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Australia May 'Pause' Trades To Tackle High-Frequency Trading

Posted by samzenpus on from the slow-it-down dept.

angry tapir (1463043) writes "The Australian Securities and Investment Commission (ASIC), a government financial watchdog, is reportedly contemplating the idea of implementing a 500 millisecond delay on trades in an effort to put the brakes on high-frequency trading. ASIC last year knocked back the idea and stated that fears about HFT were overblown. However, in a government inquiry today representatives of the organization said the idea of a 'pause' is still on the table."

7 of 342 comments (clear)

  1. Won't work by EmagGeek · · Score: 5, Interesting

    If you simply change everyone's temporal frame of reference by the exact same amount, you have done nothing, really. Everyone will simply account for the 500ms delay, and trades will still execute in the same order.

    1. Re:Won't work by captainpanic · · Score: 5, Interesting

      The way I understand it is that traders (computers) have to hold on to shares for a minimum of 500 ms, which means that whatever the market does in those milliseconds cannot be acted upon. However, others can act in the meantime.

      Personally, I think that it should be law that if you buy shares in any company (or fund or whatever), you have to hold on to them for a minimum of a week or a month. Shares represent actual physical companies which own factories and employ real people. Those things don't change in 500 ms. They change over a much larger amount of time. And I believe that the stock market would be healthier if this was reflected in its trading. Obviously, when new information comes out (press release: "The factory of company X has just gone up in flames"), everybody's counter should be set to zero, but shares sold in such a case cannot be bought back a fraction of a second later (because whoever just bought them has to hold on to them for a week/month).

      I don't pretend that this plan is waterproof. I'm sure someone will shoot a big hole in it in the replies below... I just wish that the stock market would represent what it's supposed to represent: a place where people can invest in our real economy.

    2. Re:Won't work by JoeyRox · · Score: 5, Insightful

      It will work. The majority of HFT's illicit profits accrue from speed arbitrage *between* the exchanges, not from a speed advantage at any particular exchange. A co-located HFT server at an exchange sees an order, and, in anticipation of that order representing a larger order that can't be filled in full at that same inside "best" price at that exchange, trades ahead of the order by sending a buy/sell order to other exchanges faster than the original buyer/seller can, resulting in a riskless vig for the HFT trader. By delaying orders on all exchanges by 500ms, the benefit of early-access to incoming orders on any particular exchange is eliminated because all the exchanges will have 500ms of order price discovery incorporated into their SIP, the consolidated price representing the aggregate of the best prices for all the exchanges.

    3. Re:Won't work by KingOfBLASH · · Score: 5, Insightful

      Well let's say you want to buy a share, who do you buy it from? Or let's say you want to sell a share, who do you sell it to?

      It used to be you'd actually have to find someone to step in and take the contra side of your transaction. That's a pain in the ass, will cost you time and money, and in the event you need to sell and everyone else wants to sell you're screwed. All of this would mean that unless you had lots of money to invest, the stock market was not for you.

      Fast forward to today. We have people willing to take a position, any position. They provide "liquidity" for the market by buying the share you wanted to sell, in the hopes that they can turn around and sell it for a fraction of a cent more when someone comes along with a buy order. They actively manage their inventory of shares (yes that's a thing), and adjust prices in the event information comes out causing a large price change in the shares.

      This is a service that needs to continue if you want modern markets to maintain their efficiency.

      Now here's the problem. Back when the "marketmakers" were actual human beings buying and yelling at each other in trading pits one would not be substantially faster than another. But, using computers, there's an arms race for speed. If you can get a few miliseconds (or even nanoseconds) faster than your competition, you can take all of the profitable orders. This means if you plough enough money into speed, you can just own the market. In addition, because computers are so fast, your computer can make many millions of silly trades before a human trader can push the big red stop button.

      Now a solution needs to come about. But, because of the need for market makers speed can't really be limited to holding onto shares for months. (Sorry). 500 ms basically breaks the arms race since it's a very easy speed to obtain. So, you can't just plough money into being the fastest kid on the block.

    4. Re:Won't work by L4t3r4lu5 · · Score: 5, Informative

      It's front-running by machine. If a person-trader did this, they'd be in jail.

      "... the illegal practice of a stockbroker executing orders on a security for its own account while taking advantage of advance knowledge of pending orders from its customers."

      --
      Finally had enough. Come see us over at https://soylentnews.org/
  2. Better article by homb · · Score: 5, Informative

    There's a gripping article over at the NY Times (adapted from a just released book) that explains very well the pitfalls of HFT, where the problems are mostly due to the haves and have-nots, just like in most things. The article is at http://www.nytimes.com/2014/04...

    Not having a level playing deck in an exchange is a major problem for the correct functioning of said exchange.

  3. Install random delay by Whammy666 · · Score: 5, Interesting

    A better system is to install a random delay of between 1 and 5 seconds. This would level the playing field completely and kill off the HFT parasites.

    --
    When all else fails, run.