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(Huffington Post)   This just in, the stock market is rigged   (huffingtonpost.com) divider line 99
    More: Obvious, high-frequency trading, stock markets  
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3049 clicks; posted to Business » on 31 Mar 2014 at 2:46 PM (26 weeks ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2014-03-31 01:12:15 PM
This just in High Frequency Trading is not new.
 
vpb [TotalFark]
2014-03-31 01:52:06 PM

FishyFred: This just in High Frequency Trading is not new.


No, rigging the stock market is not new.  People with money rigging things to favor people with money in general isn't new.
 
2014-03-31 02:08:29 PM
And if you read the BOOK, you know that:

a) The people in charge know what's wrong
b) Most of the people in charge have no incentives to fix it.
c) But the few who do have invented a way to fix it.
d) And of course, the regulators are too far behind the times
e) No, seriously, your tax will do nothing.  Inserting a DELAY into the system, funnily enough, WILL. (Well, 92% vs. 17%).
 
2014-03-31 02:40:22 PM

meyerkev: c) But the few who do have invented a way to fix it.


It's a tech fix. The logical way to stop high frequency trading is to tax trades with a sales tax.  But Wall Street would rather people know the markets are rigged than have them discover how much money a Wall Street sales tax would generate.
 
2014-03-31 02:52:06 PM
Gee, who knew?
 
2014-03-31 02:56:32 PM

vpb: FishyFred: This just in High Frequency Trading is not new.

No, rigging the stock market is not new.  People with money rigging things to favor people with money in general isn't new.


It's not "rigging". That's too broad a term for what's happening here. What they're doing is observing in-progress sales and, due to their low pings and quick reaction time, intercepting the sale and giving themselves a few pennies in the spread between bid and ask. The other parties often aren't even aware of a middleman.

An tiny, infinitesimal tax on trades would kill this practice dead, because 99.9999% of investors don't make trades on stock they hold for only .001 seconds.
 
2014-03-31 02:59:50 PM
simple solution if you're so concerned: Don't trade on a market that allows HFT


Nobody is being forced to make trades they didn't put an order in for.
 
2014-03-31 03:00:16 PM
I thought the law of diminishing returns had already caught up with HFT.
 
2014-03-31 03:06:57 PM

MugzyBrown: simple solution if you're so concerned: Don't trade on a market that allows HFT


Simpler solution: just buy index funds and don't bother trying to time the market.
 
2014-03-31 03:07:10 PM
i543.photobucket.com
 
2014-03-31 03:11:33 PM
Sigh.  They're all evil.
 
2014-03-31 03:11:44 PM
Tax transactions.
 
2014-03-31 03:14:07 PM
This isn't the problem.  The problem is that instead of just risk-takers betting disposable income on stocks, now EVERYONE is forced to participate, and with their retirement income.  That has inflated the importance and size of the stock market immensely.  If there were safe stable savings options out there, most people would use them.  But currently with interest rates at zero, a bank savings account makes zero interest and you HAVE to invest in a 401k bullshiat that will lose your money.
 
2014-03-31 03:15:44 PM
http://en.wikipedia.org/wiki/2010_Flash_Crash

I figure we've got another coming right before the election where the 1% get their guy elected POTUS. Again.
 
2014-03-31 03:18:25 PM

cefm: This isn't the problem.  The problem is that instead of just risk-takers betting disposable income on stocks, now EVERYONE is forced to participate, and with their retirement income.  That has inflated the importance and size of the stock market immensely.  If there were safe stable savings options out there, most people would use them.  But currently with interest rates at zero, a bank savings account makes zero interest and you HAVE to invest in a 401k bullshiat that will lose your money.


I bet you're as happy as I am that Dubya didn't get his hands on Social Security before the financial melt-down under his administration.
 
2014-03-31 03:19:58 PM

TheShavingofOccam123: http://en.wikipedia.org/wiki/2010_Flash_Crash

I figure we've got another coming right before the election where the 1% get their guy elected POTUS. Again.


I hope the next one lasts longer.  What money I don't have tied up in gun and weed stock is just itching to be back in the market.

Come on major crash!  Smeggy needs a new pair of expensive things
 
2014-03-31 03:20:55 PM

TheShavingofOccam123: I bet you're as happy as I am that Dubya didn't get his hands on Social Security before the financial melt-down under his administration


Well considering the inflation of the stock market, that would have been better than where things stand now.
 
