Slashdot Mirror
Computer Trading and Dark Pools
Bob the Super Hamste writes "CNN Money has an article on computerized trading; specifically, the non-public markets that are often used to execute orders. The company that the article discusses executes 1/8 of all stock trades in the U.S., or about 900 million trades a day. For comparison, the NYSE executes about 700 million trades. The article discusses 'dark pools,' or private markets where quotes aren't disclosed to the broader public markets. If the company is unable to fill an order from within its own dark pool, it will submit the order to the broader public market (13 public exchanges), as well as up to 20 other private dark pools. The quotes offered by the private dark pools, by law, have to be the same or a better quote than those offered on public exchanges. There have been recent questions about whether the quotes provided by dark pools have been the best for customers and there is a current investigation by FINRA into the methods used by market makers and dark pool operators to fill orders."
If the question is, "are financial institutions doing the end run around public or private regulation for the purpose of screwing people, engaging in fraud, and dodging (necessary) liability?" the answer is always yes.
Has all of recorded history taught us nothing?
Why is this making me think of private torrent trackers?
I work at large US bank near some guys that develop the dark pool and it receives a huge amount of institutional an hedge fund flow. Although there are many redundant market data connections to make sure that we fill at the market price only, because of latency or bugs occasionally this is sometimes not the case. This can be off by significant amounts for significant for significant periods. There be dragons, lawyers and the maws of large beastly fines...
well, this is absolutely normal human behaviour, finding ways to satisfy market demand at a price that is much lower than the official, government regulated, centrally planned (and can be argued government manipulated) market provides.
Whether the government enforces prohibition or imposes high taxes on cigarettes or anything at all for that matter, people find ways to find the products at a cheaper price and the government 'cracks down' on that because it wants a much bigger cut (be it from taxes and or from sales through the only legal, government supported monopolistic markets, which is the case here).
What does it cost to comply with all government regulations to run a stock exchange? Supposedly simple question, how much does the compliance with the Patriot Act cost?
You can't handle the truth.
That's going to be the new financial mumbo jumbo that will destroy the economy again in another 10 years or so??
How can a quote be "better"?
If the quote is eitehr higher or lower than the visible market rate, either the buyer is being underpaid, or the seller is overpaying, neither situation is "better".
and a little house over the top. No way I get near that lessen I have to.
When telegraph was first used to pass data (both trading orders and share price-affecting information) around, I'm sure, it was also seen by some as "dishonest", "unscrupulous", and "disadvantaging small players"...
In Soviet Washington the swamp drains you.
Wasn't reg NMS put in place to ensure that trades only occur within the NBBO (National Best Bid and Offer).
So yes the quotes are unknown, but you will only trade within a known range (depending on the spread of the NBBO). Otherwise you just have an unfilled order sitting in the pool.
When telegraph was first used to pass data (both trading orders and share price-affecting information) around, I'm sure, it was also seen by some as "dishonest", "unscrupulous", and "disadvantaging small players"...
The difference you are looking for is between "telegraph" and "network", and "human" and "computer", not between "computer" and "telegraph".
the growth in cynicism and rebellion has not been without cause
Junk bonds, liar loans, "derivatives", "subprime", EFTs, dark pools, etc. Yes, it's a new bubble. Yes, the regulators are 45 steps behind.
You can't make liquid financial markets safe. You can only outlaw them after they emerge, and unless you're willing to employ gulags and torturers you can't prevent them from emerging.
This is why you're supposed to keep your pension funds, endowments, real property and other critical assets out of liquid markets. It is disappointing that doing this means they're not going to grow 8% a year, but juicy returns require big risks.
We use to understand this but hey, working for a living sucks so abso-fucking-lutely everything has to be hung out on the precipice to return enough dosh. So we employ righteous hyper-statists to punish anyone that might jiggle system a bit and upset all that tasty income. Every few years a new regulatory regime blossoms on top of all of the existing ones to make sure nobody tampers with the magic money faucet.
Keep printing Ben. There aren't enough lawyers on the planet to keep that bubble under control.
Maw! Fire up the karma burner!
The real reason is to bribe politicians by writing down their name at the end of the day on the most profitable trades.
Hillary Clinton once had 29 of 31 IPO trades work out profitably for her, a success ratio neither God nor the Wall Street Journal had ever seen before.
(-1: Post disagrees with my already-settled worldview) is not a valid mod option.
there is a current investigation by FINRA
FINRA tries to pass itself off as an independent regulator of the financial industry.
.
Just take a look at the firms that make up FINRA and you will see what a farce it is to use FINRA and financial industry regulation in the same sentence.
How is computer-trading different from telegraph?
When telegraph was first used to pass data (both trading orders and share price-affecting information) around, I'm sure, it was also seen by some as "dishonest", "unscrupulous", and "disadvantaging small players"...
Now I'm disappointed. When I saw the title, I thought there was gonna be a funny punch line.
Automated trading systems are far different than whats intended for a working stock market...one could make a compelling argument to suggest automated trading was by its design made to quickly and quietly abdicate the big players from any sense of liability or responsibility for a crash. If for example automated trades dont go the way wall-street firms like, they can have them rolled back. its not selling a share, its not cancelling a buy, its literally going into the system and undoing the trade. HFT is based on algorythms that themselves are as unfounded and hypothetical as the very modern theory of economics. Market Making, or as we know it to be pump and dump, is a real algorythm employed daily by firms.
dark liquidity markets take this a step further, but HFT has cataclysmic potential here. the buyer and seller are generally not known, quantities can be limited for sale or purchase, the markets themselves are not available to the general public, and there is very minimal oversight. The dark market was invented for the financial sector. its purpose is to silently enjoy the benefits of things like credit-default swaps and predatory lending, but without having to atone for their sins on the open market once they start printing the eviction notices.
