China Clamps Down on High-Speed Traders, Removing Servers (yahoo.com) 37
An anonymous reader shares a report: China is pulling the plug on a key advantage held by high-frequency traders, removing servers dedicated to those firms out of local exchanges' data centers, according to people familiar with the matter.
Commodities futures exchanges in Shanghai and Guangzhou are among those that have ordered local brokers to shift servers for their clients out of data centers run by the bourses, according to the people, who said the move was led by regulators. The change doesn't only affect high-frequency firms but they are likely to feel the biggest impact. The Shanghai Futures Exchange has told brokers they need to get equipment for high-speed clients out by the end of next month, while other clients need to do so by April 30, the people said.
The clampdown will hit China's army of domestic high-frequency firms but will also impact a swathe of global firms that are active in the country. Citadel Securities, Jane Street Group and Jump Trading are among the foreign firms whose access to servers is being affected, the people said, asking not to be named as the matter is private.
Commodities futures exchanges in Shanghai and Guangzhou are among those that have ordered local brokers to shift servers for their clients out of data centers run by the bourses, according to the people, who said the move was led by regulators. The change doesn't only affect high-frequency firms but they are likely to feel the biggest impact. The Shanghai Futures Exchange has told brokers they need to get equipment for high-speed clients out by the end of next month, while other clients need to do so by April 30, the people said.
The clampdown will hit China's army of domestic high-frequency firms but will also impact a swathe of global firms that are active in the country. Citadel Securities, Jane Street Group and Jump Trading are among the foreign firms whose access to servers is being affected, the people said, asking not to be named as the matter is private.
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And that is a bad thing? Locking the guys out who fight for the centimeter to the stock exchange so they can make money before everyone else does isn't going to harm anyone. In fact, it may make life for Joe Trader or even average stock/mutual fund companies a lot easier.
I find it ironic that it is China evening the playing field, but with late stage capitalism starting to fall apart, here we are.
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This is a common defense of HFT favoritism, but I don't see it happening in the real market. What you see in the market is exactly what you'd expect to see in any market - highly traded assets trade on narrow spreads, illiquid assets trade on very wide spreads. VOO has a 1 cent spread because a billion dollars of VOO are traded every day. On the other hand, despite all the sweetheart deals that HFTs benefit from, VOO260417C00720000 has a 100% spread - the kindly HFTs who can easily automatically quote both
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I have seen it in the real world first hand. I have worked in HFTs for several years including two of the biggest names in HFT. I have seen in Bloomberg terminals in real time how spreads on very liquid products suddenly widen when our systems fail and we pull quotes from the market.
No. Even the S&P500 wouldn't be nearly as liquid as it is today without HFTs.
HFT is about being on the other side of everyone's trades and collecting money on the spread.
Okay I can explain ETF market making in more detail. It is a very widely used strategy and I will leave our proprietary details. There are ETFs lik
Stupid (Score:1)
These same firms will continue to be high speed traders, it will just be at a lower speed. They are not outlawing the techniques, just the technological advantages.
It is still a race even if it is done on foot rather than in an automobile. The normal, every day person operates at so much slower speeds that even without the specialized equipment, the firms will have a very similar advantage.
Also, it is practically impossible to outlaw the techniques.
Duh ... (Score:4, Insightful)
Your own analogy illustrates the point: racing on foot is a lot cheaper than racing automobiles, which is one reason why you have so many people running in races and so comparatively few driving in them.
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How about requiring all bids to be posted for five seconds before closing? How fast can a human trader respond?
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Just delay all transactions between 15 and 30 minutes from when the order is placed.
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That would work, but there can be reasons why it's not best. I'm in favor of a per-trade tax that is higher for items held a shorter period of time, reaching 100% for trades sold within 10 nanoseconds. (And paid by the seller.)
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I don't think the high frequency trading is a good thing, but I'll take any advantage an opponent provides.
the most dangerous street in the world wall st! (Score:3)
the most dangerous street in the world wall st!
Good. (Score:5, Insightful)
Now we need to do the same here. They offer nothing of value, they are skimmers.
Re:Good. (Score:4, Insightful)
This is for sure.
HST looks and feels like cheating.
Re:Good. (Score:5, Insightful)
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Re: Good. (Score:2)
Of course there are actually lots of ways to do it.
Random delays
Specific but longer delays
Disallowing re-trades earlier than some period (a day? A week?)
Charge a fixed amount per trade, or a percentage with a minimum
Limit traders' and/or firms' volume
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Indeed. And they make the overall system even less stable.
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There is a reason for in-exchange HFT servers (Score:1, Insightful)
It allows fairness between brokers.
If brokers have to put their servers outside of the data center, it gives an advantage to those whose servers are "close by" as the data-packet travels.
There are ways to overcome this advantage by using long runs of fiber to compensate, but if the overall goal is to discourage high-frequency trading I don't think the Chinese Government is going to do anything to encourage fairness here.
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How about forcing a random delay in the system?
