Turn Out the Lights, the Party’s Over
streetwiseprofessor.com
streetwiseprofessor.com
http://www.amazon.com/Dark-Pools-Machine-Traders-Rigging/dp/...
Good riddance, the markets are better off in almost every way but removing pit traders.
- end of day's reconcile,
-machines aren't tempted to "lose" trade tickets for trades that would have been loses.
- machines don't hold clients trades while they jump infront of them.
- liquidity is much, much better off now. Every flash crash has an almost instantaneous rebound of prices back to their "true" values.
To the city of Chicago's credit. Even thought they lost pit trading for futures and almost all options, they've still managed to keep the bulk of those trades via the electronic CBOE and being the center of HFT.
I would guess that when an industry gets as disrupted as pit trading was, then the center of gravity would tend to move. In this case, Chicago did well to hang onto it.
In which ways are they not better off?
Absolutely. At the beginning of 1997, the London International Financial Futures and Options Exchange (LIFFE) had 65% of the market for trading German Government Bond futures (known in the market at Bunds), its most-traded product. Eurex (the German futures exchange in Frankfurt) had the other 35% of the market. Throughout 1997, Eurex slowly grew its market share by slashing trading fees and extending access to its electronic platform to clients in the US and London. By contrast, LIFFE was slow to embrace technology, preferring to rely on the traditional, open outcry trading floor model. However, in January 1998, for the first time, Eurex captured a larger share of the Bund market than LIFFE. This marked a tipping point and by the end of 1998, virtually all Bund trading had shifted to Eurex (and stayed there).
Coincidentally, the Streetwise Professor himself wrote a paper on the topic: http://www.bauer.uh.edu/spirrong/dtbtip2.pdf
Does machine trading actually bring anything with it that discourages that? I would think that it would make it easier to do that as a defacto business model.
It was an amazing place, and I hope somebody collects all the colorful stories that result when you get so many adrenaline junkies together in one place. (E.g., the time somebody punched out a polar bear. Or the the trash bags full of money. Or the snow futures market.) But my guess is that the traders don't really mourn its loss as much as I will. When I was back in Chicago a couple years ago, the Merc had shut down their trading floor at 30 S. Wacker. I stopped in to ask the security guards if the traders missed it. "Those guys? Hah! No, they just left one day and never came back."
http://ftalphaville.ft.com/2015/02/05/2113091/reminiscences-... (login needed)
The problem with the abstracted version of the market is that, well, none of the potential repercussions for breaking the rules involve any sort of face-to-face experience. Just the same way that defrauding people via email is much easier than doing it face-to-face, the lack of a physical interchange creates a similar bad behaviour incentive in the market.
With no social-pressure to be collaborative, everyone in it for themselves and regulators inevitably asleep at the wheel, because, well, there’s no way for them to keep up with how bad behaviours are innovating, all we end up with is a Wild West market in which nobody can ever trust anyone. Whether that leads to social stability and growth in the long run, we guess only time will tell?
The OP article also seems to be highly colored nostalgia. Really, a "market" with numerous "rules not written in any book that you adhered to, or else" is believed to be a paragon of efficient markets?
I do believe it was a party in there, just not one that anyone but the most well connected and capitalized had any access to.
Right or wrong, the assertion seems to be not that email makes the scam itself easier, but that it lessens the social impact on the scammer (making it easier to decide to be a scammer, and ignore the impact you are having on the other person).
...asked the taxpayer.
Slaves didn't get paid. I'll rephrase that. They were taxed 100%.
How much percent are you taxed? Does that make you a slave? You probably think it doesn't.
But if someone that is taxed 100% is a slave, then if we tax people 99% can we say they're not slaves any longer? What about 98%? What about 39.1%? What's the cutoff?
Indeed it gets to a point where we can't say with a straight face that people are "slaves" because they're getting most of their money back.
The difference between scam and slavery is a matter of degree. If you dial this scam up to 100% it becomes slavery. If you dial it down enough that people believe you're stealing their money for their own good, that's when it's a scam.
Food for thought.
This is just not the case. Slavery is much worse, because it extends beyond money. For instance, as a slave, your children can be sold away from you. There is a big difference between high tax rates and being outright owned.
But that's a detail. Governments do sell our children away quite literally, which is why young people entering the market now pay for health benefits for the elderly - because the State is too incompetent to properly manage the money those elders put in themselves when they were working.
