTC derivatives) to get an idea.

Edited by Smyth

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Banning HFT would have zero effect since HFT firms would just relocate to countries which dont have silly laws.

If it was cracked down on globally then the effect would be to remove liquidity from the market which would increase transaction costs for everyone else. Look at the bid-ask spread on illiquid financial instruments where HFT isnt present (eg OTC derivatives) to get an idea.

Isnt it an actual 'physical' advantage?

Ie the bank rents out offices to install their trading computers right next to the stock exchanges computers to give them some sort of network advantage, if only a few miliseconds, thus moving abroad would defeat the object.

Or is my techno-illiteracy showing? is that impossible.

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Yes, big HFT funds typically rent out server space at exchanges, its called co-location.Anything that gives faster speed is important; colocation does give a latency advantage yes, but its not everything. Having the fastest algorithms and implementation is also vital.

If HFT funds moved abroad then they would all be in the same boat (since noone would be co-locating) so it would again come down to the speed of the algorithms/implementation.

Edited by Smyth

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Yes, big HFT funds typically rent out server space at exchanges, its called co-location.Anything that gives faster speed is important; colocation does give a latency advantage yes, but its not everything. Having the fastest algorithms and implementation is also vital.

If HFT funds moved abroad then they would all be in the same boat (since noone would be co-locating) so it would again come down to the speed of the algorithms/implementation.

Fair point, but couldnt, if denningers suggestions were adopted, the exchange itself be forced to impose time limits on orders, regardless of the other participants location?

http://market-ticker.org/akcs-www?post=228895

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Fair point, but couldnt, if denningers suggestions were adopted, the exchange itself be forced to impose time limits on orders, regardless of the other participants location?

http://market-ticker.org/akcs-www?post=228895

Forcing orders to stay valid for some minimum length of time has merits and is worth discussing. Some of the tactics used by HFT places (quote stuffing, large scale order cancelling etc) arent really helping with market efficiency/price discovery and I doubt cracking down on them would have much negative effect (alhough I'm not an expert).

Afaik most of these things are illegal anyway, they count as market abuse. It is difficult to enforce though. HFT frontrunning is definitely illegal in certain contexts for example, but clearly exists, and is very hard to catch.

edit: this is fairly balanced article: http://www.theatlantic.com/business/archive/2014/04/everything-you-need-to-know-about-high-frequency-trading/360411/

Edited by Smyth

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Is it not the case that the liquidity created by HFT would vanish at the same speed it is created, should there be a meltdown?

I'm not sure it actually creates liquidity,more the pretence of it.

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Forcing orders to stay valid for some minimum length of time has merits and is worth discussing. Some of the tactics used by HFT places (quote stuffing, large scale order cancelling etc) arent really helping with market efficiency/price discovery and I doubt cracking down on them would have much negative effect (alhough I'm not an expert).

Afaik most of these things are illegal anyway, they count as market abuse. It is difficult to enforce though. HFT frontrunning is definitely illegal in certain contexts for example, but clearly exists, and is very hard to catch.

edit: this is fairly balanced article: http://www.theatlant...trading/360411/

They could also charge a small stamp duty on transactions.

The regulators have been inactive.

I wouldn't say it was hard to catch either.

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They could also charge a small stamp duty on transactions.

The regulators have been inactive.

I wouldn't say it was hard to catch either.

Stamp duty is already on shares, if thats what you mean. At least it was last time i traded any shares (about 12 years ago, admittedly, so things might have changed)

Dont know about other 'derivative' type investments.

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Stamp duty is already on shares, if thats what you mean. At least it was last time i traded any shares (about 12 years ago, admittedly, so things might have changed)

Dont know about other 'derivative' type investments.

Can't we just introduce a short redemption rate based on the asset being traded. This would get rid of half the City who do nothing to add value to markets and society.

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