Lack of information.... (Score:4, Interesting)
I think the better solution to HFT is to "batch" trades - sells get posted blind over the space of a second, they're revealed and there's a second of quiescence to allow everyone everywhere to see the sells, blind buys get posted in the next second, in the fourth second buys and sells are matched and in the fifth second the results are posted. Naturally, one might parallelize this so there's always five sequences in flight.
Because the buys are "blind" (buyers don't have any visibility into what other buyers are bidding), there's no advantage to HFT - coming in at the last microsecond doesn't help you. A computer in San Francisco has the same access to the available market as a computer in the basement next door to the Exchange computer.
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Second? Make it an hour, give people time to eat lunch.
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A second may be too short, but I think an hour would be unreasonably extensive. Instead divide each minute into those four parts. IIUC, most trades are done by algorithms, not by humans. Somebody says something like "if stock A drops below this amount while stock B stays above that amount, buy (or sell)", and the computer implements the rule.
Re:Lack of information.... (Score:4, Informative)
Doesn't work. You don't know how the market works.
You have buyers, they are willing to pay a top price X. You have sellers, they are willing to sell for a minimum price Y. If X < Y nothing happens because the highest buyer and the lowest seller are still apart.
If Y < X, it means the most a buyer is willing to pay is MORE than the least the seller is willing to sell at. The trade happens for 1 item at the seller's lowest price. The buyer saves money, the seller gets their minimum price, and everyone leaves happy.
If you batch up the orders, you're going to run into issues because orders are variable. A seller might be willing to sell for $100, but only if they sell all 100 they have. A buyer might e willing to buy for $100, but only wants 10. The trade doesn't happen because the buyer wants 10 but the seller only wants to sell 100. It could even be the buyer wants to buy 10 for $105. It still won't happen. Someone who spots this can buy 100 for $100, then sell 10 for $105, then price the remaining 90 at $104, say. They make a profit by facilitating the transaction (i.e., liquidity). They're still taking a risk to sell that 90 for over the $100 they paid. Both the seller and the buyer walk away happy because otherwise the trade will stay there - someone had to come in and break the impasse.
(This happens in real life too - manufacturers of products rely on distributors to do this breaking - a manufacturer of a widget makes 1000 widgets and sells them in pallets of 100 each, but they won't sell you 1 or 2, but the pallet. But buyers don't want 100 widgets. Even a store might only want 50 widgets to sell to 50 customers. So a distributor buys one pallet then breaks it up - this store wants 50, another store wants 10, etc. Then the store marks it up and sells it in ones and twos. That's why there's a serious markup of 50% or more - so a widget that a manufacturer sells in quantity 100 for $50 will be $100 by the time it reaches the shelf).
You want to stop HFT? Tax each sale. Even a 1% tax will put a quick end to it because the goal is to be that middleman with 90 shares to get rid of quickly, and if they hang on then more costs are involved.
In the real world, there will be other sellers - maybe someone wants $110 for their 50 shares, but is willing to do a partial sale. No trade happens as the buyer wants to pay $105 max, but it sits there.
Re: Lack of information.... (Score:2)
I donâ(TM)t think we need a tax on transactions.
I donâ(TM)t mind HFT if they are genuinely responding to what they observe to be asset misprints. Is the front running of othersâ(TM) orders that I think is most egregious.
Therefore my solution would be to timestamp all trades, and have a computer solve for the fairest price based on the order of the trades after a small delay. So if a HFT company sees a big order in one location, and they try to front run it, they will be put in the back of the
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There is no front-running going on. You cannot submit your order ahead of someone else's order - the trades happen in the order received. By the time the order shows up, it's public knowledge.
The only practical way to front run the order is if you're a broker, and your customer places an order with you. With the knowledge of the
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There is no front-running going on. You cannot submit your order ahead of someone else's order - the trades happen in the order received. By the time the order shows up, it's public knowledge.
I know that it is not front-running in the strictest sense. However, they are essentially using information about market dislocations, and their speed advantages to put themselves in a position to profit from trades they know are almost certain to happen. I do not see why exchanges couldn't just share information directly and fill orders with each others without having HFTers put themselves in the middle.
Latency fairness (Score:2)
Trading datacenters in the United States just give everyone the same length of fiber cable (adjusted for distance).
Say you want a 20 km circumference, then everyone starts with a 20km fiber spool, then you just trim off the excess amount to get the exact right distance.
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Bull. You think the latency between yuo and a server co-located in the same datacenter as the stock market is the same?
Nope.
And arbitrage will buy and sell whatever you just queried on 100 times before you finish typing "buy", and have raised the price.
Re: Latency fairness (Score:2)
Frontrunning is illegal.
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That's not what I said.
NYSE (and similar) datacenters give their customers (traders/etc) latency normed connections using these fiber techniques.
Nothing to do with you or I trying to connect from a discount datacenter.
How does it help? (Score:1)
How does replacing deterministic networks where everybody is in the same room with same cable length by unreliable non-deterministic networks somehow leveling the playing field?
Unreliable networks have a lot of crazy techniques to be abused, and when done so yield a much bigger advantage.
Good (Score:2)
High-speed trading is nothing but a cancer.