High-Speed Firms Now Oversee Almost All Stocks At NYSE Floor (bloomberg.com)

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High-Speed Firms Now Oversee Almost All Stocks At NYSE Floor (bloomberg.com)

Posted by Soulskill on Wednesday January 27, 2016 @04:54AM from the robot-economy dept.

An anonymous reader writes: Barclays, one of the biggest banking and financial services firms in the world, has sold its business on the floor of the New York Stock Exchange to Global Trading Systems. This is significant because it marks a transition between human-based trading and high-speed trading. Now, humans on the NYSE floor have more of a supervisory role, making sure the automated systems don't go haywire. Barclays has been around for hundreds of years; GTS was founded in 2006. "There used to be dozens of specialist firms, as designated market makers were once known, at the NYSE floor. But profits from trading U.S. stocks dwindled, making it difficult to serve as market makers without automation. Although GTS, Virtu, IMC and KCG employ human traders at the floor, their businesses are driven by some of the industry's most sophisticated computer systems."

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The "Floor" was always a kludge by xxxJonBoyxxx · 2016-01-27 05:00 · Score: 3, Funny

The "Floor" with its slow water-based life forms making noises and moving their appendages was always a kludge. If stock trading could have arrived on earth fully formed, it would have been with frictionless trading and marketing pricing instantly available to everyone to act upon immediately. We're finally getting there.
1. Re: The "Floor" was always a kludge by Anonymous Coward · 2016-01-27 05:11 · Score: 3, Insightful
  
  Unfortunately, "market" price does not mean what it sounds like (ie, the value of something _right now_); it includes future speculation. This introduces a positive feedback into the system, with a time constant related to the delay in trading action. So the random non-trivial delay in trading that humans provides is good for preventing huge swings. The faster the trading, the worse the swings will get.
2. Re: The "Floor" was always a kludge by ooloorie · 2016-01-27 05:34 · Score: 4, Interesting
  
  Unfortunately, "market" price does not mean what it sounds like (ie, the value of something _right now_); it includes future speculation.
  Predictions about future returns are part of "the value of something right now", so your distinction makes no sense.
  
  This introduces a positive feedback into the system
  No, it doesn't. It introduces delays and dependencies on the future, but people make both kinds of errors on stocks.
  
  with a time constant related to the delay in trading action. So the random non-trivial delay in trading that humans provides is good for preventing huge swings. The faster the trading, the worse the swings will get.
  In fact, the opposite is true mathematically: longer delays tend to produce bigger swings, for the simple reason that a system can go off the rails longer before the market corrects it.
  But there's an even more basic error in your reasoning, namely the assumption that market swings are bad or that we should adopt policies to reduce them.
3. Re: The "Floor" was always a kludge by ShanghaiBill · 2016-01-27 05:36 · Score: 4, Interesting
  
  The faster the trading, the worse the swings will get.
  The SEC's investigation into the 2010 Flash Crash, came to the exact opposite conclusion: that HFTs have a stabilizing influence on markets by providing liquidity. One of the reasons for the crash was that when prices moved outside of the expected range, many HFTers stopped trading, and the resulting drop in liquidity, and rise in spreads, caused some investors to panic.
4. Re:The "Floor" was always a kludge by Anonymous Coward · 2016-01-27 05:41 · Score: 2, Interesting
  
  Your trades as an Etrade customer are not at all executed as "HFT" in any way that gives any meaning. You don't have access to anything close to the speed and price information that real HFT actors have.
5. Re: The "Floor" was always a kludge by Actually,+I+do+RTFA · 2016-01-27 06:08 · Score: 2
  
  longer delays tend to produce bigger swings, for the simple reason that a system can go off the rails longer before the market corrects it.
  
  Longer delays mean that new information cannot affect the market for a longer period of time. Assuming that it's much faster to abort acting on the information than to begin acting on it, that gives a longer period of time for validation/analysis of that information. See also, the huge blips that comapnies get based on twitter rumors.
  
