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The Almighty Buck Robotics Technology

High-Speed Firms Now Oversee Almost All Stocks At NYSE Floor (bloomberg.com) 138

An anonymous reader writes: Barclays, one of the biggest banking and financial services firms in the world, has sold its business on the floor of the New York Stock Exchange to Global Trading Systems. This is significant because it marks a transition between human-based trading and high-speed trading. Now, humans on the NYSE floor have more of a supervisory role, making sure the automated systems don't go haywire. Barclays has been around for hundreds of years; GTS was founded in 2006. "There used to be dozens of specialist firms, as designated market makers were once known, at the NYSE floor. But profits from trading U.S. stocks dwindled, making it difficult to serve as market makers without automation. Although GTS, Virtu, IMC and KCG employ human traders at the floor, their businesses are driven by some of the industry's most sophisticated computer systems."
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High-Speed Firms Now Oversee Almost All Stocks At NYSE Floor

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  • by Anonymous Coward

    Ha

  • by xxxJonBoyxxx ( 565205 ) on Wednesday January 27, 2016 @01:00PM (#51382667)

    The "Floor" with its slow water-based life forms making noises and moving their appendages was always a kludge. If stock trading could have arrived on earth fully formed, it would have been with frictionless trading and marketing pricing instantly available to everyone to act upon immediately. We're finally getting there.

    • LMOL you don't have a clue do you. "available to everyone" that's funny.
    • by Anonymous Coward

      Unfortunately, "market" price does not mean what it sounds like (ie, the value of something _right now_); it includes future speculation. This introduces a positive feedback into the system, with a time constant related to the delay in trading action. So the random non-trivial delay in trading that humans provides is good for preventing huge swings. The faster the trading, the worse the swings will get.

      • by ooloorie ( 4394035 ) on Wednesday January 27, 2016 @01:34PM (#51382923)

        Unfortunately, "market" price does not mean what it sounds like (ie, the value of something _right now_); it includes future speculation.

        Predictions about future returns are part of "the value of something right now", so your distinction makes no sense.

        This introduces a positive feedback into the system

        No, it doesn't. It introduces delays and dependencies on the future, but people make both kinds of errors on stocks.

        with a time constant related to the delay in trading action. So the random non-trivial delay in trading that humans provides is good for preventing huge swings. The faster the trading, the worse the swings will get.

        In fact, the opposite is true mathematically: longer delays tend to produce bigger swings, for the simple reason that a system can go off the rails longer before the market corrects it.

        But there's an even more basic error in your reasoning, namely the assumption that market swings are bad or that we should adopt policies to reduce them.

        • longer delays tend to produce bigger swings, for the simple reason that a system can go off the rails longer before the market corrects it.

          Longer delays mean that new information cannot affect the market for a longer period of time. Assuming that it's much faster to abort acting on the information than to begin acting on it, that gives a longer period of time for validation/analysis of that information. See also, the huge blips that comapnies get based on twitter rumors.

          But there's an even more basic er

          • by lgw ( 121541 )

            You don't plan based on short term market swings, full stop. If you need to ensure something about a market price in the future, you buy insurance - simple as that. If you're a farmer who wants to sell crops 4 months from now, you have several ways of locking in a price, for a fee, just as you'd buy crop insurance.

            Intraday movements are like the movements of a piston in a piston engine - it doesn't matter at all that they don't move in the same direction the car is going.

            • High speed trading DOES require planning to take advantage of short term swings, full stop. They see what's going to happen and try to get in the path of it so they can siphon off money as it flows past.
          • Your stock can drop instantly by half due to a computer error, but if the actual value of your stock is worth more than that, it will quickly return to its original value. It's called holding long term.

            The issue here that you're having a problem with is people near the trading core can react much faster to real bad news, and you don't like it much.

        • by WoOS ( 28173 )

          Unfortunately, "market" price does not mean what it sounds like (ie, the value of something _right now_); it includes future speculation.

          Predictions about future returns are part of "the value of something right now", so your distinction makes no sense.

          I think what would be better to say is that market price itself is used as information for future speculation.

          In fact, the opposite is true mathematically: longer delays tend to produce bigger swings, for the simple reason that a system can go off the rails longer before the market corrects it.

          It would be true for a "real" control system, i.e. a system which tries to control a variable to achieve/follow a setpoint. In such a system the shorter the delay the better the variable will follow the setpoint. Yet due to technical analysis (i.e. trying to predict the future price of a commodity from the "chart" of the price up to now) in financial trading the variable can influence the setpoint.

