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Australia Businesses The Almighty Buck

HFT Nothing To Worry About (at Least In Australia) 152

Posted by timothy
from the three-crocs-for-a-lorry-of-shrimp-fair-dinkum dept.
angry tapir writes "Although software-driven high-frequency trading has got a pretty bad rap (being blamed for the so-called 'Flash Crash' in 2012 for example) Australia's chief financial regulator ASIC says that, in Australia at least, it's not cause for concern. After an in-depth study of HFT in Australian markets, ASIC decided to hold off on previously considered regulatory changes (such as implementing a 'pause' for some small trades)."
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HFT Nothing To Worry About (at Least In Australia)

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  • by fuzzyfuzzyfungus (1223518) on Tuesday June 18, 2013 @12:29PM (#44040559) Journal

    Why would ASIC be concerned about software-based traders? They know that, while it renders them somewhat inflexible, they are both far faster and substantially more power efficient by doing it in hardware...

  • by DexterIsADog (2954149) on Tuesday June 18, 2013 @12:30PM (#44040569)
    I'd like to see HFT banned, or taxed, or slowed down in some way, just because the big traders use it and their millisecond advantage over the non-insiders to steal a small percentage on each trade. They amass billions by siphoning it away from the majority of people in the market, and in return give us nothing of social value.
    • by punker (320575)

      That's highly inaccurate. The big HFTs no longer make much money, because like most technologies, it has been understood and adopted. Their margins have dramatically receded since the mid-2000's, because all the market-makers (i.e. the bank you place your order through) also have their own high speed machines.
      Now, to the part about giving nothing of social value, well that's not really true (and in this context, social value applies only to stock market participant

      • Re: (Score:3, Interesting)

        by Anonymous Coward

        Thing is that is a GOOD thing.

        You are creating a fake surplus.

        Lets say person one sells for X.
        Person two wants to buy for Y.

        In the normal world X and Y would meet at price Z somewhere in the middle. X walks away with a little less (or more) money. Y ends up paying a bit more (or less) than they wanted but not much.

        Now lets put a middle man in the mix. The middle man will buy at X if X lessthan Y then turn around and sell at Y to the other guy and pocket the difference. So Y ends up paying more than the

        • What you describe is exactly what the world was like before HFT. Except the man in the middle was a broker or an investment bank. In fact, investment banks and brokers were among the earliest and most vocal of critics of HFT precisely because it took away the business model you just described. HFT reduces the bid/ask spread because it brings liquidity for whatever 1 and 2 are buying in from other sources besides just persons 1 and 2. That's why the investment bankers and brokers hate it. It cuts the

          • Welcome to the unregulated dark pools!

            Dark pools are still required to match your orders within the national bid-ask spread. That is the regulation that matters the most for retail traders, IMHO. Also, note that (except for registered market makers) all trading on the primary exchanges is equally anonymous. You can trade with George Soros on a dark pool, or on the NASDAQ, and you're going to get crushed just the same either way.

    • by lgw (121541)

      I'd like to see HFT banned, or taxed, or slowed down in some way, just because the big traders use it and their millisecond advantage over the non-insiders to steal a small percentage on each trade. They amass billions by siphoning it away from the majority of people in the market, and in return give us nothing of social value.

      You are simply wrong about what HFT does and how it works. HFT (and market makers in general) mean the small trader gets a better price on each trade when trading "at market price" - market makers make money through "time arbitrage" and sometimes inter-market arbitrage. That may seem counter-intuitive, but the benefit to the small trader comes from competition between money makers, and HFT is the ultimate competition.

      HFT also makes money by being the first to trade on "news" such as merger announcements.

    • HFT comes in two major varieties: aggressive and passive. Passive is usually considered beneficial as it adds liquidity and is the reason the spreads in most symbols are only 1c almost all the time. This means that you and me investors can get our stocks within 1c of it's true value, excluding brokerage fees. Unfortunately the brokerage fees will be more than that - so I don't know why your mad at HFT. Further, without HFT the spreads would be much wider, e.g. 25c like the specialists used to keep them at,

  • *Two* HFT stories on Slashdot's home page? Well played editors, well played -

    This a pet topic for these guys?

    http://news.slashdot.org/story/13/06/18/0257224/have-we-hit-peak-hft [slashdot.org]
    • Well considering it involves programs and hardware being designed to work as fast as possible (to the point where you are hitting pesky physical limitations such as the latency on the speed of light through a fiber), I'd say it qualifies as news for nerds.

