Exchanges Can Ruin High-Frequency Trading Benefits: Study

From Bloomberg

“Exchanges risk making it harder for investors to get the best price by facilitating ever-faster trading, according to academics who examined Nasdaq OMX Group Inc. venues.

When Nasdaq sped up its markets in Copenhagen, Helsinki and Stockholm in 2010 by introducing its INET software platform, it spurred a race for profits among high-frequency traders, according to the report from VU University Amsterdam’s Albert Menkveld and his student, Marius Zoican. That competition reduced earnings. To compensate, the traders widened the spread between prices they were willing to pay to buy and sell shares, making it more expensive for most investors to trade stocks.

High-frequency traders using computers to automatically buy and sell have become the dominant market makers on exchanges around the world, supplanting human traders. Menkveld and Zoican’s paper says that when exchanges get faster, such as when Nasdaq reduced the reaction time of its Nordic markets to 250 microseconds from 2,500 microseconds in early 2010, they encourage not just helpful, liquidity providing high-speed traders, but also speculative ‘bandits’.”

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Money Examiners Finds High Frequency Trading Should Be Outlawed

From PRWeb

“High Frequency Trading on Wall Street should be outlawed, a new MoneyExaminers.com poll has found. The practice allows professional traders to have a big advantage trading stocks over smaller investors.

A huge majority of respondents say high frequency trading on Wall Street should be outlawed, according to a new poll just released by http://www.MoneyExaminers.com, the innovative financial news website that follows the money for consumers and analyzes financial markets and issues.

In fact, 70% of those surveyed said they feel high frequency trading should be outlawed. Algorithms written by computer scientists clearly provide major investment firms advantages trading stocks on Wall Street over and above average stock buyers. News reports and information that reach the traders equipped with high frequency trading are able to make trades faster and make more money on stocks.

High frequency trading accounts for more than 80% of all trades on a daily basis alone on the New York Stock Exchange, where fast trading has previously caused regulators to halt trading on some stocks as a result. ‘

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Worst Abuses of High Frequency Traders a Thing of The Past, Says Whistleblower

From Wealth Management.com

“ 'I don’t think that sort of stuff is going on anymore', said Richard Gates, co-founder of TFS Capital.

The Westchester, Pennsylvania trader who first went public with proof he was being ripped off by high-frequency traders, and whose story would play a minor role in Michael Lewis’ recent bestseller Flash Boys, now says retail investors and advisors have nothing to fear from so-called “latency arbitrage” strategies.

“I don’t think that sort of stuff is going on anymore, “ said Richard Gates, co-founder of TFS Capital, to a group of financial advisors gathered at the Investment Management Consultants Association’s annual conference Tuesday. “I think the markets are stronger than ever. A lot of these issues have been resolved.”

Gates explained to the gathering how, in 2008 and 2009, he discovered his stock transactions were not getting the best price available in the market, information ostensibly guaranteed by the numerous exchanges, like NASDAQ and the NYSE, who bring information on buy and sell orders together in a National Best Bid Offer data feed in order to settle on the fairest price to both sides of the transaction.”

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High-Frequency Din Rises as Trading Inquiries Evoke Market’s Past Scandals

From Bloomberg Business

“Scrutiny of high-frequency trading is stirring memories among investment veterans of earlier scandals when the government targeted price-fixing and fraud in U.S. equity markets.

Michael Lewis’s book “Flash Boys” and probes by the New York attorney general and Federal Bureau of Investigation are spurring outcry from Washington to Newport Beach, California, as investors and politicians ask if exchanges are rigged. Shares of Nasdaq OMX Group and Intercontinental Exchange Group have lost at least 8.8 percent in 2014 after each posted their best annual gains since 2007 and 2006, respectively.’

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New York seeks curbs on high-frequency trading

From BBC Business

“New York's attorney general has called for curbs on services provided to high-frequency traders.

In particular Eric Schneiderman highlighted services that allow traders to get faster access to information.

He said traders can make "rapid and often risk-free trades before the rest of the market can react".

High frequency trading is where firms create sophisticated computer programs to buy and sell stocks in milliseconds, faster than any human.

It has grown in popularity in recent years, but it has also come under scrutiny.

"Rather than curbing the worst threats posed by high-frequency traders, our markets are becoming too focused on catering to them," said Mr Schneiderman.”

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Virtu Filing Shines Light on High-Frequency Trading

From Bloomberg

“High-frequency trading, a business that has been shrouded in secrecy because its biggest firms were private, is coming out of the dark.

Virtu Financial Inc., the New York-based automated market maker that tried and failed to buy Knight Capital Group Inc. in 2012, filed for an initial public offering yesterday, disclosing that it had earned money every day but one in the last five years. The company is seeking a valuation of about $3 billion, about twice as much as rival KCG Holdings Inc., which was created last year in the merger of Knight and Getco LLC, according to a person familiar with the matter.”

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Regulators begin HFT crack down on market spoofing algorithms

From Finextra

“Regulators on both sides of the Atlantic have levelled their first fines against high frequency traders who deployed computer algorithms to spoof the markets by placing and immediately cancelling bids and offers in futures contracts.”

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What It Looks Like When A High Frequency Trading Algo Bombs A Stock With Fake Quotes

“To buy a stock you must quote the right price. The "right" price is known as the National Best Bid and Offer (NBBO) and is determined, of course, by the market's demand for a stock.

Quote the right price, and you can buy. It's as simple as that. Until it's not.”

Nanex, a Chicago-based market research firm, has produced a chart that illustrates what can stand in a trader's way when they're trying to quote the right price

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Germany's HFT licensing plans draw market criticism

“High-frequency traders and exchange operators have spoken out against German government plans to make HFT practitioners obtain prior authorisation to operate.

Although the EC is currently in the process of tightening rules on computer algorithmic trading as part of its MiFID overhaul, the German government has taken its own, tougher, steps.” <<READ MORE>>

Knight Trading loss said to be linked to dormant software

Knight Capital Group’s $440 million trading loss stemmed from old computer software that was inadvertently reactivated when a new program was installed, according to two people briefed on the matter.

Knight Capital’s computers bombarded the market with unintended orders just after trading began on August 1st, causing volume to surge and prices to swing in dozens of securities.

Once triggered the dormant system started multiplying stock trades by one thousand, according to the people, who requested anonymity because the firm hasn’t commented publicly on what caused the error. Knight’s staff looked through eight sets of software before determining what happened, the people said.

This report from Bloomberg.

High frequency trading and the future of finance

When people think of the stock market, they think of Wall Street. But the world of finance is changing, and high-powered computers and high frequency trading methods are quickly taking on a larger role. Is this safe, and who wins and who loses?

This video from “Ideas in Action” with Jim Glassman looks at HFT as its know, how it works and the pros and cons.