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Australia Government The Almighty Buck Technology

Australia May 'Pause' Trades To Tackle High-Frequency Trading 342

Posted by samzenpus
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."
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Australia May 'Pause' Trades To Tackle High-Frequency Trading

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  • by Junta (36770) on Monday April 07, 2014 @09:37AM (#46682949)

    If the whole point is to be x microseconds ahead of the other guys wouldn't a 500 ms delay simply mean the exact same game would become 'after 500 ms, still be a few microseconds ahead of the other guys'.

    I would imagine a more effective approach would be to process trades 4 times per second. A request for a trade always gets processed in the slot after the next slot (meaning no less than a 250 ms delay, but no more than 500 ms delay). Within a given slot of trading activity, randomly shuffle the requests so that someone beating someone else by less than 250 ms doesn't actually affect things.

  • Or a tax. (Score:2, Insightful)

    by Anonymous Coward on Monday April 07, 2014 @09:39AM (#46682993)

    A pause just creates an arms race. Taxation is a good antidote to accumulation of money without creation of wealth.

    And don't give me any of the liquidity bullshit - investment, to be rational, must be a long term exercise. And there's no reason why market makers can't charge less without the HF bullshit - hell, public or private sectors could create a non-profit market maker.

  • by Karmashock (2415832) on Monday April 07, 2014 @09:57AM (#46683127)

    There is no earthly reason for these commodities and stocks to trade hands faster then that. What are you doing?

    The primary issue here is that human beings can't keep up with it. And that's extremely dangerous. If the computer gets confused then it can smash the market before anyone can do anything about it. But if its doing its thing in ten second pulses then you can likely stop it.

    The secondary issue is that the market is very unfair with high frequency trading because it gives people with a better connection a huge advantage over everyone else. Its like having a time machine. Its the insider trading of knowing what the price is going to be in .2 seconds.

    Pulse the system and most of that advantage goes away. Sure, your might get your order in faster if your system placed it faster but there's less information to react to... fewer iterations of the price to buy or sell against. You buy and sell on the pulse.

    The problem after this will be the dark markets... the in house trading and between house trading of stocks, bonds, futures, etc. And putting any rules on the market tends to encourage the houses to use the dark markets more and more.

    Which is fine. You control that by putting laws on the houses that they can't accept certain types of money if they're doing a lot of in house trading. The money you don't let them have is the pension money. The mortgage money. The big safe pots of money that the people give to the market makers largely to keep safe and grow at some reasonable rate.

    The big houses need that money or they can't make the big buys. They can't leverage it to bend markets. And that means they have to choose... do they want to go big into the dark market or have access to the pension money? Because you make it a choice and they'll mostly choose the pensions. Which means the ones that will go after the dark market will be the smaller guys... the hustlers. And whatever they might or might not do, without the liquidity of the safe money... they won't really matter.

  • by Junta (36770) on Monday April 07, 2014 @09:57AM (#46683133)

    Again, you have an 'average' 3 second baseline to compete against. What you really want to do is accumulate trades into a queue, have said queue stop taking new trades for some period of time, then process that queue in random order. Then there truly is no difference whatsoever between trades getting in within a quantum of the trade processing slice.

  • by mwvdlee (775178) on Monday April 07, 2014 @10:00AM (#46683161) Homepage

    This.
    All I keep seeing is proposed delays in seconds or minutes at best.
    Trading shares is effectively gaining and selling ownership of a company.
    There is no valid case for wanting to own part of a company for mere seconds.
    There is no benefit for most companies either, so why do they allow an exchange to permit these risks to their business?
    Are there no exchanges that enforce a "minimum ownership duration" rule for the companies they list?

  • by Junta (36770) on Monday April 07, 2014 @10:01AM (#46683167)

    In this case, the question is 'what's the downside?' If HFT isn't really a problem, then what harm would it be to level the playing field to 250 ms or whatever quantums? If HFT is a big deal, then this would fix it. If it is not, then it wouldn't change things much.

    Certainly some financial institutions are heavily investing in HFT relevant schemes, so they at least believe that HFT impact can be significant.

  • Re:Won't work (Score:4, Insightful)

    by operagost (62405) on Monday April 07, 2014 @10:05AM (#46683207) Homepage Journal

    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

    This is enough to show why your idea won't work... unless you plan is really to collapse the economy. What information is major enough to allow immediate sales of stock, and who gets to choose?

  • Re:Won't work (Score:5, Insightful)

    by JoeyRox (2711699) on Monday April 07, 2014 @10:07AM (#46683221)
    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.
  • by Squidlips (1206004) on Monday April 07, 2014 @10:12AM (#46683267)
    Capital Gains or some such tax. That will stop this crap....
  • by OzPeter (195038) on Monday April 07, 2014 @10:16AM (#46683311)

    There is nothing illegal whatsoever, since the trades are public. It's just that the HFT optimized their routes.

    Sure not illegal per se, but only a finite number of people can get that sort of access, so now the playing field isn't level.

  • TAX THEM! (Score:4, Insightful)

    by Anonymous Coward on Monday April 07, 2014 @10:17AM (#46683321)

    Add a 1% tax to all stock SELL orders where the seller has held the security less than a day.
    Lower the tax to 1/2% for SELL orders where the seller has held the security for less than a week.
    Lower to 1/4% for securities held less than a year.

