16 Major Firms May Have Received Early Data From Thomson Reuters
rollingstone.com
rollingstone.com
On the other hand, the SEC could forbid registered entities from buying the survey before it is generally available.
More importantly, I think Taibbi's outrage is misplaced - I don't see a victim here.
But it should also be pointed out that, as usual, the average individual investor shouldn't be speculating on these numbers in the first place. This is yet another instance of professionals harming professionals.
When there is too much information assymetry about something, it gets reflected in the price. That is also part of the economic power of markets.
So I disagree that this is against the "spirit of public markets."
In addition, it's certainly against the American spirit to have government nannies bossing people around. Let free people interact in the market... there is no need for this.
I am not a proponent of the government-sponsored education bubble.
This isn't the question. The question is whether or not the market is fair. This is the role of government in this case - to protect the little guy from being taken advantage of by the big guy.
You can argue about whether or not Reuters should be able to release public information in a tiered manner. In this case, I don't think they should, but others may differ. But what you can't argue about is that the knowledge of the tiers must be made public.
You should be able to know if someone else is getting information 2 seconds or 10 minutes earlier than you, just because they paid more for access.
Exactly. Having a free market is desirable if and only if we can also ensure fairness for all market participants. Otherwise it's just like the Wild West where the strong take advantage of the weak.
That narrative is nonsense. The government mainly protects the big guys and takes advantage of the little guys. That's what the banking bailout was. That's what a lot of Wall Street is today.
When nobody can use force on anybody else to get their way, we are all players in a market. Our society has gotten very, very far away from that ideal.
> But what you can't argue about is that the knowledge of the tiers must be made public.
You are just making an assertion without any principle to back it up.
I think people who produce knowledge should be free to sell it in whatever way they want, per whatever agreement they come up with with their customers.
In this case it's more complicated, as the people producing knowledge (University of Michigan) are doing it via government handouts. In such a sitauation, there is no "right" or "wrong" except for the government to stop bossing people around.
But what I am saying is that they need to make customers aware that they may get access to the data after other customers. It should be public when others get access, but I'm not willing (yet) to say that open access should be mandated.
Depending on how the original contracts were written, it may be an FTC issue if everyone thought they were getting the information as soon as possible only to find out now that others were getting it earlier.
Markets have rules on competition, that's just a fact, and no one wants to live with markets that have no rules. Taken to the extreme, a shopkeeper could just kill his competitor. It's still competition (why didn't the competitor hire body guards?), and it's still a market.
Yet no one seriously objects to government interference in the market when it comes to declaring murder illegal and punishing murderers. So why is this? Probably because most people regard murder, or force in general (though not always) to be an invalid, or unproductive competitive dimension. We would prefer that shopkeepers compete on who has the best products rather than on who is the best at violently eliminating his competitors.
This suggests that there are other dimensions on which we do not want competition to occur. If one of those is "who can get their hands on information the soonest", then sure, we should definitely regulate this issue.
It is ultimately in every honest person's self-interest to disallow the _initiation_ of physical force.
When you have that, you can have markets and a free society.
When you don't have that, you have anarchy on the one hand, or some form of mixed or total authoritarianism on the other hand.
Financial markets should have rules, and people who break those rules should be sued and disbarred from the market. People should be free to choose to participate only in markets whose rules they can agree with, and create new markets if they see the need. Such is a robust, free system. All of this is possible in a traditional market system that disallows initiated force. The SEC and other regulators use initiated force and do not permit such a system to exist.
You used the word "honest" but failed to define it. That word must have a definition, and within that definition you are implying additional values beyond pure competition. I suspect that if we tried to clearly define that word we would find many more actions that many people would argue should be disallowed, like the "initiation of physical force". But many of those things would be far more controversial. My point is that real, existing (non-theoretical) markets are more complex than you seem to believe. Market actors will always try to find the "edges" of acceptable behaviour in order to gain advantage, and in a dynamic, changing world, those edges continuously multiply, making self-regulation in real life a pretty unreasonable prospect in my opinion.
I mean it according to the simple English definition. An honest person does not seek to gain a value by deceiving other people.
I just put in the word "honest" to make my argument more readily apparent, but I could have ommitted it, because I don't think it is self-interested to try to live under a policy of deceiving others. So the word is redundant.