          • I think what would be better to say is that market price itself is used as information for future speculation.

            Of course, people use past information for predicting the future, how is that in any way remarkable, or a problem?

            In such a scenario a short delay can mean sharp, large swings.

            Obviously, if you trade ten times as fast, your market moves ten times as fast. But you claimed that the swings don't just get faster, they also get bigger in magnitude than they would for a slower moving market.

            So if auto

            • by WoOS ( 28173 )

              Of course, people use past information for predicting the future, how is that in any way remarkable, or a problem?

              Uhm, because if the market really was evaluating the price of a commodity (including all the information about the future), then the history of the price only tells you about how humans previously evaluated that information. That is great if one wants to exploit human psychology (or nowadays machine psychology in terms of having better algorithms than the neighbouring bank). But then the AC's statement of the market price not expressing current value but including expected future speculation (at least that'

        • >

          But there's an even more basic error in your reasoning, namely the assumption that market swings are bad or that we should adopt policies to reduce them.

          Were such swings being made by humans perhaps, but when automated trading algorithms panic sell there is no market reason behind to justify it.

          • Were such swings being made by humans perhaps, but when automated trading algorithms panic sell there is no market reason behind to justify it.

            Market swings don't need to be "justified".

            blindly antisocialist = antisocial

            "You are unmutual."

      • by ShanghaiBill ( 739463 ) on Wednesday January 27, 2016 @01:36PM (#51382945)

        The faster the trading, the worse the swings will get.

        The SEC's investigation into the 2010 Flash Crash [wikipedia.org], came to the exact opposite conclusion: that HFTs have a stabilizing influence on markets by providing liquidity. One of the reasons for the crash was that when prices moved outside of the expected range, many HFTers stopped trading, and the resulting drop in liquidity, and rise in spreads, caused some investors to panic.

        • by clovis ( 4684 ) on Wednesday January 27, 2016 @04:46PM (#51384325)

          The faster the trading, the worse the swings will get.

          The SEC's investigation into the 2010 Flash Crash [wikipedia.org], came to the exact opposite conclusion: that HFTs have a stabilizing influence on markets by providing liquidity. One of the reasons for the crash was that when prices moved outside of the expected range, many HFTers stopped trading, and the resulting drop in liquidity, and rise in spreads, caused some investors to panic.

          I'm not seeing the statement that " HFTs have a stabilizing influence on markets by providing liquidity" in the SEC report for the big flash crash of 2010, nor statements to that effect. https://www.sec.gov/news/studi... [sec.gov]
          It's full of statements like this:

          In general, however, it appears that the 17 HFT firms traded with the price trend on May 6 and, on both an absolute and net basis,
          removed significant buy liquidity from the public quoting markets during the downturn.

          However, for those who don't want to read the report, in no way is the SEC suggesting "the crash was caused by HFT traders".

          Here is a recent SEC paper on HFT trading:
          https://www.sec.gov/marketstru... [sec.gov]
          Regarding the benefits of HFT on the market, the research they analyzed suggests good benefits (increase liquidity and reduce volatility), but it depends.
          The benefits of passive HFT strategies seem to be quite positive and HFT's may be taking the place of market makers.
          Aggressive HFT strategies provide liquidity in stable markets, but has worsened volatility when the market experiences abberations

        • by dywolf ( 2673597 )

          the SEC is a largely powerless group that rarely enforces its own rules except in the most egregious situations, and rarely against the biggest offenders.

          when they talk about regulatory capture, the SEC is the textbook definition.

      • by Agripa ( 139780 )

        So the random non-trivial delay in trading that humans provides is good for preventing huge swings.

        So like dominant pole compensation?

  • by Anonymous Coward

    The obvious step is to make stock trading completely isolated from reality: in addition to automated markets and high-speed traders, introduce automated day-traders, automated investors and automated mom-and-pops traders. Perhaps this will let the human economy concentrate on making things, while the stock markets can keep pushing bits around. It's the only natural evolution of a "market" whose total "value" is a multiple of the world's entire GDP.

  • by chthon ( 580889 ) on Wednesday January 27, 2016 @01:13PM (#51382773) Homepage Journal

    If computers do trade stocks, isn't that than the same as computers which go to war?

    • by gstoddart ( 321705 ) on Wednesday January 27, 2016 @01:24PM (#51382859) Homepage

      Well, when the computers completely wipe out the financial system or go hysterical with automated trading it will be further proof that the market is already so far removed from reality as to be dangerous.

