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

Posted by Soulskill on 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."

13 of 138 comments (clear)

  1. The "Floor" was always a kludge by xxxJonBoyxxx · · 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 · · 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 · · 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 · · 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 ShanghaiBill · · 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.

    5. Re: The "Floor" was always a kludge by clovis · · 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

  2. A Taste of Armaggeddon? by chthon · · 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 · · 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 · · 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?

  3. Gambling Robots by monkeyxpress · · 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 · · 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!”
  4. Heads I win... by Actually,+I+do+RTFA · · 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!
  5. Two kinds of investors by Tony+Isaac · · 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.