> I suspect that if we tried to clearly define that word we would find many more actions that many people would argue should be disallowed, like the "initiation of physical force". But many of those things would be far more controversial.
Omitting that word, what do you think people would argue should be disallowed? Once you bar the initiation of physical force, so many common-sense things are already covered. Maybe people would argue that we should bar using drugs, for instance---that would not be covered, as it's not initiating force. But I think it's obvious that drugs should be allowed except through circuitous logic that would be irrelevant in a context with a just government---such as "it costs the public to pay for drug use because of socialized medicine."
This is a bit of a tangent, so don't feel pressured to answer this question if you don't want.
> My point is that real, existing (non-theoretical) markets are more complex than you seem to believe.
I don't think so. You'd have to give me an example.
> Market actors will always try to find the "edges" of acceptable behaviour in order to gain advantage
Certainly.
> in a dynamic, changing world, those edges continuously multiply, making self-regulation in real life a pretty unreasonable prospect in my opinion
I don't get any of that. I mean, any rational investor wants to play on a market that has known, fair rules. Otherwise, they lose money. If all the rational investors go to a good market, the people who want to cheat on an unfair market won't have anybody to cheat off of.
You don't need government nannies to make the market fair. Say I open a stock exchange to compete with the NYSE. I am going to publish clear, straightforard rules, and if I am caught cheating, people can sue my ass off and go trade elsewhere.
The same principle applies in every sector of the economy. It's hard to see in some cases, due to the nannies. But obvious in many cases. For instance, if I buy a shitty laptop from Dell, I will not buy from them again. If it's bad enough, enterprising lawyers will start a class action lawsuit.
To broaden the example, the market is obviously working quite well and "self-regulating" for most consumer goods. I don't buy something with a shitty review on Amazon. If I go to Wal-Mart, I know most of the products are decent because Wal-Mart's people won't stock shitty stuff, because people won't keep buying it and they'll lose money (and devalue their brand in the mind of the consumer that bought something shitty).
And international law doesn't allow the initiation of force; you can only respond to someone else's aggression.
Yet wars still happen, and both sides claim to be acting in self-defense. It's almost like those "honest" people you require... don't exist.
I can't go murder someone here in the vast majority of countries without being punished severely.
What is responsible for the difference?
Within countries, there is government
Between countries, there is anarchy.
So your point is just giving an example of my point that self-interested individuals will set up a government that prohibits the initiation of force.
(To be clear, I don't advocate a world government, though.)
The entire theory of the efficiency of "free markets" is predicated on the rational choice model, which takes as a premise that all actors have perfect information about the expected costs and benefits of all possible market decisions.
Information asymmetry is not a "positive property" of markets, it is a source of inefficiency.
Whatever theory you are referring to is probably bullshit (definitely, if it's the one I think it is), but it's not the only theory supporting free markets.
So you argument is basically a straw man.
Why shouldn't he hold his breath? Do you think I can't answer a simple question?
1. A person who learns from another, especially one who then teaches others. 2. An active follower or adherent of someone, or some philosophy etc.
(http://en.m.wiktionary.org/wiki/disciple)
I would say there's no connotation of religion or Platonism in the word "disciple" and that by the second definition especially, you are very much a disciple of Ayn Rand. That's why it's useless to ask you for a utilitarian argument--Rand never dealt in utilitarianism, and as her disciple, you wouldn't, either.
I would also reject being called a "follower" or "adherent." All of these seem to me to have a connotation of _blind_ following, faith, or believing something just because you _trust_ some "authority" figure.
People who agree with Darwin are not called "disciples" of Darwin.
I acknowledge that the word "disciple" _is_ sometimes used to describe people who agree with a certain intellectual thinker, but I still think it generally has a negative connotation.
Anyway, regardless of your opinion on the word, Objectivists are likely to interpret you as being openly hostile if you use it to describe them. Though I can't speak for everyone, as I am a particularly sensitive person.
For instance, Your "don't hold your breath" point was right on target, but I initially interpreted it differently than the way I now think you meant it.
Rand, on the other hand, advanced a large, comprehensive philosophical system that has never been independently arrived at. Every Objectivist becomes such by reading and becoming convinced by the works of Rand and her associates. And very little disagreement with Rand is tolerated--certainly no disagreement with what she clearly incorporated into her philosophical system itself. This is the behavior of disciples, not simply people who agree with a philosopher. This is not to say that they are wrong, but that they are engaging in a behavior--namely wholesale acceptance of another person's thoughts--that fits, for me, the denotation and connotation of the word "disciple". And it doesn't bother me one bit that some disciples of Rand bristle at that word, because the word fits.