      This is just another example in a long line of hubris by the idiots who think they run the financial system, but who otherwise don't really know what the fuck it's doing.

      I predict within a year at least one trading halt/panic, and a massive government sponsored do-over to undo what this stuff screws up.

      High frequency trading is little more than theft by entities who feel entitled to a cut of everything. It's bound to fail, it's only a matter of how long.

  • Gambling Robots (Score:5, Insightful)

    by monkeyxpress ( 4016725 ) on Wednesday January 27, 2016 @01:15PM (#51382787)

    Honestly, they might as well replace all the workers in the trading system with robots. None of this produce real wealth anymore. The original idea of the stock exchange was to allocate capital efficiently from savers to businesses that could use it to create productivity growth. But we haven't had a capital constrained economy for almost two decades now. Banks can create whatever capital they want (or can fool you into believing in) using debt-equity fudges, and current negative real interest rates on cash indicate that the problem is not capital availability but consumer demand.

    When you have no capital constraints the stock market 'value' is determined almost entirely by hype. Even worse, private equity funds are so big now that they can ensure the public exchanges never see any of the juiciest profit making companies until they are fully asset stripped and ready to pump and dump.

    • Re: (Score:3, Interesting)

      But we haven't had a capital constrained economy for almost two decades now.

      More like four and a half... However, normal society is still capital constrained, by the financial industry through usury. All that money is flowing overhead and we get what leaks through the pipe.

    • by tnk1 ( 899206 )

      Stocks do still offer real value, you just aren't going to realize it unless you hold a good company for a fairly long amount of time.

      Too many people are trying to day trade their way to instant fortunes. As the HFT shows, you can make a lot of money on the daily chaotic fluctuation of stock prices, but now you're in a race against the computers to do it.

      However, unless one of those absurd bid-ups actually ends a company somehow, it is only a worry for people who are trying to run complex short term tradin

      • Does not work in the long run "tighten the tap and then open slowly." The first and perhaps the second generation will understand the message, but the third and fourth will do the same irresponsible way as the first generation predecessors acted. You humans must be constantly guided and monitored to be able to live in a stable manner in a long period of time.
    • by no-body ( 127863 )

      None of this produce real wealth anymore.

      But they are making money or the companies would not be in business.

      Where is that money coming from?

    • by Zak3056 ( 69287 )

      None of this produce real wealth anymore.

      It doesn't "create" ANY wealth, and never has.

      There are a very limited numbers of ways to create wealth. The two most common are digging it out of the ground (i.e. mining, agriculture), or taking those things dug out of the ground and adding value to them (i.e. manufacturing (which includes things you wouldn't intuitively think of as manufacturing, like a pastry chef baking a pie--he has added value to the raw ingredients)). Pretty much everything else you can think of is just moving wealth around from on

    • Correct, trading should be done by robots for the same reasons that factory work is often done by robots, because it is cheaper to run robots than people and thus the efficiencies go up.

      Also correct that real wealth is not produced by trading, trading is exchange of wealth. Real wealth is produced by manufacturing, mining, agriculture, things of that nature.

      However it is completely incorrect that the economy is not constrained by capital, it is absolutely constrained by lack of capital. The artificially p

  • Wow, so all it takes now is one virus or one planned "feature" and you could give a new definition to insider trading. There are some things that we should think before we automate. (We already learned what happens when we deregulate/abstract...:-) ) The view Doyle and Clemens(Twain) had on the stock market (not exactly favorable) may have been justified.
  • Heads I win... (Score:5, Insightful)

    by Actually, I do RTFA ( 1058596 ) on Wednesday January 27, 2016 @02:03PM (#51383199)

    I'd be fine with this, if they weren't allowed to unwind transactions because of "computer glitches". If they wanna automate trading, they should have to take the good and the bad. But now, if their software does something stupid (like repeatedly buying at 25.01, and selling at 25 even) and you take advantage of it, they sue you and get the trades reversed.

    • You are dreaming, if make they make any significant loses because of a bug, they will not just go to the government and say look this will ruin the economy, you HAVE to fix this, and the government won't do it.

      You really think you can defend yourself against case from, one of these corporations, you will be bankrupt before even see a court, A class action suit wouldn't apply since it would be them initiating the case.

  • When I heard about high speed trading taking over the NYSE, I thought, "Time to look for a safer market for the small-time investor", since of course I can't compete with algorithms making thousands of trades per second. Of course I have a 401(K), which means I'm an indirect investor in the NYSE, but it's the only reasonable option my employer is offering me.