    This scheme would:
    a) Raise a large amount of revenue
    b) Constitute a 'use tax', kind of like a road toll.
    c) Only affect people engaged in short term trading (e.g. wall street manipulators)
    d) Act as a brake to prevent market volatility (e.g. the flash crash)
    e) Be immediately shot down by Teapublicans asshats, so it won't happen.

  • Yikes (Score:1, Insightful)

    by Primate Pete (2773471) on Monday April 07, 2014 @10:20AM (#46683347)
    A week?! A month?!!

    How do you propose to compensate me and others for the loss of value and liquidity created by your arbitrary market rules and centrally controlled economy? Will you or the government either put up part of the purchase price to compensate for your partial control, or allow me to write off losses caused by the proposed rules?

    What's wrong with me immediately changing my mind after a trade?
  • Re:Won't work (Score:5, Insightful)

    by KingOfBLASH (620432) on Monday April 07, 2014 @10:23AM (#46683379) Journal

    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.

  • Re:Yikes (Score:5, Insightful)

    by lorinc (2470890) on Monday April 07, 2014 @10:40AM (#46683579) Homepage Journal

    Stop the bullshit. You're not changing your mind, you're trying to gain a lot very quickly by gambling.

    If you don't understand the implications of what you're doing, please go to the casino instead of messing up our global economy.

  • Re:Won't work (Score:5, Insightful)

    by ysth (1368415) on Monday April 07, 2014 @10:40AM (#46683581)

    There's no need to set a minimum time; what is needed is a minimum tax or fee. It could be .01% and still completely put a stop to abusive trading.

  • Re:Or a tax. (Score:4, Insightful)

    by jythie (914043) on Monday April 07, 2014 @10:46AM (#46683655)
    Or an even simpler solution, extend the laws that make a human doing this illegal to cover automated systems too. HFT is only 'legal' because they can scream 'but it is being done by technology!', but as various court cases with file sharing have shown, assuming the judge feels like it, novel technological implementations are not a panacea against legal repercussions. Unless of course you have good lawyers, weak regulation, and an industry that is profiting from the transgression, in which case a judge might indeed magically find that the technicality is enough to get them off.
  • Re:Won't work (Score:5, Insightful)

    by TheRaven64 (641858) on Monday April 07, 2014 @12:01PM (#46684551) Journal

    The important issue is the ratio between investors and speculators. You need speculators in the market to provide liquidity, but you don't want too many because liquidity is the positive spin on volatility. If you have too high a ratio of speculation to investment then the market becomes completely decoupled from the thing it's trying to represent and it becomes a dangerous place for investors (and companies) because they can lose all of their money as a result of something completely unrelated to the actual profitability of the company. If you have too few speculators, then it becomes difficult to buy and sell shares.

    The problem with HFT is not really HFT itself, it's that it magnifies the effects of speculators on the market, meaning that you need far fewer speculators with far less capital to have a disproportionate effect on the functioning of the market.

  • Re:Yikes (Score:5, Insightful)

    by i kan reed (749298) on Monday April 07, 2014 @12:54PM (#46685227) Homepage Journal

    The traders are the only people who gain tangible benefit from that, though. It's only their insistence that makes the spread so small, and the duration so large.

    The rest of us are interested in laws that facilitate investment, you're interested in laws that let your manipulate people with less immediate knowledge of the market than you.

  • Re:Yikes (Score:4, Insightful)

    by guises (2423402) on Monday April 07, 2014 @01:28PM (#46685589)
    There are certainly problems with that plan, but the idea that you deserve some kind of compensation for basic changes to trading or how the market works is staggeringly egocentric.
  • Re:Yikes (Score:4, Insightful)

    by sjames (1099) on Monday April 07, 2014 @03:35PM (#46686909) Homepage

    That's a nice sense of entitlement you've got there.

    How much should we compensate muggers for outlawing mugging?

    How much do you propose to pay in compensation for the damage caused by HFT?

  • Re:Won't work (Score:4, Insightful)

    by Darinbob (1142669) on Monday April 07, 2014 @04:25PM (#46687403)

    This "liquidity" is a vague term used by high speed traders to justify their poaching of legitimate trades. What they really mean is that they increase VOLUME of trades. What they are doing is intercepting a trade and getting in a buy or sell first. So they double the number of transactions. However the individual investor holding onto a stock that wants to be able to sell it does not gain any extra ability to sell (liquidity) because of these extra traders, and is very likely to be gaining less money because of them.

    This is not a service that improves the system, it is more like a parasite that feeds off of the system.

  • Re:Won't work (Score:4, Insightful)

    by Citizen of Earth (569446) on Monday April 07, 2014 @06:56PM (#46689039)
    The way I see it, you can eliminate the advantages of HFT while keeping the markets highly responsive by imposing a "clocking" scheme on exchanges. When an order is received by an exchange, it is not executed immediately but stored in a queue to wait for the next clock tick. When that comes, the order queue is shuffled into random order and then executed sequentially. Make the clock ticks wait a random period between 40ms and 50ms and any timing advantage of HFT or geography is nullified. The exchanges are still highly responsive; they just do randomized batch processing. All of the requests they receive in the previous clock period ought to be processed within the new clock period (with perhaps some occasional spill-over, in which case the new clock tick is stretched).

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