Considering this current administration, it is sadly unsurprising that the SEC most likely won't follow through with some serious penalties. It is absolutely abhorrent that an exchange is marketing and promoting secret services that offer distinct execution advantages only to select clients.
I hadn't heard of this although I'm in the industry.
It sounds weird. Normally if you want to attract or profit from high frequency traders, you offer the differential product (fast market data / colocation / direct exchange connection) to whomever is willing to pay and then you take pains to equalise latency between those participants. That's usually what both the market and the regulators want.
If you assume collusion with trading firms, privately offering special services to a handful of participants also doesn't make sense - better to do deal with one, who would pay more for the exclusivity and be less likely to publicly expose you. For a top market maker, competing with 50 others isn't much worse than competing with 5 others, but they might pay millions a month to have zero competitors.
So, ruling out bad business or corruption, what's left? It sounds like it might just be a compliance failure by Nasdaq: they marketed the feature to the obvious firms, the ones who were already paying for the fastest service, and neglected to do the right regulatory filings to advertise it to everyone. Which is not nothing - regulators enforce transparency on this thing for good reason - but is pretty close to a victimless crime.
I work for a firm that would be an obvious candidate for this, to the point where I likely would have been the person for them to email to sell this service to.
Yet, this is the first I'm hearing of it. It makes me wonder if there was some kind of intent, or if it was offered on an 'if they ask about it' basis.
With the way trading arbitrage matters down to the nanosecond, depending on the exact type of connections they allowed this for and for how long, millions of dollars could have moved from some firms to others. There's no real way to know the scale of the impact.
High speed trading in itself doesn't do any harm to individual investors, quite the contrary - spreads are much tighter, liquidity is there. I see it as not really harmful, but also not socially useful at all.
One could argue that the real harm it does, is that since trading is cheaper, it encourages gambling.
I always liked the idea that any trade being reversible within one second of being made. If you want it to be finalised it will be before you can even ask for it, but I feel like it would mean that high speed trades would be mitigated by a mechanism like that.
I'm sure some clever person can figure out a way to exploit that. I'd be interest to hear how that would work.
I guess another way would be to quantize the time of trades down to a certain time threshold and two things come in at the same quantum, make them play Scissors, Paper, Stone to get them to decide who came first.
Versions of both of these exist in the FX market ("last look" and "latency floor" if you want to Google).
They are successful in reducing, but not eliminating, the advantages of lower latency. It's not clear that they make the market more efficient or cheaper for unsophisticated users overall.
things ARE reversed for special traders in specisl markets, like when metals went crazy a few years ago, and a major trader got caught out in a deal with a huge amount of nickle, and that and some other trades, were let off the hook.
Now it's one more example of markets bieng rigged, not just through barriers to entry , but also that the trading "floor" is now somewhere secret and operating under flexible rules.
All the money people need to be smacked up side of the head, and told that trying to sneek in some sort of fuedal system to run the world is not going to go well.....isn't going well.
Fuck me, nasdaq with there hand in the till.
we could get into, how much of the rest of the worlds economy is already running a parallel system, with national currencies, and direct trades in commodities, and how old allies are openly trying to join the alternative currency baskets. ie: sanctions and tarrifs, and the prospect of facing repercusions in local juristictions, and now that the orange one is shutting down the printing press, it has a great deal of the worlds.,......I shall euphemisticaly call...."liquidity"......looking for a better house to bet in.
Considering this current administration, it is sadly unsurprising that the SEC most likely won't follow through with some serious penalties. It is absolutely abhorrent that an exchange is marketing and promoting secret services that offer distinct execution advantages only to select clients.
Or previous administration, going back to just after the Teapot Dome Scandal
https://archive.ph/zs37l
I hadn't heard of this although I'm in the industry.
It sounds weird. Normally if you want to attract or profit from high frequency traders, you offer the differential product (fast market data / colocation / direct exchange connection) to whomever is willing to pay and then you take pains to equalise latency between those participants. That's usually what both the market and the regulators want.
If you assume collusion with trading firms, privately offering special services to a handful of participants also doesn't make sense - better to do deal with one, who would pay more for the exclusivity and be less likely to publicly expose you. For a top market maker, competing with 50 others isn't much worse than competing with 5 others, but they might pay millions a month to have zero competitors.
So, ruling out bad business or corruption, what's left? It sounds like it might just be a compliance failure by Nasdaq: they marketed the feature to the obvious firms, the ones who were already paying for the fastest service, and neglected to do the right regulatory filings to advertise it to everyone. Which is not nothing - regulators enforce transparency on this thing for good reason - but is pretty close to a victimless crime.
I work for a firm that would be an obvious candidate for this, to the point where I likely would have been the person for them to email to sell this service to.
Yet, this is the first I'm hearing of it. It makes me wonder if there was some kind of intent, or if it was offered on an 'if they ask about it' basis.
With the way trading arbitrage matters down to the nanosecond, depending on the exact type of connections they allowed this for and for how long, millions of dollars could have moved from some firms to others. There's no real way to know the scale of the impact.
Would be interesting to see the customer list Nasdaq selected to secretly offer this to.
I suppose it will never happen, but just implement a Tobin tax on high speed trading.
https://en.wikipedia.org/wiki/Tobin_tax
High speed trading in itself doesn't do any harm to individual investors, quite the contrary - spreads are much tighter, liquidity is there. I see it as not really harmful, but also not socially useful at all.
One could argue that the real harm it does, is that since trading is cheaper, it encourages gambling.
I always liked the idea that any trade being reversible within one second of being made. If you want it to be finalised it will be before you can even ask for it, but I feel like it would mean that high speed trades would be mitigated by a mechanism like that.
I'm sure some clever person can figure out a way to exploit that. I'd be interest to hear how that would work.
I guess another way would be to quantize the time of trades down to a certain time threshold and two things come in at the same quantum, make them play Scissors, Paper, Stone to get them to decide who came first.
Versions of both of these exist in the FX market ("last look" and "latency floor" if you want to Google).
They are successful in reducing, but not eliminating, the advantages of lower latency. It's not clear that they make the market more efficient or cheaper for unsophisticated users overall.
things ARE reversed for special traders in specisl markets, like when metals went crazy a few years ago, and a major trader got caught out in a deal with a huge amount of nickle, and that and some other trades, were let off the hook. Now it's one more example of markets bieng rigged, not just through barriers to entry , but also that the trading "floor" is now somewhere secret and operating under flexible rules. All the money people need to be smacked up side of the head, and told that trying to sneek in some sort of fuedal system to run the world is not going to go well.....isn't going well. Fuck me, nasdaq with there hand in the till. we could get into, how much of the rest of the worlds economy is already running a parallel system, with national currencies, and direct trades in commodities, and how old allies are openly trying to join the alternative currency baskets. ie: sanctions and tarrifs, and the prospect of facing repercusions in local juristictions, and now that the orange one is shutting down the printing press, it has a great deal of the worlds.,......I shall euphemisticaly call...."liquidity"......looking for a better house to bet in.
https://archive.ph/zs37l
> an undisclosed high-speed trading service it offered to a handful of its client trading firms
Level playing field my ass!