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

[ShanghaiBill]

It wouldn't matter when in that quantum the order was placed, everyone would be working from the results of the last quantum.

But having a long time window and waiting till the end means you can incorporate more information. If there is a big block trade in London, and you can transmit the information quickly to NYC, you can place your order in the last microsecond of the 30 second window and screw anyone dumb enough to have placed their order earlier ... so everyone will wait. So your "time window" will do nothing to discourage HFT.

What other effects will it have? It will increase transaction costs. High Frequency Traders are not investors, they are market makers. They find a willing buyer and a willing seller, arrange the transaction, and execute the trade. They make a profit on the spread between the buy price and the sell price. 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, but the buyer may have cancelled they transaction, or they may have already bought the stock from someone else, in which case the HFT is stuck with the stock and may have to sell it to someone else at a loss. If transactions are granulated to 30 second intervals, instead of say, millisecond intervals, then the risk of this happening is thirty thousand times higher , and the HFTs will insist on higher spreads, resulting in lower liquidity and higher transaction costs for both buyer and seller.

Since the introduction of high frequency trading, transaction costs have fallen considerably, saving plenty of people a lot of money. The only losers are the old market makers that used to have lucrative sweetheart deals with the exchanges. Those old market makers are now bankrupt and gone. Good riddance.

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.

Re:wrong way

[phantomfive]

No, limit means "buy at X price or lower." The front-runner drives the price up a few pennies, so without the front-runner you would have bought it at price Y < X, with the front runner you get it at a price Y + $.03 < X. So you're still losing pennies. It's a small enough amount that most people really don't care, but it's frustrating to get ripped off like that.

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!

Paper about the Huygens protocol

[manu0601]

The New York Time article is mostly about how Nasdaq is eager to make more money.

For the technically minded, refer to the paper about the introduced Huygens protocol for network time synchronization precise to the nanosecond.

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.

Re:Life in prison is a long time in nanoseconds

[fisted]

The irony is that while this improves NTP, "modern linux" uses "systemd-timesync" instead which kinda sorta knows how to get the time of day from one server with undefined tolerances, throwing away decades of work by intelligent people that went into making NTP what it is now.

Who cares, right. What did those nerds know about clocks and time anyway.

Re:Life in prison is a long time in nanoseconds

[Zontar The Mindless]

Are you kidding me? Woohoo, yet another reason to hate systemd.

Re: Life in prison is a long time in nanoseconds

[arth1]

ntp is designed to minimize time jumps, skewing by small amounts more often. timesyncd is just a reinvention of old timed, including unfounded beliefs in predictable network latency, and, yes, clock jumps where none are needed.

1588 PTP

[little1973]

There is already a standard with nanosecond precision (or better).
It's called 1588 PTP.

https://en.wikipedia.org/wiki/...