I don't think it's relevant that Darwin didn't publish until someone else agreed with him. I think it's a minor detail, and it's certainly irrelevant to whether or not something is true.
In summary, I think the distinction you're making is a false one.
It's certainly possible for a philosopher to develop a system that is faith-based, but that is not the case here.
> And very little disagreement with Rand is tolerated--certainly no disagreement with what she clearly incorporated into her philosophical system itself.
There are lots of people who disagree with Rand. It's not a religion. You can't be banished. There is no enforcement. So to say that little disagreement is "tolerated" is painting an incorrect picture.
> wholesale acceptance of another person's thoughts
That is a correct characterization of some people, but not everyone who agrees with Ayn Rand. Presumably, some people who agree with her acutally agree with her, rather than just "accepting" her thoughts. I would say that about myself.
> And it doesn't bother me one bit that some disciples of Rand bristle at that word, because the word fits.
If you think the word fits, I don't blame you for using it, but you're incorrect to think that it fits. It's bad to insult people based on _your_ own mistake.
Unless you just mean "utilitarian" to mean "useful" or "efficient."
I really don't have the patience to go deep into philosophy and economics in HN comments, so I'm not going to try to do that. The most I aim for normally is just to call out irrationality that can easily and convincingly be called out.
That said, I'll go into it a little bit.
I'm not saying that it's good for certain people to know less than others. I'm saying that it's inherent in human society.
The whole point of a stock market, to take a simple example, is so that a company can raise money based on certain people's belief that the company will do well. Sometimes they are right, sometimes they are wrong. They want to take the risk. The whole situation comes from information asymmetry.
If that weren't the case, all investments would be no-brainers, and everything would be totally different.
That said, the market rewards people for acting rationally on the information they have. That's not the purpose of the market, exactly, but it's a good thing.
And it does not imply victimhood. Knowing less doesn't make you a victim of someone who knows more.
Overall, people acting rationally on information they know is fundamental to the economy.
This is a huge topic, so I'm not sure if these points are that relevant to whatever you are thinking, but there you have it.
> Unless you just mean "utilitarian" to mean "useful" or "efficient."
Economic efficiency and the value proposition of utilitarianism are defined identically, so, yes, I'm saying "utilitarian" to mean "efficient".
> I really don't have the patience to go deep into philosophy and economics in HN comments
Then you probably shouldn't make value claims about properties of economic arrangements.
> I'm not saying that it's good for certain people to know less than others. I'm saying that it's inherent in human society.
You seem, then, to have completely abandoned the "positive property" claim that I asked you to support.
> The whole point of a stock market, to take a simple example, is so that a company can raise money based on certain people's belief that the company will do well. Sometimes they are right, sometimes they are wrong. They want to take the risk. The whole situation comes from information asymmetry.
No, it doesn't. Sure, the point of a stock market is to allow firms to raise money. But information asymmetry isn't essential to it. Some difference between the market participants is necessary for exchanges to occur in the market, but difference in preferences (i.e., different utility functions) is sufficient (this can manifest in, e.g., different sensitivies to risk and different preferences for current vs. future goods) to support a market without asymmetric access to information.
If Reuters had made it widely known that the report would be issued to customers in a higher tier first, this wouldn't be a problem. The fact that they were giving it out to certain customers first without telling others that they were going to be getting it later is the material issue. They were, fundamentally, helping create inside information for certain customers and creating an opportunity to exploit other investors who would be unknowingly trading with an information gap.
Even though the report was going to be widely disseminated, getting it ahead of other people without them knowing allows for you to create a huge market advantage for yourself if you know those other people are going to be trading on the same information shortly.
That's not the same thing as inside information, which is privileged information given to you by a corporate insider with a fiduciary duty to all shareholders.
Since this debacle is approaching world-wide proportion then the impact will be similarly global.
[1] http://www.ipr.northwestern.edu/publications/docs/workingpap...
"a public good is a good that is both non-excludable and non-rivalrous"
"a good or service is called excludable if it is possible to prevent people (consumers) who have not paid for it from having access to it."