Try another argument. Good one though.
You are saying that governments "literally" sell our children. The reason you give is that young people are paying taxes that support Medicare, i.e., health care for senior citizens?
I think your argument is that these taxes (1.45%, currently) are "literally" the equivalent of slavery?
I'm arguing that when we (taxpayers in the US) go in debt ($18 trillion + $100 trillion in unfunded liabilities) that means we are borrowing from future generations which will then be forced to pay for something they never voted for.
I see you like numbers. The numbers I point out above are a little scarier than your "1.45%" but nice try.
Taxation doesn't control who you can marry. Taxation doesn't confiscate your children. Taxation doesn't prevent you from practicing your religion. Taxation doesn't require you to take the name of the person who owns you. Taxation doesn't deliberately keep you ignorant and uneducated. Taxation doesn't beat you to death if you try to escape (it is trivially easy to renounce your US citizenship). Taxation doesn't tell you are less than a human because of your national origin. Taxation doesn't make you owned by one person, a thing that can be sold to another person.
Get some freaking perspective.
> You might want to take a couple seconds to think about all the ways that taxation is different from actual slavery
I've thought and read about this for more than a couple of seconds, but if it makes you feel edgy to make unfounded statements about how much research your interlocutor has put into what he has said, then whatever floats your boat.
> Taxation doesn't control who you can marry.
Tell that to gay people in the US.
> Taxation doesn't confiscate your children.
Tell that to those whose children have been unfairly taken away by CPS (there was a terrifying experience related on HN not long ago).
> Taxation doesn't prevent you from practicing your religion.
Religion is bigotry justified and made immune to criticism via holy books. I'm against them so I don't care about this point.
> Taxation doesn't require you to take the name of the person who owns you.
It does require you to get official papers, documents, and IDs registered with the oppressor, plus a passport and all your fingerprints to go from one tax farm to another.
> Taxation doesn't deliberately keep you ignorant and uneducated.
It sure does with the Prussian education model we use in the US, and you're anecdotal proof of that.
> Taxation doesn't beat you to death if you try to escape (it is trivially easy to renounce your US citizenship)
From Wikipedia: Renunciation of U.S. citizenship was free until July 2010, at which time a fee of $450 was established.[29] An increase to $2,350, effective September 12, 2014, was justified as "reflective of the true cost" of processing.[30]
So it's only "trivially easy" for those that have $2,350 in the bank which if you look at the statistics for the US isn't that many people.
> Taxation doesn't tell you are less than a human because of your national origin.
Tell that to the Palestinians.
> Taxation doesn't make you owned by one person, a thing that can be sold to another person.
Tell that to the Greeks whose work and life savings are being negotiated to be sold to international banksters as we speak.
Good try though. Try again. This time try doing doing it better.
Not taxes.
>CPS
Not taxes.
>documents
You have to tell them what your name is. This is not the same as them telling you what your name is.
>education
Taxes pay for that but it's optional.
>Renunciation of U.S. citizenship
If you're poor then you pretty much don't pay taxes anyway.
>Tell that to the Palestinians.
Sorry, let me clear my throat. TAXes, not TANks.
>Tell that to the Greeks
This is a complicated situation, but it's mostly repercussions of government spending without enough taxes to back it up. If anything it shows a way to screw up not taxing.
>Try again.
Yeah, you too. After you look up what taxes are.
That is why I say that it is taxes that, for instance, disallow a woman to marry another woman. Marriage (through the State) is a tax-discount. People only want to get married for the tax discount. When the State doesn't let gay people marry, it doesn't let them get a tax discount. If there were no taxes, there would be no difference between married and unmarried, and this point would be moot. I understand this is a long-shot argument but I do honestly see it this way - to me marrying without the State is just moving in together and anyone, gay or not, can do that. What gays want is the tax discount that the State is unfairly allocating only to straight couples. Through taxation, therefore, the State can encourage and discourage behavior. So yes, it is taxes that are keeping gay people from getting a tax discount. I hope this is now clear.
Paying taxes for public schooling is not optional. I don't understand why you would say that when you know you're lying. Maybe you mean it's optional to go to a public school? That is irrelevant. It is not optional to pay taxes for public education.
