"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

Monday, March 5, 2012

Sub-Nanosecond Markets

 From ZeroHedge:
Just as market regulators were finally getting wise to the fact that they have no clue how modern market works, what modern market topology is, or how High Frequency Trading impacts the stock market (think Flash Crash), here comes Certichron, the supplier of a time service center at a Savvis market center in Weehakwen, which says it has now mastered sub-nanosecond readouts which are now "compliant with the FINRA Order Audit Trail System and is likely to be compliant with any Consolidated Audit Trail that might be specified by the Securities and Exchange Commission." In other words, here come sub-nanosecond markets. 

For those of you scratching their heads at this development, curious as to how or why on earth anyone would need sub nanosecond time-stamping, you are not alone. Because as a reminder, 1 nanosecond is the time it takes light to travel 30 centimeters. Light. Via fiber-optic cable: which happens to be the medium by which the fastest news (and thus response to) can propagate. 

There was a time when the smallest gradient of trading was in the millisecond range, but then HFT algos became collocated at the exchanges so that in response to any one headline, an algo could generate a kneejerk reaction to (whether buy or sell) long before the rest of the trading world was aware what is going on, in the time light moved 300 meters. This is what causes those massive moves up or down in virtually every market once a big, red, all caps BBG headline hits the tape, before any retail trader has the capacity to react. However once you get to the sub-nanosecond space, unless GETCO has found a way to trade backward in time, there is absolutely no way that this increment is even remotely necessary for normal market operation - and by that we mean cause and effect, even purely for robots - for most humans it takes seconds to react to news - alas not for robots, which is a main reason why the market has been so increasingly irrational ever since the passage of Reg NMS. Unless it actually is, and it is being implemented precisely to allow the quote stuffing packets which already occur thousands of times every second (just ask Nanex - a quote packet churn storm is what caused the May 2010 flash crash) to propagate exponentially, to not millions or even billions times per second, but to be virtually unlimited thus activating an even more aggressive momentum waterfall, used solely to generate a burst of directed trades, first discussed here in June 2010, which however then facilitates precisely the instability subsequently covered in Wired

And that was only at the nanosecond level. We are now entering sub-nanoseconds. Should the SEC or FINRA allow this, prepare for all market hell to break loose, as we get Hurst exponents closer and closer to 1, until we finally hit unity, and SkyNet no longer needs carbon-based lifeforms.

“As the whole regulatory and business requirements develop over the very near term, subsecnd reporting will be absolutely key,’’ the firm’s president, Tom Kelly said.

The system, according to chief technology officer Todd S. Glassey, uses three or more records of a stamp to avoid any technical faults or malicious attempts to reset time. Attempts to reset time or forge records will fail, because the time stamps produced will be wrong, he said.

Every record that gets sent out by the service gets verified and any attempt to alter a record gets identified, Kelly said

The system uses a hub-and-spoke architecture. The hub at the Savvis center can be accessed by users of the service with “no long lines latency and no Internet liabilities,’’ he said. And “virtually any” load can be handled.

The method of setting and verifying time creates “an impossibly strong evidence model,’’ for distributing the kinds of sub-nanosecond time stamps required by algorithmically-driven high-speed trading operations, Glassey said.
Well thank god the system can not be hacked. But wait: why do we need over 1 billion time stamps per second? Oh yeah, because the entire system is now one epically manipulated casino, where fundamentals don't matter, and the only thing that does are burst of micromomentum, which in turn becomes the kind of market landslides with no precipitating volume that can not be explained with anything except for artificial lack of intelligence.

And even greater news, is that soon all gray market venues will be subpennying every limit order placed in by the 3 remaining retail traders, hundreds of billions of times per second.
The Certichron operations center at the Savvis Center at 300 Boulevard East in Weehawken also connects to data centers operated by Telx and Equinix, giving it broad reach across trading venues and trading firms.

The Savvis center, for instance, houses the BATS Global Markets Y and Z exchanges. The Equinix center houses the Direct Edge A and X exchanges. Nasdaq is located at a separate Carteret center; the New York Stock Exchange operates its own center in Mahwah, N.J.
All we can tell any remaining retail traders who still think they have an edge against microscalping that will now run practically constantly - good luck.

And in the meantime, instead of girls on trampolines, here is a chart from the Economist that explains all one needs to know.

As for the market even pretending to serve as a venue for capital formation?