If the Michigan Survey were non-excludable, we wouldn't be having this exchange. While you might argue that upon general availability through the media it is non-excludable, the excludability of the timely access is at the very heart of the issue.
The argument that the University of Michigan is a public institution has some merit, however the onus is on you to suggest a legal argument for the Federal Government to compel the regents and trustees to behave in a manner contrary to what they would have done otherwise.
In the end this is a semantic issue and we can probably agree that the language is not precise enough to succinctly describe what's going on with the Survey now. But perhaps the examples above are illustrative enough, as I have rarely heard complaint about the visible existence of ticketed/VIP seating at public events. Some others here claim the Survey's dissemination would not be objectionable if it were done in a more transparent fashion (but still in tiers for pay).
Finally, it's interesting that this particular news item has such a "long" advantage period for paying customers. Two seconds is a long time for computers, and even if the Survey were released "simultaneously" to everyone, those who paid to build better networks and systems to use it would still benefit. The end result might be similar, only without the extra rents paid to Reuters. If Reuters and UMich argued that without these rents the Survey could not be produced at all, I wonder if it would calm the critics.
Fiction sums it up best:
"Public’s out there throwing darts at a board, sport. I don’t throw darts at a board, I bet on sure things. Read Sun Tsu's The Art of War ‘every battle is won before it's fought.’ Think about it. You are not as smart as I thought you were, buddy boy. You wonder why fund managers can’t beat the S&P 500, cause they’re sheep and sheep get slaughtered. I’ve been in the business since ’69 most of these Harvard MBA types don’t add up to dog shit. Give me guys that are poor, smart, and hungry and no feelings. You win a few you lose a few but you keep on fighting. If you need a friend, get a dog. It’s trench warfare out there, pal." http://www.imdb.com/title/tt0094291/
A phenomenon not unlike what many of us have experienced bidding for an item on ebay.
Yet another example of the game being rigged. I don't invest for a living, but I've always thought it folly to approach the exchange in any manner other than a long term diversified one (as an individual investor). Maybe it is my lack of sophistication in the area, but anything else feels like gambling to me.
Lots of market participants are speculators. If you are speculating on the results of the number, you need to make sure your orders are in before it. Everyone in the low latency game knows when the number is coming, so it makes sense for speculation orders to go in when they do.
Now if Nanex wanted to prove something, they could show that a high percentage of those orders are consistently on the "right" side of the number, something they haven't done.
A spike in orders in advance of an "important" time implies that people are trading in anticipation of market movements around that time.
It does not, on its own, imply that anyone has material, non-public information in advance of anybody else.
I didn't make that clear at all in my comment, but yeah, I agree that the 4th tier is definitely speculation at this point.
I agree that it would be interesting to look for the payout skew for the numbers; that would just verify an additional transgression in my book. Unfortunately nobody reads my book so to speak :)
You see people paying for privileged access to information all over the place. For example, on a slower time scale, industry analysts hawk expensive monthly newsletters or one-time reports. Bloomberg terminals provide news feeds and market data for the bargain price of ~$2000 a month.
If you report data that's valuable because the federal government uses it in monetary policy decisions, then just push it to your customers as soon as its available for a flat rate.
When a company intentionally holds back data to make money on an incremental time difference, I'm sorry, that seems scammy and unethical to me.
As to Bloomberg consoles, that seems like a slightly different case, but if they similarly tier, then it is also unethical IMO.
Don't pit your customers against each other.
* get data a little early
* go long on the index
* profit!
A trader could execute all possible best-practices, and the numbers go the 'wrong' way. Or they go the 'right' way for a while, but then turn around as other traders cash out. Regardless, there's no guaranteed profit just because you have paid for early access.
The presence of risk-taking traders on all different time scales in secondary markets means that there's liquidity and accurate price-formation at a range of different time scales. At the very shortest time-scales, all customers are already against each other - it's the nature of a very liquid market, where A's gain is B's loss and vice versa.
But all this churning activity means that if you want to cash out your Apple stock, there's going to be a buyer right there on the other side, at all times. Without a deep reserve of risk traders willing to take the other side of every trade, liquidity is lost and capital is less likely to be attracted to the public markets.
Apparently UM gets a $1M/year or so through their distribution deal with Thomson Reuters in order to perform this research.
Actually, it is illegal to manipulate markets through selective disclosure. People have gone to jail for trading off of pre-published news articles. Not sure what your point is, if you consider data market moving, its news.