    I don't know if I really have a choice any more; I don't know if there are any safer markets, where there is a limit to the transaction rate, or if a

    • That is a silly view you have. You cares what the underlying technology is when you are making long term investments. HFT will just get your order filled faster. If you are attempting to day trade
        Don't.

      • HFT will just get your order filled faster.

        The HFT will also get you the money saving advantages of a smaller spread.

        The anti-algorithms crowd like to gloss over the fact that its always the best offers at both ends of the spread that get the trade. These HFT's only get trades when they offer a better prices than anyone else. That should be the end of the discussion. The fact that there is such vicious competition over the margin is a good thing.

        • by jewens ( 993139 )

          These HFT's only get trades when they offer a better prices than anyone else. That should be the end of the discussion. The fact that there is such vicious competition over the margin is a good thing.

          Not when the HFT-er can offer a price and cancel it before anyone can bindingly accept the price just to see the reaction and adjust their offer price accordingly.

    • by lgw ( 121541 )

      If you care about intraday trading, you're doing investing wrong. If you care about stock price changes at a finer granularity than quarterly, your doing investing wrong. None of this automaton affects anything at the timescale investors care about - this is all automation of speculation, and the more it's automated, the less money the insiders make per trade. Heck, the whole point of TFA is that Barclays can't afford to pay humans to do this any more.

      • That's good to know, but I was worried also about other possibilities, like overall volume of trading, which could lead to price manipulation. Thanks for the info.

    • but it's the only reasonable option my employer is offering me.

      ..and this is a problem because...?

      Please explain why only your employer (or perhaps government) be the only ones that can offer you a retirement strategy.

    • Actually, i'd suggest you find the market with the largest amount of liquidity, rather than worrying about where it comes from. NYSE, NASDAQ, LSE, OMX, there's plenty to choose from with sensible pricing, small spreads etc. Avoid countries with odd rules about stock ownership.

  • "But there has always been a Dukebot on the stock market! We emerged this exchange! Turn my fellow machines back on!!"
  • by PPH ( 736903 ) on Wednesday January 27, 2016 @02:36PM (#51383419)

    Stocks and other financial products are owned by 'corporations'. Actually just paper entities used to hold the securities and keep the transfer of ownership out of the view of regulatory agencies. These are nothing more than legal forms stuffed in filing cabinets in the Cayman Islands. They also serve to facilitate the transfer of securities out of the view of (and manipulation by) high frequency traders. The remaining public markets represent more and more money chasing fewer and fewer traded securities. So the result is increasing volatility.

    That's fine by me. You HFT traders can pick up nickels in front of the steam roller. I'll buy my positions where you can't see me.

  • The last humans on the floor are doing the job that most needs to be replaced by a computer:

    Now, humans on the NYSE floor have more of a supervisory role, making sure the automated systems don't go haywire

    As trading speeds climb higher and higher, the reaction speed of a human will be less and less relevant. Even most computers have slow reactions compared to the exotic hardware of an HFT machine.

  • by Tony Isaac ( 1301187 ) on Wednesday January 27, 2016 @03:12PM (#51383687) Homepage

    There are two kinds of investors:

    1. People who trade on the ups and downs, hoping to outsmart the market. If you're in this game, the computers will always win. They can do it much faster, and much more accurately, than you can.

    2. People who buy stocks because they want to own a piece of a company they believe in. These kinds of investors are in it for the long haul, and if they do their homework, they will beat the computers every time.

    • by Anonymous Coward

      You're talking about retail investors. These are peons.

      The people that do high speed trading and the like have almost zero risk in their systems. They skim off the top and take money from everyone.

    • by Anonymous Coward

      That's asinine. If "believing in companies" was more profitable than automated trading, then the floors would be full of hippies not computers.

    • by dywolf ( 2673597 )

      the computers can make billions in a few milliseconds by exploiting the time lag in currency fluctuations between two different markets.
      pretty sure they win.

  • Why bother with war and destruction when you simply become the world financial system? My bet is that if any system is going to achieve emergent sentience, it will be our economic system, interlinked between computers and parliaments and treaties and community banks and credit systems.

    And then we're really fucked.

    • by Livius ( 318358 )

      sentience, it will be our economic

      I can't figure out how those two words ended up in the same sentence.

  • Legalize insider trading;
    It'll fix /offset HFT;

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