  But there's an even more basic error in your reasoning, namely the assumption that market swings are bad or that we should adopt policies to reduce them.
  Stability is a good thing. I'm not sure what value wild intra-day voitility provides. Longer term stability menas that longer term plans can be mad.e
  
  --
  Your ad here. Ask me how!
6. Re: The "Floor" was always a kludge by ShanghaiBill · 2016-01-27 07:47 · Score: 4, Insightful
  
  Okay, but can you provide evidence they were wrong about this?
  Of course not. He cannot even provide a theoretical reason why faster transactions would lead to instability. Systems with hysteresis, or lag, tend to have less stability (ask any helicopter pilot). In theory, faster transactions should lead to more stability, and this is true in practice as well.
  HFT is good for market stability, good for retail investors (far lower transaction costs), and, by making capital markets more efficient, good for the overall economy. The only losers are the old inefficient and expensive brokerages, which mostly no longer exist. Good riddance.
7. Re: The "Floor" was always a kludge by currently_awake · 2016-01-27 07:49 · Score: 2
  
  High speed trading DOES require planning to take advantage of short term swings, full stop. They see what's going to happen and try to get in the path of it so they can siphon off money as it flows past.
8. Re: The "Floor" was always a kludge by clovis · 2016-01-27 08:46 · Score: 3, Informative
  
  The faster the trading, the worse the swings will get.
  The SEC's investigation into the 2010 Flash Crash, came to the exact opposite conclusion: that HFTs have a stabilizing influence on markets by providing liquidity. One of the reasons for the crash was that when prices moved outside of the expected range, many HFTers stopped trading, and the resulting drop in liquidity, and rise in spreads, caused some investors to panic.
  I'm not seeing the statement that " HFTs have a stabilizing influence on markets by providing liquidity" in the SEC report for the big flash crash of 2010, nor statements to that effect. https://www.sec.gov/news/studi...
  It's full of statements like this:
  
  In general, however, it appears that the 17 HFT firms traded with the price trend on May 6 and, on both an absolute and net basis,
  removed significant buy liquidity from the public quoting markets during the downturn.
  However, for those who don't want to read the report, in no way is the SEC suggesting "the crash was caused by HFT traders".
  Here is a recent SEC paper on HFT trading:
  https://www.sec.gov/marketstru...
  Regarding the benefits of HFT on the market, the research they analyzed suggests good benefits (increase liquidity and reduce volatility), but it depends.
  The benefits of passive HFT strategies seem to be quite positive and HFT's may be taking the place of market makers.
  Aggressive HFT strategies provide liquidity in stable markets, but has worsened volatility when the market experiences abberations
9. Re: The "Floor" was always a kludge by Anonymous Coward · 2016-01-27 11:42 · Score: 2, Informative
  
  Huh? New Zealand's stockmarket has been purely electronic electronic LONG before the NYSE did. (We closed our stock exchange 'floor' with people actually in a physical room back in 1991. From then onwards, all transactions were done completely electronically by brokerages, at the brokerages). HFT is not necessary for getting rid of inefficient brokerages, merely a market committed to being sensible and doing electronic brokering.
  That's right, 1991. NYSE went to a hybrid market in 2007 as best as I can tell.
  Besides, "As recently as May 2014, a CFTC report concluded that high-frequency traders "did not cause the Flash Crash, but contributed to it by demanding immediacy ahead of other market participants" Wikipedia. HFT made the flash crash worse. You're saying the SEC said HFT was okay, but honestly, look at that criticism of that report in the very article you linked to,
  Hysteresis isn't lag. Lag means there's a delay -- but it could be a fixed delay. HFT isn't about faster transactions -- it's about MORE transactions made by more agents and decision makers - and it's chaos theory territory because each other HFT agent will behave according to its own algorithms that are liable to change as and how they want -- and the HFT traders are not doing this because they want to 'stabilise the market', they're doing it to MAKE MONEY.
  Ask any pilot if they want every control surface behaving independently according to whatever algorithm each control surface wants to do, without the pilot knowing when or where each control surface will change its behaviour, without caring about the rest of the plane; or if they want every control surface behaving predictably and how they expect it to behave.
High-Speed Firms Now Manipulate Almost All Stocks by QuietLagoon · 2016-01-27 05:09 · Score: 2

FTFY
A Taste of Armaggeddon? by chthon · 2016-01-27 05:13 · Score: 4, Interesting

If computers do trade stocks, isn't that than the same as computers which go to war?
1. Re:A Taste of Armaggeddon? by gstoddart · 2016-01-27 05:24 · Score: 3, Insightful
  
  Well, when the computers completely wipe out the financial system or go hysterical with automated trading it will be further proof that the market is already so far removed from reality as to be dangerous.
  This is just another example in a long line of hubris by the idiots who think they run the financial system, but who otherwise don't really know what the fuck it's doing.
  I predict within a year at least one trading halt/panic, and a massive government sponsored do-over to undo what this stuff screws up.
  High frequency trading is little more than theft by entities who feel entitled to a cut of everything. It's bound to fail, it's only a matter of how long.
  