Refuse to trade for the 10 seconds before 9:55:23 and you know you won't be a victim. You might also miss out on something big, but you can't have it both ways.
Or they have paid for their own research and analysis.
eBay could easily fix it by auto-extending an auction for X amount of time after the last bid. That way any activity would allow all participants to respond.
Yes, I know the stock answer is "people should always enter the max they would pay", but that's not a good strategy and also not how psychology works.
[1] I said "Dutch" but apparently that technically refers to something else.
The system works if all bids were kept secret until the end, but that lowers pricing, and isn't what people think when they hear "auction".
Meanwhile, as-is, bidding early benefits you nothing and possibly harms you.
Because your desire for an item, expressed by your bid, is a signal to other buyers that can only raise the final price of that item. This strategy may work for you, but only if you're indifferent to the prices you pay.
After you (or your proxy) enter a successful bid, eBay raises the price and increments the bid count. Those are market signals.
It's not a question of whether the auction uses proxy bidding or real-time bid entry... it's a question of when your bid shows up for all to see. It's never in your best interest to call attention to an auction you're interested in bidding on, yet that's exactly what you do when you bid before the very last few seconds.
Are you saying I could buy things on ebay at lower prices by manually entering bids, implementing the auto-bidder algorithm by hand?
Yes, that's what eSnipe and other services do for you. They allow you to hide your interest in an item until it's too late for anyone to rethink how badly they want to win.
They market themselves on the occasional good deals you get on this model.
Bottom line if you are not going to put in significant effort you are not going to get much out of the stock market except by pure luck, and on average your going to lose... for the common man the effort necessary to make an extra 15% on your yearly income in the stock market, is more than if you did overtime or even went out and got a part time second job to earn that extra 15%
I was told it was always sensible to invest in index trackers with minimal really low admin costs.
Getting a part time job is only a good idea if you have very few assets. Suppose you have 50k in salary and 50k in assets, then it's much easier to earn an extra 5k per year than it is to get an extra 10% return on your investment.
However, if you have 50k in salary and 500k in assets the story is the other way around. Investing 500k for 10 years with 6% interest instead of 3% interest leads to gains of 395k and 172k respectively. In this case making an effort in investing your money sensibly will lead to an extra 22k every year. A substantial difference. And as your assets increase your investment strategy only becomes more important.
Then there's the issue that not investing your money simply isn't a viable option. Inflation will chip away at your money at 3% per year, so you lose 25% of your money every 10 years if you stick your money in a checking account. Then there's the issue of employer-based 401k matching. You pretty much have to invest here, otherwise you lose out on free money. And if you just pick some investment funds at random you're going to do very poorly indeed (because many 401k funds are basically scams)[1].
[1] See http://www.pbs.org/wgbh/pages/frontline/retirement-gamble/
+1
I drop a portion of my money each month into selected ETFs and it's done well for me (ha, the market has been on a bull rush, of course it did well for me).
You're right. And why should it be any other way?
People often forget that underneath the glitz, glamour and dazzling array of numbers of the stock market and Wall Street, the purpose of "the game" is moving real capital to real businesses in need. And there are real risks associated with that.
The last 20 years have been seemingly "easy" for investors, or at least the years (prior to 2008) have been portrayed that way. But in no way should people believe he or she should be able to throw darts at the stock page and earn a 15% return. Aiming for the maintenance of the purchasing power of your savings, while generating those savings through work at which you're actually adept, is a far more reasonable and sensible goal.
Well, if it is a public offer, yes. But most of the time people are just buying stuff on the secondary market, meaning that the ownership of the company changes (a bit), but there is no capital move to and from the company. Nevertheless, this might help companies to create and time new rounds of public offers.
Illiquidity is one major reason that private companies sell for lower multiples than public companies of equivalent size.
I see where you are going with the "what motivates people to buy ownership" part, and it has truth in it. My grandparent response was to the part "moving real capital to real businesses in need". Many people don't realize that the secondary market is not moving capital to the business, only the public offering.
On average, you should expect your money to move with the market, less costs of admin. Reading prospectuses is not fun, but its not hard to do to figure out which funds will take you for a ride and which are being decent.
Frankly, it's like free money after you finish your initial investigation.
Short-term speculation is, as everyone should know, a high risk high gain occupation. This is not rocket science, this does not take massive intelligence.