2014-03-31 03:22:58 PM
♫ We don't need no regulation ... ♫
 
2014-03-31 03:23:27 PM

StopLurkListen: vpb: FishyFred: This just in High Frequency Trading is not new.

No, rigging the stock market is not new.  People with money rigging things to favor people with money in general isn't new.

It's not "rigging". That's too broad a term for what's happening here. What they're doing is observing in-progress sales and, due to their low pings and quick reaction time, intercepting the sale and giving themselves a few pennies in the spread between bid and ask. The other parties often aren't even aware of a middleman.


The NYTimes article on the backstory behind the founding of IEX goes into more depth: http://www.nytimes.com/2014/04/06/magazine/flash-boys-michael-lewis.h t ml?_r=0

The most fascinating thing about the NYTimes excerpt was that it reveals it wasn't just mutual fund managers - even big-name hedge fund guys like Einhorn, Ackman, and Loeb were unaware of the mechanism by which the middlemen were profiting from their trades. They all knew someone was front-running them, they were all angry about it, but none of them had been able figure out who, let alone how.
 
2014-03-31 03:26:16 PM

Triumph: meyerkev: c) But the few who do have invented a way to fix it.

It's a tech fix. The logical way to stop high frequency trading is to tax trades with a sales tax.  But Wall Street would rather people know the markets are rigged than have them discover how much money a Wall Street sales tax would generate.


So from the description in the book, I don't get how a sales tax would stop it without doing more damage to the actual markets.  The tech fix is free (or well, however much it costs to put 38 miles of fiber optic cable in a shoebox).

The entire concept of HFT is that the prices you see are not the prices you get because somebody is faster than you.

If the trade is worth making after the tax, then it's worth it to a HFT guy to get in front of the trade and screw you.  Unless I'm seriously misunderstanding the technical explanation or the nature of the tax.  And even then, I'd MUCH prefer to do batching.   http://faculty.chicagobooth.edu/eric.budish/research/HFT-FrequentBatc h Auctions.pdf

To wit: Some guy made a test where he bought XYZ at $100.05 and then sold it at $100.01.  No what should happen is that they hit the midpoint and go, and he doesn't lose any money.  But because the HFT guy saw his buy order, saw his sell order, and middle-manned it, he lost 4 cents. If the trade is worth making at 100.05 to 100.01 with the sales tax, then it's worth HFTing.  Or the HFT guys will get really good at being technically-not-HFT-but-faster-than-you traders.
 
2014-03-31 03:29:42 PM
The U.S. stock market is rigged, with elite traders buying access to a high-speed network that allows them to figure out what you've just ordered, order it first, then raise the price before your order is complete.

I'm sure this is very big news to the three people who didn't hear about it years ago.

On a related note, it doesn't really hurt the little guy as much as people like to imagine it might. Yea, they'll get more money in the short term and I'll get a shiattier deal, but I have thirty years to build my portfolio, not thirty days to make a bunch of recalcitrant, old, white assholes with more money than they deserve happy about their return. In the long run, the level to which I'm screwed by this isn't that bad.

It's bullshiat and needs to be addressed, but of all the shenanigans going on that hurt normal people with real jobs, it's far from the worst thing in the financial world we could be worrying about.
 
2014-03-31 03:33:23 PM

vpb: FishyFred: This just in High Frequency Trading is not new.

No, rigging the stock market is not new.  People with money rigging things to favor people with money in general isn't new.


encrypted-tbn3.gstatic.com

Mortimer imagine if we could front-run all of those trades.
 
2014-03-31 03:36:00 PM
We can tax stock market trades? Why are we not doing this now? With a deficit of gazillions and a debt of quintillions forcing the US into austerity, why the fark are we not taxing these trades!? We need all the revenue we can generate.
 
2014-03-31 03:37:07 PM
The real fix is to finally legislate that stock markets need to behave like discrete time systems. There is a known interval at which trades happen. All sells and buys that occur after the start of a timestep and before the end of the next timestep go into a queue that is processed at the beginning of the next timestep.

We have laws about slot machines, we can have laws about stock markets.
 
