"We risk becoming the best informed society that has ever died of ignorance"
- Rubén Blades

"You can't make up anything anymore. The world itself is a satire. All you're doing is recording it"
- Art Buchwald

"It's getting exciting now, two and one-half. Think of everything we've accomplished, man. Out these windows, we will view the collapse of financial history. One step closer to economic equilibrium"
- Tyler Durden

"It is your corrupt we claim. It is your evil that will be sought by us. With every breath, we shall hunt them down."
- Boondock Saints

Tuesday, October 11, 2011

The Trust Of The Innocent Is The Liar's Most Useful Tool

Here are quotes from various media sources regarding HFT and their characteristics.  You'll be happy to know that data from Nanex and information from HFT Alert debunked nearly all individuals who try to paint HFT as the White Knight.  Following the quotes are some graphs that help to show what the SEC admits it doesn't quite have yet.....facts.   What you'll also see is that though some publications won't admit it, deep down in most detailed articles the truth of the damning nature of HFT comes through.  Mr. Narang is a classic "I need publicity to increase my investor base" PR man for HFT.  Mr. Narang also points out that even though HFT doesn't make a meaningful amount of money, it was enough to be considered "eating his lunch".  So either he sucks at his job or HFT does make a meaningful amount of money...I think its both.

From Huffington Post:
"High-frequency traders don't make a meaningful amount of money," said Manoj Narang, founder and chief executive of Tradeworx Inc., a high-frequency trading firm in New Jersey. "If the SEC is insisting that it costs more than $1 billion to do a consolidated audit trail, then all it is doing is engaging in a power grab."
From WSJ:
MR. WEAVER: Whether or not there is more volatility in the marketplace is the issue. It's not clear whether more volatility is being caused by high-frequency traders. Certainly there are tighter spreads, more liquidity. But there's more price impact, and there may be more volatility in the market as well.
 From The NY Times:
“This is where all the money is getting made,” said William H. Donaldson, former chairman and chief executive of the New York Stock Exchange and today an adviser to a big hedge fund. “If an individual investor doesn’t have the means to keep up, they’re at a huge disadvantage.”
From Bloomberg Businessweek:
“High-frequency trading lends itself to potential abuse,” Sony Kapoor, managing director of policy advisory firm Re- Define, said in an interview. The practice could “cajole investors into a false sense of security by providing the illusion of liquidity which disappears exactly when it’s needed.”
From Thomson Reuters:
Being nimble is key to success. Narang said he and his partners at Tradeworx realized a couple years ago that high-frequency traders were “eating the lunch” of its hedge fund business. In response, Narang moved into fast trading and incorporated those techniques in the hedge fund.
From ABC News:
Critics of this practice say that the automatic process can create a cascading effect that can over react to erroneous trades, potentially causing damage to stock portfolios and 401(k)s. And while there is no conclusive proof to show damage, some critics are already convinced.
From $102 to $0.01

From $39 to $0.01

Explosive Volatility

This next image, as the first two, comes from Nanex:
CQS (Consolidated Quotation System) is the method in which 95% of all US market participants receive their data and is also responsible for calculating the NBBO for all listed stocks. There are however premium products direct from the exchange which are not disseminated through CQS. One such product is OpenBook from NYSE. In comparing time stamps of quotes from CQS to OpenBook, it is clear this time delay exceeded 20 seconds.