Second, even if you were beating the market, how do you know you're not just being fooled by randomness (In the Nicholas Taleb sense)
As for randomness, ETFs provide exposure to thousands of stocks which better than anything else averages the randomness.
Second, I don't care if it's just a large number of random numbers or an actual performance: if I can draw out lots of money (lots more than I put in) when I am ready to, I win. :-) Angsting hard about this doesn't gain me much.
So if I know the results of the orange harvest before you, I can buy frozen OJ futures and sell them to you even if you are not placing an order through me.
You still lose out, I still take advantage of my private knowledge. Whats the difference?
What we do have is a promise (cynical folks might say promise is too strong here) that if you are my broker, you can't use my non published order desires to take market positions.
We also have a promise that certain covered individuals working for a publicly traded company, cannot release certain material pieces of information about that traded company to anyone early, nor can they trade on that information before it is released.
The problem is not private knowledge, there is tons of that in the market, and that is what makes people take different market positions, thus enabling the market to exist. What is problematic is for people to take advantage of information that no one else could conceivably get.
There may be no such promise but it is not clear on its face that such a promise should never exist, for example, to maintain liquid and orderly markets.
Is there any situation where it would be desirable?
If only 10 entities could buy real time stock quotes from the exchanges and everyone else had a 5 minute delay, wouldn't that be undesirable?
And what about government interest rate decisions? Should some entities be allowed to get early access?
HFTs don't have customers. They are trading on their own books.
This is just plain false. Knight trading is a HFT firm that trades both their own book and on behalf of clients.
Infact there is a large market of HFT firms that trade on behalf of clients.
As always the term HFT confuses people. HFT doesn't say anything about buy or sell side, it mearly indicates that atleast one of the following is true:
- the firm has a high order to fill ratio, with most orders being live for only fractions of a second
- holds positions for under a few seconds,
- tries to make money by collecting the liquidity fee
- engages in price arbitrage across multiple exchange venues.
This is much like asking, why bother with terms like arrays and linked lists. Lets just call all of it "data structures", what's the difference?
It's basically market research. You can't equate being better at predicting future prices with "front-running".
It's possible that what Reuters was doing is illegal on other grounds, though.
> You still lose out, I still take advantage of my private knowledge. Whats the difference?
Well in the specific instance you use, this would be legal. In the futures market it is not only legal to trade on "insider information", its also expected.
The reason is very simple...consider an orange juice producer, they know what their required input will be( the insider information), the entire purpose of the futures market is to let them go out and lock in a price they will pay so they can budget.
Now consider what would happen if you couldn't trade in the futures market with insider information. If their order would be so large or small that they would move the market then they would be locked out of the futures market and woudn't be able to lock in their price.
While some of his reporting on the crisis was OK, he has a habit of treating equivalently shortsighted or foolish behavior differently if he has predetermined you to be victim or a perpetrator.
That's a really wonderful way to put it.
I know, right. James Altucher has a great post on this, especially like his #3
All credit rating companies give it a good score
All auditing companies agree it's going great
All numbers look good
All "market analysts" recommend it
And then it implodes.
Remember what happens when you don't know who the fool on the tables is.
On some of the investment funds offered by my bank their fees are so high the investment fund will never ever make money for the customer. And yet they shamelessly sell it anyway.
Of course, Vanguard wants to steer people to their more profitable investment funds, and paying the sales fee to the bank on behalf of the customer is a good way to do that.
So if you get IVV without commission you're benefiting from this price war.
Personally, I'd be very curious to see two parallel markets for securities: one that is completely unregulated where anything goes and one where any bad actor is prosecuted to the fullest extent of the law, including multi-year jail sentences and fines that are many multiples of past ill-gotten gains.
This would leave every actor with the choice of participating in the market they want to participate in, including both investors and companies. Companies could choose to list their securities on one just one of those two exchanges or both, and investors could invest only in companies on one exchange or on both exchanges.
The problem with the status quo is that the only actor who knows what exchange they are playing in is is the bad actor. The good actor often will not know that his counterparty is acting in good faith or is corrupting the system until after losses are suffered.
Creating a market for markets, where you can choose between unregulated and regulated markets, allows actors to choose which system they prefer to participate in and leaves regulators free to actually enforce the regulations without being soft for fear of what it may do to the market itself, which is exactly what happened in the 2008 crisis. Regulators were scared shitless of really prosecuting bad actors for fear of plunging the world further into a recession.