      Certainly compared to the trading that is done by a bunch of big dudes yelling at each other on a trading floor.

      • Well considering it involves programs and hardware being designed to work as fast as possible (to the point where you are hitting pesky physical limitations such as the latency on the speed of light through a fiber), I'd say it qualifies as news for nerds.

        Certainly compared to the trading that is done by a bunch of big dudes yelling at each other on a trading floor.

        Except nobody is talking about hardware or software! LOL!!!

        I think the problem is that we tend to get news articles that focus on the politics of HFT, or legal decisions, etc. Almost nothing gets posted about the technical side.

        • OK, here's the technical low-down:

          REDACTED REDACTED REDACTED REDACTED REDACTED REDACTED REDACTED fast servers REDACTED REDACTED REDACTED REDACTED REDACTED co-located REDACTED REDACTED REDACTED REDACTED REDACTED REDACTED REDACTED REDACTED high performance REDACTED REDACTED REDACTED REDACTED REDACTED REDACTED

  • HFT (Score:5, Insightful)

    by girlintraining (1395911) on Tuesday June 18, 2013 @12:35PM (#44040631)

    HFT isn't a system stability problem as much as it is an access problem. What it does is increase the cost of entry into the market -- those who don't engage in HFT wind up paying for those who do, and so it winds up penalizing people with smaller portfolios and shifting the costs of it onto them. What you need to understand about profit is that it is always at the expense of someone else. And HFT is the sublime example of how to nickle and dime the less fortunate to death. These fractions of a penny here and there add up because it gets compounded by interest rate. Over time, the spread between those who have it and those who don't will grow; As is the trend in any investment-based system.

    • I have heard the argument that the HF traders are actually taking money from the exchanges, rather than the other traders (because they reduce buy/sell price spreads, it's actually beneficial for the traders). That is why they've gotten so much publicity (because the exchanges have big lobbying budgets). There are other things which hurt the average trader a lot more than HFT but they're mostly unknown.

    • by kajsocc (2955535)

      What you need to understand about profit is that it is always at the expense of someone else.

      I agree with most of the rest of what you said, but I can't agree here. Despite typically being measured with currency, profit is often subjective; in fact, that's why we trade in the first place: I want an apple more than I want the money you're charging for it, and you'd rather the money than the apple. When we complete our transaction, we both think we've gained.

      Now if I turn around and sell that apple for twice what I paid for it, I'll have no apple and more money than I started with. That's certainly a

  • People keep saying that HFT needs to be regulated to avoid crazy spikes and crashes due to algorithms with stupid positive feedback loops.

    I think the opposite would actually work better.

    If the official rules stated "HFT is totally *un*regulated --- feel free to run your buggies, most insane, glitchy, and flawed HFT software" --- immediately all the other HFT software systems would be coded to watch for crazy non-justified buying&selling.

    With all this regulation, if one bank's trading software starts going insane, the other banks start following them (and creat a positive feedback loop) under the assumption that in such a regulated industry the insane software must know something. If it were further de-regulated, the other software would assume the other software was poorly coded, and basically LOL at the bugs and profit from it until someone pulled the plug on the bad algorithm. And with that risk - I imagine a *lot* of interested would be in automating such plug-pulling checks so they happen in a very small number of miliseconds so the market can't crash too far before the kill switch hits.

    • by girlintraining (1395911) on Tuesday June 18, 2013 @12:46PM (#44040765)

      If the official rules stated "HFT is totally *un*regulated --- feel free to run your buggies, most insane, glitchy, and flawed HFT software" --- immediately all the other HFT software systems would be coded to watch for crazy non-justified buying&selling.

      I love magical thinking like this. It keeps me employed. In other news, "too big to fail." Businesses don't pay for their mistakes: You do. That's the reason for regulation... it's to assure a baseline level of sanity... so when they screwup, they don't do it so badly that they take the rest of us with them.

      • by Anonymous Coward

        There is an example of a purely unregulated market; EVE Online.
        You know what, it is a very stable market.

        This is because everyone knows that a market price could have been manipulated, that there are scams. So everyone is distrustful and does their homework on the real cost of things.