Regarding name, your parent tell the State what your name is, and from this point on it is the State that tells you what your name is according to your parents. You don't get to pick it. You don't tell the State, your parents do. They do because they are forced to. They are forced to because the State wants to collect taxes from the parents' newborn. If the State did not want to collect taxes from people it would not force parents to name their children with the State.
Also a bigger points I should have made earlier: maybe you should look up what slavery is. Because it has nothing to do with controlling who you marry, confiscating children, not allowing to practice religion, requiring one to change one's name, keeping one ignorant and uneducated nor discriminating against place of birth.
Slavery: the state of being a slave. Slave: a person who is the legal property of another and is forced to obey them.
Are you forced to pay taxes? Yes.
Remember, I never argued taxes = slavery. I argue taxes = scam and if you dial taxes up to 100% that scam becomes slavery. So slavery is the end of the tax scam spectrum.
Not really. The 'monopoly on force' thing is a lot more important than taxes.
>People only want to get married for the tax discount.
Ha.
>Maybe you mean it's optional to go to a public school? That is irrelevant.
That's what I meant. You were talking about "deliberately keeping people ignorant and uneducated". That's about going, not paying.
>the State that tells you what your name is according to your parents.
All you have to do is fill out a form to change it. The state forces that there be a name, but no further.
Being forced to do anything at all does not logically imply slavery.
Slavery is far beyond having a 100% income tax.
http://en.wikipedia.org/wiki/Time_Will_Pronounce#The_convert...
https://www.youtube.com/watch?v=BUlsI_Ze5Z0
My first job was as a messenger in Liverpool's shipping and forwarding business. Bills of Lading, Letters of Credit, quotes on seafreight and bulking up the sailor's wage run (five large chaps in a Jaguar delivering £50k in cash, half Sterling, half DMs, to the ship's bursar to pay the crew of the charter cargo ship).
I used to walk past the Liverpool Echo building with printing works in the basement (you could blag an early edition if you asked nicely at the back entrance, and the ink would still be drying).
All gone. Shame as those jobs gave entry to the world of business with little in the way of credentialism.
Sea-freight charges are a time sensitive market. There was a geezer with a tiny office high in a big old seafront office building who had 5 phones on his desk and who would buy empty space on ships then sell it on. No intellectual, tonnes of knowledge of the ships, routes and the people who needed to shift stuff.
The same thing happens when someone in car screams and swears at someone for not driving up to expectations, or not getting out of the crosswalk in a timely manner. That same screamer would never do that at work, because of immediate social pressure if nothing else.
Distance and darkness does less to inhibit unchecked corruption than regular social feedback.
Face to face contact is a powerful tool for a scammer, it is a much more personal interaction, and as has been noted, is something that the wannabe email scammer lacks. Projecting confidence at another human and being able to read and respond to their responses in real-time is pretty much the basis for the entire cottage industry of con-men. Email is very impersonal and is easily ignored.
I'm neither doomsaying nor cheerleading, but it's something worth watching.
Except it was the exact opposite of that. The archetypal Chicago futures pit trader was a normal guy off the street, usually without a college degree, who managed to scrape together a few thousand dollars to cover the margin for a couple of contracts.
http://www.crainsnewyork.com/article/20140602/FINANCE/306019...
I'm glad I had the chance to see it.
Quick question, for ES futures, SPX options and other major option series that are operating on a hybrid model (electronic + open outcry?) How do the exchanges reconcile these?
For instance, do open outcry trades have to follow NBBO; and what is the latency of an open outcry trade/bid/ask being broadcasted in quote feeds? Do people mostly still do open outcry to execute extremely large block orders? Finally, would the cease of open outcry affect membership pricing of CME?
My understanding is that open outcry is still useful for options trading because it lets you do complex multi-legged trades "atomically." A broker can get together with a local (or several, if it's a big order), and sort out a single price for a trade that will involve multiple instruments.
As for options, AFAIK, CBOE and ICE already keep multi-legged books in electronic trading. For example, you can request for a multi-leg order via Interactive Brokers and it'll return a bid/ask spread that's the sum of all your ratio's/legs. When you execute, I think IB's SmartRouter does the magic to figure out which exchange to submit your order to (whether to submit it all to a multi-leg book or as single orders; but IB is on the hook to guarantee the complete execution of your order).
On liquid options, hitting mid on your multi-leg has a decent chance of being executed. However options in general are not as liquid as equity, so happy that guys at CBOE/CME can still do open outcry.