Google and Nasdaq Pursuing Nano-Second Precision In Network Time Protocol (nytimes.com)

"Computer scientists at Stanford University and Google have created technology that can track time down to 100 billionths of a second," reports The New York Times. "It could be just what Wall Street is looking for." Form the report: System engineers at Nasdaq, the New York-based stock exchange, recently began testing an algorithm and software that they hope can synchronize a giant network of computers with that nanosecond precision. They say they have built a prototype, and are in the process of deploying a bigger version. For an exchange like Nasdaq, such refinement is essential to accurately order the millions of stock trades that are placed on their computer systems every second. Ultimately, this is about money. With stock trading now dominated by computers that make buying and selling decisions and execute them with blazing speed, keeping that order also means protecting profits. So-called high frequency trading firms place trades in a fraction of a second, sometimes in a bet that they can move faster than bigger competitors.

Comments

wrong way

[KiloByte]

Uhm, no. The right way would be to artificially add a random delay of several minutes, with a reproducible generator based on the orders' hashes and some seed known in advance, to avoid foul play. The generator would also need to be based on all previous orders, to avoid gaming the system if the seed is "accidentally" leaked. Details are more complex but it's all well-researched stuff.

That would fix the high frequency trading abuse, which is nothing but pure theft, skimming a fraction from every bona-fide transaction.

Just one of so many simple solutions... if only the high frequency traders wouldn't collude with the rule makers...

Re:wrong way

[ShanghaiBill]

The right way would be to artificially add a random delay of several minutes, with a reproducible generator based on the orders' hashes and some seed known in advance, to avoid foul play.

That would raise risk for market makers, increase transaction costs for small investors, and push even more big investors into off-shore dark pools.

Before proposing silly "solutions", could you please explain what problem are you trying to solve?

Re:wrong way

[Wycliffe]

The problem is that once they locate the buyer and seller, they need to buy the stock from the seller first, then turn around and sell it to the buyer

How is this a market maker? Why can't the buyer buy directly from the seller? Why do we need a middleman skimming off the transaction.
Why can't the stock exchange computer do the matching? Take all the bids in a 30 second period, don't show them to anyone, match them up, and then publish the results. Matching buys to sells is what computers are good at. It is what HFT computers are doing except they are also skimming in the process. It would make much more sense for the stock exchange itself to be the market maker and do it fairly without skimming.

Another option if you don't like the 30 second delay is to substantially increase the trading cost.
Make it cost prohibited to do HFT. The average individual investor pays around $5 per a thousand shares
compared to something like 2 cents per 1000 shares for HFT. Some liquidity is good but stability is better.
HFT and day traders are leaches on the system. Transaction costs should be increased until the majority
of trades are from long term and medium term investors.

Re:wrong way

[swb]

My gripe is that all this near-quantum physics in timekeeping doesn't really seem to be about fundamental economics, only about who or how gets to benefit from increasingly high speed trading. Too much of modern finance seems to be about how to manipulate the financial market itself to obtain profits vs. the actual fundamentals of business economics, i.e. the productivity of a given firm.

I guess I'm not that worried about off-shore dark pools. The US and its dollar remain a major force in world economics not just because of the US domestic economy and in spite of the occasionally ugly behavior of the US government. Why? Because the US regulatory and legal system is mostly fair and mostly transparent, and it's judgements and rules are backed by the full force of the United States.

No other nation can provide this and ultimately most capital will not choose to operate in an environment where the fairness and enforcement of contracts isn't guaranteed.

Re:wrong way

[Michael Woodhams]

This is what I came here to say.

The economic point of share markets is to allow companies to raise capital for long term investments. If doing stuff on millisecond or microsecond timescales is profitable, then that profit is doing nothing productive and can only be leeching value from actual productive economic activity. The investors who really matter economically are those who buy and sell over timescales of months or years, who will not be hurt in the slightest by trades being on a 30 second clock tick. (I really don't know what the time quantum should be - probably somewhere between 1 second and 1 hour.)

Re:wrong way

[mlyle]

Yah. There's good reasons why a minutes-long delay is not great, because we want things to settle out relatively quickly... but 2.5-25 milliseconds of fuzz on the order book would be just fine.

Re:wrong way

[phantomfive]

Before proposing silly "solutions", could you please explain what problem are you trying to solve?

I don't know what problem he is trying to solve, but the problem that annoys me is front-running: listening for an order, then quickly buying the stock first (because you have faster connections), immediately turning around and selling it to the person who was going to buy it in the first place, but at a higher price. This does absolutely nothing to help the market as far as I can tell.

It's all just enabling more bullshit

[Zenin]

High frequency trading is entirely about subverting any remaining myth of the market or even less so-called "investing".

What absolutely needs to happen is a flat transaction tax on any and all transactions, obliterate this entire train wreck of a financial vehicle from the entire economic equation. Simply out of basic fairness, why do I get charged 10% sales tax when buying a candy bar but not if it's a share of Apple?

A simple 1% tax on transactions would overnight return the stock market to a system for investment rather than clever hacks to milk the real economy. If you don't think your stock is going to grow at least by 1%, you simply shouldn't buy it. An extremely modest 1% transaction tax would instill that sanity into the basic fabric of the marketplace.

Re:It's all just enabling more bullshit

[Kjella]

An extremely modest 1% transaction tax

A large low risk institutional investor like a retirement fund will average something like 3%/year. So every move would eat up 4 month's profit, that's extremely high and would slow liquidity to a crawl. If you wanted to kill HFT and reset the clock back to day traders then 0.01% would be enough, you could change horse every couple days but not buy and sell hundreds of times in a day like they do now.

Re:So when the time server fails the market crashe

[Mal-2]

But it would be such a shame, and a blow to the Working Man, if High Frequency Traders can't operate! Think of all the bots that would be put out of work, you insensitive clod!

You need to convince voters that regulation works

[rsilvergun]

take glass steagall. For 50 years it did a decent job of preventing the kinds of economic crashes we had in 2008. After 50 years without a major economic crash people came to the conclusion that since we hadn't had a blow up the regulations could go. Seriously, people think because bad things that regulations were passed don't happen anymore we don't need the regulations...

I hate Ronald Reagan with a passion. He and his ilk (Karl Rove & the like) rolled back 100 years of hard fought workers rights in a few decades and turned the working class against the very notion of organizing for their own benefit. They turned "Union" into a dirty word and convinced folks to scrap the whole system because of a few bad apples and some Mafia interference. They were masters at it too. I'm singling him out because he was the spokesman for that crap. Mr "Government's the problem, not the solution". But crap like this is part of a broader trend to weaken the power structures that created and allow the continued existence of a middle class.

Because they're the ruling class

[rsilvergun]

there's a class war on in America. The best kind of war is one where the other side isn't fighting.

Re: Life in prison is a long time in nanoseconds

[fisted]

timesync is the best tool because it barely does what you will settle for. Okay. Or are you trying to say that a more precise time will somehow harm your desktops?

Re: Life in prison is a long time in nanoseconds

[Archtech]

timesync is the best tool because it barely does what you will settle for. Okay. Or are you trying to say that a more precise time will somehow harm your desktops?

Do you demand that your car is capable of half the speed of light? (Although you will never drive it at more than 70 mph because you are a law-abiding citizen).