2014-03-31 03:47:28 PM

Arkanaut: MugzyBrown: simple solution if you're so concerned: Don't trade on a market that allows HFT

Simpler solution: just buy index funds and don't bother trying to time the market.


100% this.  Why is this a problem exactly?
 
2014-03-31 03:55:23 PM

Slaves2Darkness: We can tax stock market trades? Why are we not doing this now? With a deficit of gazillions and a debt of quintillions forcing the US into austerity, why the fark are we not taxing these trades!? We need all the revenue we can generate.


1)  http://econlog.econlib.org/archives/2013/03/redistributing.html - Chamley-Judd Redistribution Impossiblity Thereom.

2)  i.investopedia.com

3) And somewhat less 1%-ey, every single pension fund in the USA is so invested in the craziest Wall Street things possible because they need stupidly-high returns (and even then, 13th farking checks).  Tax Wall Street now, and CA's half-trillion pension hole if everything goes right, becomes a much larger hole which then gets paid for by taxes.

/Seriously, if I designed a tax system/welfare state (and given that 2/3rds of the federal budget goes to pay for the welfare state, they are the same damn thing), I'd make it as easy as possible to make low amounts of income without a tax, as easy as possible to invest in things and make even more money by helping other people do cool shiat (At least in theory, this is the point of venture capital), and then I'd hit medium-to-high earners and consumption to pay for the necessary stuff that the taxes need.
 
2014-03-31 03:57:57 PM

RumsfeldsReplacement: Arkanaut: MugzyBrown: simple solution if you're so concerned: Don't trade on a market that allows HFT

Simpler solution: just buy index funds and don't bother trying to time the market.

100% this.  Why is this a problem exactly?


Well, the HFT guys probably still capture higher returns most of the time.  But they probably also have more opportunities to screw up royally.
 
2014-03-31 04:00:35 PM

meyerkev: I don't get how a sales tax would stop it without doing more damage to the actual markets.


If by "damage the markets," you mean reduce the number of trades, yeah it would do that. It would greatly benefit the average investor whose pockets are robbed by HFT. The fraction of a penny tax would pale in comparison to the transaction fees those investors already pay their brokers.
 
2014-03-31 04:05:33 PM
Why is it that our mental health problem and our scumbag 1% problem never collide? Crazy people need to stop shooting kids at schools and regular people in the malls and look up these c@clickers instead. Or just farking kill themselves, either way it's a win for us.
 
2014-03-31 04:28:37 PM
Sooo are markets are neither free nor fair?

Who knew?
 
2014-03-31 04:28:54 PM
Sadly, no one (with power to change it) cares.
 
2014-03-31 04:29:13 PM

Prophet of Loss: Sooo our markets are neither free nor fair?

Who knew?

 
2014-03-31 04:37:37 PM

Twilight Farkle: StopLurkListen: vpb: FishyFred: This just in High Frequency Trading is not new.

No, rigging the stock market is not new.  People with money rigging things to favor people with money in general isn't new.

It's not "rigging". That's too broad a term for what's happening here. What they're doing is observing in-progress sales and, due to their low pings and quick reaction time, intercepting the sale and giving themselves a few pennies in the spread between bid and ask. The other parties often aren't even aware of a middleman.

The NYTimes article on the backstory behind the founding of IEX goes into more depth: http://www.nytimes.com/2014/04/06/magazine/flash-boys-michael-lewis.h t ml?_r=0

The most fascinating thing about the NYTimes excerpt was that it reveals it wasn't just mutual fund managers - even big-name hedge fund guys like Einhorn, Ackman, and Loeb were unaware of the mechanism by which the middlemen were profiting from their trades. They all knew someone was front-running them, they were all angry about it, but none of them had been able figure out who, let alone how.


Great story, but I'm sure the big banks and the majority of Wall Street have already figured out a loophole, or is working hard at it.  There is simply too much money to be made by finding those fractions of a cent transactions and getting at them for yourself.
 
2014-03-31 04:42:03 PM

TheShavingofOccam123: http://en.wikipedia.org/wiki/2010_Flash_Crash

I figure we've got another coming right before the election where the 1% get their guy elected POTUS.


The 1% ALWAYS GET THEI....

 Again.

Oh yeah.  Well then!  Carry on.
 
2014-03-31 04:46:56 PM
Just queue up trades and execute all of them every 10 seconds.
 
