Here Is The City reports that a trader has been charged with fraud and market manipulation related to the Flash Crash of May 2010.
This story has been featured heavily in the press, particularly because the trader himself is so different to the usual trader stereotype (he lives in a pretty ordinary semi-detached house despite being worth £millions). He also protests his innocence and believes he was just good at his job.
I wonder if this guy will be the next subject of a block-buster Michael Lewis book?
Traders Magazine notes that it’s now a year since Michael Lewis published “Flash Boys”.
After all, it’s not every day that a book launches attorney general investigations, inspires an exchange president to meltdown on cable news and spur Americans to buy a book that features an obscure trader from the Royal Bank of Canada to figure out why the price of his trades were increasing the instant he placed his order.
I read Flash Boys soon after it came out and thought it was excellent. Now, Traders Magazine points out that they talked to IEX before Lewis brought out his book.
The Vanity Fair article by Michael Lewis is worth a read.
All About High-Frequency Trading (Michael Durbin)
This is subtitled “A detailed primer on today’s most sophisticated and controversial trading technique”. For me, it really delivers on that promise with decent coverage of the subject from a high-level and even some detail on basic trading strategies as well as a stab as system design.
Bloomberg reports that Goldman Sachs is the latest firm to suffer from a programming error in their automated trading software:
An internal system that Goldman Sachs uses to help prepare to meet market demand for equity options inadvertently produced orders with inaccurate price limits and sent them to exchanges
Participants in trades caused by error can appeal, and exchanges are reviewing and busting trades. It seems a large number of trades occurred because quotes entered the market at a price of $1:
Of the 500 biggest options trades in the first 15 minutes markets were open today, 405 of them were for tickers starting with H through L and priced at $1, according to data compiled by Trade Alert LLC and Bloomberg
Finextra reports that regulators have begun to crack down on HFT firms that employ algorithms to submit fake orders to manipulate the market.
Regulators on both sides of the Atlantic have levelled their first fines against high frequency traders who deployed computer algorithms to spoof the markets by placing and immediately cancelling bids and offers in futures contracts.
David Meister, the CFTC’s enforcement director, says: “While forms of algorithmic trading are of course lawful, using a computer program that is written to spoof the market is illegal and will not be tolerated. We will use the Dodd Frank anti-disruptive practices provision against schemes like this one to protect market participants and promote market integrity, particularly in the growing world of electronic trading platforms.”
BusinessWeek published this article by Mathew Philips on high frequency trading.
He relates the rise of several HFT firms:
By 2010, HFT accounted for more than 60 percent of all U.S. equity volume and seemed positioned to swallow the rest.
Now, he predicts the end is nigh:
For the first time since its inception, high-frequency trading, the bogey machine of the markets, is in retreat.
Speed traders aren’t just trading fewer shares, they’re making less money on each trade. Average profits have fallen from about a tenth of a penny per share to a twentieth of a penny.
This could be due to increased competition and higher fees for co-location. Now there’s extra regulation:
Last fall the SEC said it would pay Tradeworx, a high-frequency trading firm, $2.5 million to use its data collection system as the basic platform for a new surveillance operation. Code-named Midas (Market Information Data Analytics System), it scours the market for data from all 13 public exchanges.
TheTradeNews.com reports that Morgan Stanley’s HFT software re-write is promising:
“This is the first time we’ve done a full re-write of our equity trading infrastructure – it’s brand new software running on brand new hardware, and we’ve specifically brought in expertise from low latency trading firms to achieve this”