        But within EVE Online everyone is a professional trader, not some dude/mom/dad who just gambles some money on the stock market from behind his PC like it happens in the real world.

        I suggest that everyone plays EVE Online so tha

        • by girlintraining (1395911) on Tuesday June 18, 2013 @04:15PM (#44042855)

          There is an example of a purely unregulated market; EVE Online.

          I play EVE. It's not a "very stable market". Goonsquad decided to attack miners in highsec. Mining is one of the main ways raw materials are generated for product generation, and when they did that, key resources to fuel starbases (oxygen isotopes, etc.) shot up massively in price. It would be the realworld equivalent of bombing oil pipelines and refineries.

          As you get farther away from the main trade hubs and out into nullsec, prices can easily triple for commodities. And many alliances have policies to prevent anyone else from getting in on their lucrative cartels of freighter transports bringing needed supplies out.

          But within EVE Online everyone is a professional trader, not some dude/mom/dad who just gambles some money on the stock market from behind his PC like it happens in the real world.

          Like hell they are. Most people avoid serious trading because of the lack of easy access to information on sales volumes, pricing, etc, market volatility, and (unlike the real world) getting your products to one of the main trade hubs is risky. If blowing your ship to hell is cheaper than the cost of losing their ships to the police (concord), they'll blow it up. There's no jail in Eve -- in 15 minutes you're just like every other pilot again... and they'll loot your wreck and be on their merry.

          I suggest that everyone plays EVE Online so that people learn about markets, about logistics, about profit per hour (just profit is for noobs).

          And I'd suggest they play it to understand why government regulation and military protection of traders and merchants leads to vastly lower costs to society, and to see first hand how far the effects of market manipulation can travel.

          And you're leaving out another critical component of Eve that isn't at all like the realworld: You're never sure who you're trading with. Identities can be traded, and because of this, and the interface mechanics, you can be buying supplies from your enemies one day, and selling arms to them the next.

          And all of this "free market" love makes people incredibly distrustful, very manipulative, and economic power equates directly with military power. And what's more interesting... the distribution of wealth looks pretty much like it does in the United States: 1% controls over half the total wealth in the game... and that 1% can be very petty, self-centered, and short-sighted. Kings and kingdoms alike are created and destroyed every day -- there is no stability. In nullsec, you always have an exit strategy... a way to burn your assets and get out quick, because if the enemy doesn't fuck you over, your would-be kings claiming to be on your side will.

          Eve is the wild-wild west, seen through the lens of a hundred spreadsheets. When it's a game, this can be fun. When it's real life... do you really want to go to bed one night and wake up the next with your house on fire and your neighbors looting each other, you, and everything else as the next Great New Power rolls in? Because this is a frequent occurrance in the game.

      • by deego (587575)

        >> I love magical thinking like this. It keeps me employed. In other news, "too big to fail." Businesses don't pay for their mistakes: You do. That's the reason for regulation... it's to assure a baseline level of sanity... so when they screwup, they don't do it so badly that they take the rest of us with them.

        That argument is the logical equivalent of justifying Crime B because somehow it balances out Crime A.

      • by khallow (566160)
        Wait a minute, you can breathe and hold a job at the same time? I grow more impressed by you, the more I learn.
    • All well and good until Goldman-Sachs makes a mistake.

      They will simply have their pet politicians say: 'Timeout, OK we're backing out all the trades (that would otherwise have sunk our sugar daddy). Too big to fail.'

    • Can people remember beyond 1 year? Is it cultural that some areas have less memory than others?

      Rather than address the obvious fault in the parent's post, I'll suggest another problem:
      War. Not necessarily all out war, but hacks or even directing large corporations under the control of the enemy could screw up such a system much easier than the old fashioned methods for undermining an enemy's economy.

      Long term, it would be wise to join the Chamber of Commerce and help them in promoting the destruction of t

    • People keep saying that HFT needs to be regulated to avoid crazy spikes and crashes due to algorithms with stupid positive feedback loops.

      There is no evidence that HFT causes spikes and crashes. Actual evidence says the opposite: by increasing liquidity, HFT reduces volatility. HFT was initially blamed for the "flash crash" in 2010, but when the investigation was complete, it was found that most HFTers had pulled out of the market during the crash, and HFT played no role in causing or exacerbating the crash. In fact, the crash would have been less severe if HFTers had better models which would have allowed them to stay active during the cr

      • There is no evidence that HFT causes spikes and crashes. Actual evidence says the opposite: by increasing liquidity, HFT reduces volatility.