2014-03-31 04:47:38 PM
They may be scamming the system.  They may be keeping small investors from making any money, but they are creating jobs for all those 1's of person.  Just ask any Republican.  If Jesus were alive today, he would be running the biggest asset management company of them all.
 
2014-03-31 04:56:51 PM
1) Mr. Montoya may have a thing or two to say on the use of "rigged."

2) The fix for this, if you think it's an actual problem, of to add digits to stock pricing (i.e. go to tenths or hundredths of a cent), which will crush the margins of people who do HFT.

3) As already pointed out, the "little guy" has a massive advantage over professional investors, and can beat about 70% of them year after year by just buying an index fund and ignoring it.
 
2014-03-31 05:25:13 PM
The Wall Street Casino has been using marked cards and loaded dice all along.
 
2014-03-31 05:32:56 PM

Arkanaut: MugzyBrown: simple solution if you're so concerned: Don't trade on a market that allows HFT

Simpler solution: just buy index funds and don't bother trying to time the market.


Or just don't make trades vulnerable to such small movements.   This sounds like a problem mostly for people who watch too much Jim Cramer or those wannabes at Zero Hedge.
 
2014-03-31 05:34:15 PM

uncoveror: The Wall Street Casino has been using marked cards and loaded dice all along.


That's what I never understood about OWS. Wall Street isn't the 1%. They just work for them. Go find the pimps and leave the hookers alone.
 
2014-03-31 05:34:37 PM
For those of you with more expertise than me (I have been out of the business more than ten years)

It sounds to me like in in the old days you had a specialist who saw the whole order book, but at least technically wasn't supposed to front-run.

What these guys seem to have done is in essence "see" the order book and then front-run. Is that what is going on?
 
2014-03-31 05:35:26 PM

Prophet of Loss: Sooo are markets are neither free nor fair?

Who knew?


It is when you bring to bear the same tools as the other guy.  What you don't have them?  Sucks to be you.  Make do with what you have until you can have those toys too.
 
2014-03-31 05:43:34 PM

BiffDangler: For those of you with more expertise than me (I have been out of the business more than ten years)

It sounds to me like in in the old days you had a specialist who saw the whole order book, but at least technically wasn't supposed to front-run.

What these guys seem to have done is in essence "see" the order book and then front-run. Is that what is going on?


As I understand it, yes.  Essentially they have a bunch of really nice IT equipment and a data feed that gives them access to the orders at absurd speeds.  Then you can use algorithms to front-run the trades.
 
2014-03-31 05:43:51 PM
Better solution: Make capital gains taxes inversely proportional to the amount of time an asset is held.

And here's the beauty of the plan, you start that tax at 100% for an asset held less than, say, 24 hours. I got news for you, the value of a company doesn't actually change on timescales smaller than a day. If you're trading on what is essentially random noise, then you're doing NOTHING to improve the human condition, you lose, you get nothing, good day, sir.

Hold an asset less than a week? Say 75% capital gains tax. Less than a month? 50%. Less than a year? 40% Less than 5 years? 25% Less than 10 years? 15%.

We can argue about the actual percentages, but the key is to return the stock market to what it should be--a place to park capital long-term--rather than a gambling system.

Bam. I just destroyed day trading, hyper-trading, and all that useless bullshiat. You're welcome.
 
2014-03-31 05:53:25 PM

meyerkev: Chamley-Judd Redistribution Impossiblity Thereom.


Ooh, I want to take a look at this one later on.

Deadweight loss can be justified -- if you offer more benefits to the economy through spending (funded by the taxes) than the cost of the DWL, e.g. through creation of common goods like roads, bridges, and *ahem* markets, then it's a good thing.  And there are marginal utility justifications too -- if you're taking $100 from a millionaire and giving it to someone who's making minimum wage, the money would benefit the latter a lot more than it would hurt the former.
 
2014-03-31 05:54:34 PM

Prank Call of Cthulhu: Better solution: Make capital gains taxes inversely proportional to the amount of time an asset is held.

And here's the beauty of the plan, you start that tax at 100% for an asset held less than, say, 24 hours. I got news for you, the value of a company doesn't actually change on timescales smaller than a day. If you're trading on what is essentially random noise, then you're doing NOTHING to improve the human condition, you lose, you get nothing, good day, sir.