(Ironic, isn't it? Since the "Great Recession" was caused by government, as well as the fact that we're still in a slump and will be until there is major political change.)
The business of the SEC is to nanny rich adults, and nobody wants that job because they just care so much about those rich adults and truly want to force them to do the best things for themselves. As if forcing people to be good were even possible.
This is true only in that it was a direct consequence of deregulation that removed regulations designed to protect against a repeat of the Great Depression.
Does anyone have any evidence whatsoever that high frequency trading is a benefit? I've read arguments that they are market makers by creating liquidity. But, I've yet to read a compelling explanation as to how they actually achieve that, nor how its provably valuable to the market as a whole.
He links to the HN comments as well.
Market makers move liquidity across time, matching up buyers and sellers who arrive at different rates and possibly on different exchanges. They do this by posting two-way prices and managing their inventory risk. Since placing limit orders gives a free option to other more informed traders, HFT MMs must be very skilled at predicting short-term price movements and adjusting their quotes quickly based on these predictions. They attempt to profit on the difference in their buy and sell prices net of fees. The market maker is buying when potentially informed sellers enter the market and selling when buyers enter the market, and prices often move against them. In reality if they are good at predicting prices and managing risk they will capture a fraction of the spread. This activity dampens volatility since there are more ready buyers and sellers in the market which keeps prices close to fair value rather than moving abruptly simply because of a short-term imbalance in the number of buyers/sellers. For a counter example of this look at the Bitcoin market which is relatively illiquid and large orders can move the price substantially.
Arbitrage is another common HFT strategy where they are moving liquidity and price discovery from one product to another. An example would be trading an ETF vs. the basket of stocks it contains. If the basket is cheap relative to the ETF, the HFT firm will buy the basket of stocks and sell the ETF and realize a profit by either unwinding the trade or creating/redeeming the ETF/basket. This activity keeps prices fair so when you buy shares in an ETF they have very little tracking error relative to the underlying basket of stocks. Because computers can trade for almost no margin, trades like this are extremely competitive to the point where most major ETFs essentially never trade at a discount or premium.
The reason market-making HFT is especially beneficial is because it can operate at such low margins. Human market makers had to charge wide bid-ask spreads because one floor trader could only manage a handful of products at once so they need to make more money in each product. In today's world a small team could run automated market-making on a thousand symbols or more. They're happy making a penny spread or even less since they cast such a wide net.
Financial intermediaries have always existed since buyers and sellers rarely arrive at the exact same time and place. Automating this process is far more efficient than doing it by hand.
Was there so much moral outrage and misunderstanding when manned telephone switchboards were replaced by computers?
There are real issues in the US market structure (internalization/payment for order flow, poor tick size choices that encourage penny jumping in high-priced stocks and jockeying for queue position in cheap ones, excessive number of exchanges some created just to offer different fee structures, tiered rebates, etc.) but HFT generally has positive effects on market quality.
> There are disagreements as to whether or not this practice is illegal.If I (unrelated to Steve Ballmer) tell you "hey, that guys getting old, he'll probably retire soon", that's not insider trading.
Near as I can tell, the Reuters early release is firmly within the category of the latter. I can't see any reason why early release of private research would be illegal.
If not I suspect its illegal.
Al Capone was done for tax evasion, cannot see why Reuters cannot be in breach of a Fair Trading / Sales Act :-)
If they were releasing it at other times it would most likely be a contract breach or some other civil matter.
But that is a big if. All this article points to to prove that is a disgruntled employee and a Nanex study (all months old) that do not have any proof of early release.
If the regular customers know that there are other more privileged tiers that impact the value of what they're buying, I guess it's ok. Otherwise, i think it might qualify as fraud
If the 4th secret tier exists, that would be a bigger problem but there is no proof of that in the article. It is all speculation.
The Michigan Survey is one (probably the most prominent) of a number of private surveys and data point the big banks, but also include things like National Association of Purchasing Managers Survey, LA Port Traffic, Mortgage Banking Association Mortgage Applications, American Institute of Architecture Billing Index (leading indicator of construction), and a host of others.
For individual investors, sitting on the sidelines, watching the carnage and then jumping in is probably the best play. No small investor can beat the machines at their own game, but you can most definitely take advantage of the swings in the market caused by the machines...