        Actual evidence from the guys who monitor these kind of things says nothing of the sort. I wish people would stop spouting this line about HFT and liquidity. Here [nanex.net] is a relatively recent GOOG flash crash (April 22 2013) likely due to HFT (based on timespan and number of trades, number of orders placed per trade and number of exchanges involved).

      • by Ryanrule (1657199)

        Liquidity IS volatility.

        • by kajsocc (2955535)

          Lolwut? No, it's the opposite, *by definition*. See here [wiktionary.org]:

          liquidity
          2. (economics, countable) An asset's property of being able to be sold without affecting its value; the degree to which it can be easily converted into cash.

          (emphasis mine)

      • In fact, the crash would have been less severe if HFTers had better models which would have allowed them to stay active during the crash.

        This is pure speculation, not a fact.

        • In fact, the crash would have been less severe if HFTers had better models which would have allowed them to stay active during the crash.

          This is pure speculation, not a fact.

          It is enough of a fact to be accepted by the SEC. One of the recommendations of the 2010 investigation was to find a way to keep HFTers active during periods of volatility. Perhaps even requiring them to actively trade in order to keep markets liquid.

  • If there were a transaction tax on stock market trades, that would eliminate whatever advantage there is. These guys make money on low margin high volume trading. Just about any transaction tax will make those low margins disappear.

    The disadvantage is trades might now take minutes instead of seconds due to decreased volume. But maybe that's not a bad thing.

    • Move from the current "income" and "gain" tax basis to a gross receipts tax. Every transaction is a taxable event - retail, wholesale, personal, business. It turns out that the rate would be exceptionally low - 2-3% tops. It would result in larger markups on long supply chains, make day trading very costly from a tax perspective, increase the cost of most items at the retail level, and burden corporations - especially holding companies and multi-layer shell corporations meant to shield/dodge local taxes an

  • because when I read "ASIC decided to hold off on previously considered regulatory changes", the first thing I thought was somebody got bribed.
  • by ThatsNotPudding (1045640) on Tuesday June 18, 2013 @01:42PM (#44041369)
    Austrailia has a world-wide reputation of being laid-back, easy going, and - sometimes - incredibly rational (real gun laws in response to mass killings).

    But on the other hand, they keep electing right-wing governments more than willing to be trained poodles for US corporate and foreign policy.
  • If you have billions in capital, it is extremely hard to move around billions in assets without all the small traders taking notice, and piling on before you can reach your full position. That's why large traders like Buffet absolutely hate day traders, and has never split his stock, causing shares in his company to be valued at over $65000 per share last I checked. Being able to trade freely and quickly is one of the few great equalizers in large capital markets.

  • So as an individual with say.. $2-$5k to play around with.. how do I get in on this HFT thing?
  • It's the latency afforded by buying rackspace directly within stock exchanges that poses a problem.
  • 1) New previously-unexploited market opportunity is discovered/developed (e.g. HFT).
    2) Initial enterers into said market start making bucketloads of money.
    3) People complain and say this should be regulated, its not fair to X, Y, and Z, this is a plague on society, etc.
    a) This of course conveniently ignores the fact that when trades are done voluntarily they are only done because both parties think they will benefit[*].
    4) If we're lucky and the market doesn't get regulated too much, more people enter sa
  • ASIC declining to regulate HFT shouldn't be considered an endorsement of the practice. As it is, they are flat out trying to root out insider trading and abuses of Corporations Law. (e.g. Trading while insolvent; embezzlement etc etc). It doesn't have a great reputation on either front. There's the odd successful case now and then, but that seems to be the exception rather than the rule.

    Having said that, I'd rather have it than not, but it would be nice if it could be made a little more effective.
  • HFT relies on the assumption that the real value of a stock changes several times per second (even down to the scale of the nano second). Everyone can see that the only event that can happen at such a high frquency is other high-frequency mechanism taking decisions. This is clearly a zero-sum game that runs on speculation.

    There is a strong case for imposing a lower trading frquency. I would have said a one-hour timestep but some people go as far as proposing a one-day step. After all, stock exchanges clos

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