high frequency trading
Poor Fab, but it could be worse. Michael Lewis has a heartbreaking, enraging story in Vanity Fair about poor Sergey Aleynikov, the former Goldman programmer and current Dostoyevskyan holy fool who was sentenced to federal prison for eight years for stealing computer code from Goldman, won a complete victory on appeal, was released, has lost his life savings, and is now being prosecuted under state law just because Goldman, or someone, but probably Goldman, really hates him. It is troubling stuff not least for Lewis’s clear implication that a jury trial may not be the best way to arrive at the truth regarding complex financial-technological questions. E.g.: Read more »
An important element of any Wall Street education is figuring out what shady practices will win you a reputation as a genius, what shady practices will win you a reputation as a scumbag, and what shady practices will win you a prison sentence. There is substantial overlap!1 That education is extremely contextual, and your intuitions about what shadiness flies in one business won’t necessarily help you in another, or in court for that matter. For instance I grew up in a corporate equity business, so I’d be happy to tell you why Yahoo!’s share repurchase from Dan Loeb wasn’t insider trading but you can probably figure that out on your own. Meanwhile I have no idea what to make of spoofing, but it seems like Panther Energy Trading did some of it, and now they are in trouble: Read more »
SEC Official: Actually, The Scoreboard Reads Computers: 1, Homo Sapiens: Next Stop, Endangered Species ListBy Bess Levin
One problem that people with a lot of time on their hands like to get worked up about is that academic economists sometimes write papers advocating positions that benefit organizations that give them money, while being coy about that relationship. On the other hand this newish paper about dark pools, which compete for stock trading orders with exchanges like NYSE and Nasdaq, has a first author whose affiliation is listed as “The NASDAQ OMX Group, Inc.,” so that’s fine then. Guess what he thinks? No, kidding, you don’t get to guess, he thinks dark pools are bad, duh.
The study, by Dr. Frank Hatheway, Nasdaq OMX Group; Dr. Hui Zheng, the University of Sydney; and Dr. Amy Kwan, the University of New South Wales, looks at US trading venues with restricted access and without displayed orders – generically referred to as “dark pools” – which increasingly segment order flow in the US. … The authors show that the effects of order segmentation by dark venues are damaging overall price discovery and market quality.
I’m a sucker for market microstructure papers because I like the Hobbesian world they imagine, where everyone is trying to rip everyone else’s face off, and keep their own face on, every nanosecond. Read more »
You know what’s a surprisingly not-great business? High frequency trading, for Getco anyway. A couple months back Getco signed a deal to acquire Knight Capital after one of Knight’s computers had an unfortunate couple of minutes. Yesterday Knight and Getco filed a joint S-4 containing a passel of merger details and Getco financials, and they’re sort of sad:
The sadness is really brought home by the fact that, if current trends hold, this year the average Getco employee will take home less than the average Goldman Sachs employee for the first time in modern memory. The Getco employees will still be a bit more productive, revenue-wise, though it’s getting closer: Read more »