Hold an asset less than a week? Say 75% capital gains tax. Less than a month? 50%. Less than a year? 40% Less than 5 years? 25% Less than 10 years? 15%.

We can argue about the actual percentages, but the key is to return the stock market to what it should be--a place to park capital long-term--rather than a gambling system.

Bam. I just destroyed day trading, hyper-trading, and all that useless bullshiat. You're welcome.


We did this.

Short-term capital gains is taxed as income.  And it depends on your state, but that's generally a marginal of 45-not quite 60%.

More than a year is 23.8% Federal + state income tax, so that's topping out at just over 35%.  Trust me, if going from 60-35% won't stop it, the only way out is to get rid of capital gains tax (And even then, I don't think that would work because they make too much money too fast. .00001% every second times 30 million seconds... vs. 7%).

The entire point of HFT is that they know what you're buying the stock for, they know what they're selling the stock for, and they go in and buy before you can and then sell the stock that you were going to buy at the lower price to you at the higher price.  You need to hit them in a TECHNOLOGICAL FASHION, to make it technologically impossible to do this.

/Also, uh, go look up Billion dollar startups and they're all 5-10 years old.  A year is a fairly decent breaking point because of some of the realities of Silicon Valley.  5 years is too long.
 
2014-03-31 05:58:56 PM

Arkanaut: meyerkev: Chamley-Judd Redistribution Impossiblity Thereom.

Ooh, I want to take a look at this one later on.

Deadweight loss can be justified -- if you offer more benefits to the economy through spending (funded by the taxes) than the cost of the DWL, e.g. through creation of common goods like roads, bridges, and *ahem* markets, then it's a good thing.  And there are marginal utility justifications too -- if you're taking $100 from a millionaire and giving it to someone who's making minimum wage, the money would benefit the latter a lot more than it would hurt the former.


1) YES, they're assuming fairly standard economic spherical cows.  The extent to which the cows are actually spherical is a matter of some debate.

2) If you notice, they're NOT talking about infrastructure.  They're saying "If you take from the rich to give to the poor, the rich don't invest in cool shiat, and it impacts growth over the long term, which ends up making the working class poorer."  It's entirely possible to reduce income inequality, but only at the cost of growth and absolute growth, on the assumption that the cows are actually spherical.
 
2014-03-31 06:04:57 PM

Smeggy Smurf: Prophet of Loss: Sooo are markets are neither free nor fair?

Who knew?

It is when you bring to bear the same tools as the other guy.  What you don't have them?  Sucks to be you.  Make do with what you have until you can have those toys too.


"No really. Bullshiat is valuable. People make money from selling it all the time. All I get is the cow and you get an entire field of the good stuff!"
 
2014-03-31 06:05:25 PM

Twilight Farkle: StopLurkListen: vpb: FishyFred: This just in High Frequency Trading is not new.

No, rigging the stock market is not new.  People with money rigging things to favor people with money in general isn't new.

It's not "rigging". That's too broad a term for what's happening here. What they're doing is observing in-progress sales and, due to their low pings and quick reaction time, intercepting the sale and giving themselves a few pennies in the spread between bid and ask. The other parties often aren't even aware of a middleman.

The NYTimes article on the backstory behind the founding of IEX goes into more depth: http://www.nytimes.com/2014/04/06/magazine/flash-boys-michael-lewis.h t ml?_r=0

The most fascinating thing about the NYTimes excerpt was that it reveals it wasn't just mutual fund managers - even big-name hedge fund guys like Einhorn, Ackman, and Loeb were unaware of the mechanism by which the middlemen were profiting from their trades. They all knew someone was front-running them, they were all angry about it, but none of them had been able figure out who, let alone how.


The punchline in the 60 Minutes story was brokers and exchanges recommending their clients not use IEX - built on trust.

You know. Because reasons.

Like: It's us taking your money.
 
2014-03-31 06:16:18 PM

Smeggy Smurf: Prophet of Loss: Sooo are markets are neither free nor fair?

Who knew?

It is when you bring to bear the same tools as the other guy.  What you don't have them?  Sucks to be you.  Make do with what you have until you can have those toys too.


Or, I can get a bunch of other guys and kick his ass and take his tools away from him. Either way works for me.
 
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