  --
  Lost at C:>. Found at C.
2. Re:A Taste of Armaggeddon? by ewibble · 2016-01-27 07:44 · Score: 4, Insightful
  
  Computers, may trade faster, smarter, whatever, the question is do they actually add any real value to the economy, or just skim off the top from the actual people that produce the goods and services. I think it is the latter, like human stock brokers, but much better at it. Do we really need a better parasite?
Gambling Robots by monkeyxpress · 2016-01-27 05:15 · Score: 5, Insightful

Honestly, they might as well replace all the workers in the trading system with robots. None of this produce real wealth anymore. The original idea of the stock exchange was to allocate capital efficiently from savers to businesses that could use it to create productivity growth. But we haven't had a capital constrained economy for almost two decades now. Banks can create whatever capital they want (or can fool you into believing in) using debt-equity fudges, and current negative real interest rates on cash indicate that the problem is not capital availability but consumer demand.
When you have no capital constraints the stock market 'value' is determined almost entirely by hype. Even worse, private equity funds are so big now that they can ensure the public exchanges never see any of the juiciest profit making companies until they are fully asset stripped and ready to pump and dump.
1. Re:Gambling Robots by fustakrakich · 2016-01-27 05:42 · Score: 3, Interesting
  
  But we haven't had a capital constrained economy for almost two decades now.
  More like four and a half... However, normal society is still capital constrained, by the financial industry through usury. All that money is flowing overhead and we get what leaks through the pipe.
  
  --
  “He’s not deformed, he’s just drunk!”
2. Re:Gambling Robots by tnk1 · 2016-01-27 05:58 · Score: 2
  
  Stocks do still offer real value, you just aren't going to realize it unless you hold a good company for a fairly long amount of time.
  Too many people are trying to day trade their way to instant fortunes. As the HFT shows, you can make a lot of money on the daily chaotic fluctuation of stock prices, but now you're in a race against the computers to do it.
  However, unless one of those absurd bid-ups actually ends a company somehow, it is only a worry for people who are trying to run complex short term trading strategies. As a long term investor, you simply ride out the fluctuation over the long term. And if they bid up stocks or other instruments you've been holding for years, then you sell and take your profit and diversify with the money. And probably buy back in later when the stock has settled down again.
  If you buy a good stock today, or a fund that tracks the S&P, in thirty years you will have made money even if there was a recession in the meantime. People who bought stocks in 1929, right before the crash and the Great Depression, still made good money decades down the road. At that point, it is just a matter of whether you could make ends meet during the recession and depression periods so that you don't have to sell out your holdings to get cash.
  Of course, the problem with this is if the banks become vulnerable to the failure of complex or short term strategies. Then that does have a ripple effect down the road. Which frankly, is why the banking industry should have not been able to get away with their failures a few years ago.
  To me, bailouts and regulation are two sides of the same coin. They both retard the financial industry by removing from it the feedback you get from failure. Spend years under regulation and when it is loosened even a little, so that your economy doesn't completely stagnate, you have people who have never learned the cost of failure and so they go nuts like a bunch of lottery winners who have no idea what to do with all their money.
  Of course, if we're completely unable to avoid bailing out losers who fail, we may well need to regulate them into the future. However, there are costs to that path as well. That's why we ended up deregulating them to begin with.
  If I were a Republican candidate, I'd probably suggest a plan by which we re-regulated and then *slowly* de-regulated back down over a decade or so. And absolutely zero bailouts for failures in the meantime. The goal would be to develop bankers/executives in positions of power who know how to self-regulate so we don't need to pay for a bureaucracy to try and do that for them.
3. Re:Gambling Robots by Zak3056 · 2016-01-27 08:59 · Score: 2
  
  None of this produce real wealth anymore.
  It doesn't "create" ANY wealth, and never has.
  There are a very limited numbers of ways to create wealth. The two most common are digging it out of the ground (i.e. mining, agriculture), or taking those things dug out of the ground and adding value to them (i.e. manufacturing (which includes things you wouldn't intuitively think of as manufacturing, like a pastry chef baking a pie--he has added value to the raw ingredients)). Pretty much everything else you can think of is just moving wealth around from one entity to another.
  