Good people go to bed earlier.
And like gambling in a casino, the people in charge of the trades always get their cut one way or another. All the regulations do is limit the ways in which they can legally scam the players. The ordinary players are the main losers, and the broader public is too when the whole Vegas Strip/stock market suddenly goes under at once and jeopardizes the entire economy. Maybe it doesn't happen this year or next, but the whole thing has transitioned into a gambling operation rather than a thoughtful and long-term investment. The only guaranteed returns are the guys charging their fees to play the game.
What could go wrong with Vinny and your money?
I worked at a dark pool.
When a whale buys or sells a sizable amount of stock in the public market it moves the price. When they execute the trade it doesn't happen all at once but in blocks. When bids and offers are made other players in the market see it and they try to jump on. This moves the price. The whale would like the price not to move so they can maximize profit. When trades are executed in a dark pool the market doesn't see the trades until they clear at the end of the day. Who trades in a dark pool you might ask? Other whales. Stocks traded in a dark pool are usually fairly distributed between groups of buyers and sellers so no one trading party has an advantage.
You miss the point, it doesn't matter what entity is performing the trade, it's the fact that there are vast trades going on behind the curtain that are not available to the majority of traders. This is allowing a tiny number of privileged people to cream the best deals long before anyone even knows they exist.
Yeah, both favor those that already have money. This is just another way to do the same. Repeatedly being unfair does not make something any less so.
So to make sure I understand you correctly. What you are saying is Obama and his management of financial regulations is so pathetic, and shamefully corrupt; your only option is to compare his actions to other hypothetical time lines to make him look better. Got it.
Well, this is the shit sandwich that passes for political choice in our era. And this article about dark pools pretty much exemplifies exactly what is happening (and has been happening) in Washington DC - the public side is a side-show only dealt with by the power players when the real "behind closed doors" private power-trading doesn't pan out.
When this is the case and when the two parties are being bankrolled by the private dark-pool players... well, you see where this is headed.
Make sure everyone's vote counts: Verified Voting
I can't think of a single argument where high-speed algorithmic trading is good for anyone but those who can do it, and can think of quite a few where it's bad for all the rest of us...
So... penny per trade tax... that works this out to what 17 million a day?
All of it goes into banking enforcement and prosecutions.
This story isn't really about computer trading, it's about trading that happens before it goes to the exchanges.
"First they came for the slanderers and i said nothing."
They don't give a fuck about you. At All.
http://www.youtube.com/watch?v=oIFGGcX1a5I
Shoes for Industry. Shoes for the Dead.
...which isnt any different than Joe going to Bob and trading shares of a company without either a brokerage or the exchange involved.
The confused seem to think that its wrong if a brokerage is a middle-man in the trade, but somehow right if the exchange is the middle-man in the trade or if nobody is a middle man in the trade.
Its quite clear that they are simply afraid of what they dont understand, but instead of taking the (quite minimal) time to learn about the subject, they spread nonsensical FUD.
"His name was James Damore."
The similarity you are missing is that in both cases new technology was/is used by some traders to gain advantage over others. In both cases the advantage thus gained is deemed — by some — to be "unfair", immoral, and — if they could do anything about it — illegal.
In Soviet Washington the swamp drains you.
It's called speculation for a reason.
A long term investment in a company that you believe has a bright future: yes, please.
Speculation to make some quick money: die die die.
Dark pools? I don't even want to know what kind of shady way THIS is to ruin the already corrupt financial system.
And while I have the undivided attention of the NSA: Banks and stock markets. That's where you will find terrorists that ruin whole societies.
Privacy is terrorism.
Should be worth zero to any organization that must mark securities to market. Or as a cost basis for securities purchases. We (our regulators) don't know what you paid for it. For all we know, that cash expenditure was for Hookers & Blow. So when you sell it, you owe cap gains on 100% of the revenue. And while you are holding those securities, your bank or broker won't loan you a penny against those holdings.
Otherwise, feel free to speculate. And good luck.
Have gnu, will travel.
Because unregulated markets always work the best. Disregard the panics of 1819, 1825, 1837, 1847, 1857, 1866, 1873, 1874, 1884, 1890, 1893, 1907, and the Great Depression. Those were just anaomolies, as were the crashes which occurred as the market regulations were dismantled starting in the 1980s. The unregulated market is always the best.
putting the 'B' in LGBTQ+
The exchanges publish a stream of information about quotes and trades, in realtime. They don't delay trade printing by up to 30 seconds. They show limit orders in the book, which ensures a fair playing field in the matching engine. They don't allow one participant to "turn off" matching with another participant. They publish APIs, fees, and rulebooks on their web sites. For all of these reasons, I prefer to have the exchange as the middle man.
The day that such a tax is enabled, all of the professional traders will simply account for it, the way they already account for clearing fees, exchange fees, and SEC "assessments" (roughly equivalent to a transaction tax). You won't see $17M on the first day, you will see some smaller number, along with lower trading volume because of the tighter profit margins. It's a Laffer curve, so nobody knows how much lower... but everyone who understands the system knows that calculating future revenue of a transaction tax from current trading volume is a lie.
Not exactly. They're doing whatever they can in order to make more profit. That usually means screwing people (zero sum game) but that's not their purpose.