  --
  What part of "shall not be infringed" is so hard to understand?
4. Re:Gambling Robots by roman_mir · 2016-01-27 14:57 · Score: 2
  
  Correct, trading should be done by robots for the same reasons that factory work is often done by robots, because it is cheaper to run robots than people and thus the efficiencies go up.
  Also correct that real wealth is not produced by trading, trading is exchange of wealth. Real wealth is produced by manufacturing, mining, agriculture, things of that nature.
  However it is completely incorrect that the economy is not constrained by capital, it is absolutely constrained by lack of capital. The artificially printed currency is not capital though. There are no real savings in the system, the money is created on the whim by the likes of the Federal reserve and fractional reserve systems, the credit is mostly fake and programs like FDIC allow this to go on as long as nobody tests the validity of these assumptions.
  The reality is that there is no capital to borrow, the real interest rates by the Federal reserve are negative due to all this inflation but you cannot get any yield out of anywhere, so there is no incentive to save money in the high inflation economy (which is what most of the world is running right now with all the fake low interest rates, fake money being created, various QE and Stimulus programs, bailouts, etc.)
  The reality is that there is no real capital, which is why there is so little new business formation. The reality is that the values of the USD and bond are artificially high, driven there by the false belief of the market that the USA Fed can tighten its fiscal policy given their own metrics as to why the interest rates should or should not go up or down.
  The reality is that USA economy is in a very deep recession, the employment numbers are fudged, the real economic indicators are all horrible, Fed will groan and moan but will come up with an excuse to push interest rates down into the negative thus finalizing the destruction of the dollar.
  The moment that the world was taken off the gold standard (1971, Nixon default on the gold dollar) by proxy of the USD reserve currency being on at least some gold standard, the moment that happened the world's economies were directed on the path towards destruction. Then later, when Greenspan took the short term interest rate to 1 and eventually Bernanke took it to 0 (for 8 years) that was it, that was the final nail in the coffin of the USD and the economy.
  Governments should not be allowed to interfere with the actual economies and money of the people but they are and here we are, facing the music.
  
  --
  You can't handle the truth.
Re: Feeling the Bern. by ArmoredDragon · 2016-01-27 05:27 · Score: 2, Insightful

No, Bernie just wants a France style economy where the government collects outright burdensome taxes and imposes massive trade barriers. France has perhaps the worst economy of any first world country, so no thanks, you can keep your Bernie propaganda.
New way to rig the stock market by evolutionary · 2016-01-27 05:43 · Score: 2

Wow, so all it takes now is one virus or one planned "feature" and you could give a new definition to insider trading. There are some things that we should think before we automate. (We already learned what happens when we deregulate/abstract...:-) ) The view Doyle and Clemens(Twain) had on the stock market (not exactly favorable) may have been justified.

--
"Imagination is more important than knowledge" - Einstein
Heads I win... by Actually,+I+do+RTFA · 2016-01-27 06:03 · Score: 5, Insightful

I'd be fine with this, if they weren't allowed to unwind transactions because of "computer glitches". If they wanna automate trading, they should have to take the good and the bad. But now, if their software does something stupid (like repeatedly buying at 25.01, and selling at 25 even) and you take advantage of it, they sue you and get the trades reversed.

--
Your ad here. Ask me how!
Re:Faith in the System at risk? by lgw · 2016-01-27 06:32 · Score: 2

If you care about intraday trading, you're doing investing wrong. If you care about stock price changes at a finer granularity than quarterly, your doing investing wrong. None of this automaton affects anything at the timescale investors care about - this is all automation of speculation, and the more it's automated, the less money the insiders make per trade. Heck, the whole point of TFA is that Barclays can't afford to pay humans to do this any more.

--
Socialism: a lie told by totalitarians and believed by fools.
Dark markets by PPH · 2016-01-27 06:36 · Score: 2

Stocks and other financial products are owned by 'corporations'. Actually just paper entities used to hold the securities and keep the transfer of ownership out of the view of regulatory agencies. These are nothing more than legal forms stuffed in filing cabinets in the Cayman Islands. They also serve to facilitate the transfer of securities out of the view of (and manipulation by) high frequency traders. The remaining public markets represent more and more money chasing fewer and fewer traded securities. So the result is increasing volatility.
That's fine by me. You HFT traders can pick up nickels in front of the steam roller. I'll buy my positions where you can't see me.

--
Have gnu, will travel.
Two kinds of investors by Tony+Isaac · 2016-01-27 07:12 · Score: 3, Insightful

There are two kinds of investors:
1. People who trade on the ups and downs, hoping to outsmart the market. If you're in this game, the computers will always win. They can do it much faster, and much more accurately, than you can.
2. People who buy stocks because they want to own a piece of a company they believe in. These kinds of investors are in it for the long haul, and if they do their homework, they will beat the computers every time.