News Flash: Goodbye High Frequency Trading – Regulators Seek Secret HFT Codes
I Thought the group might want to know……..”The requests for proprietary code and algorithm parameters by the Financial Industry Regulatory Authority (FINRA), a Wall Street brokerage regulator, are part of investigations into suspicious market activity, said Tom Gira, executive vice president of FINRA’s market regulation unit.
“It’s not a fishing expedition or educational exercise. It’s because there’s something that’s troubling us in the marketplace,” he said in an interview.
The Securities and Exchange Commission, meanwhile, has also begun making requests for proprietary algorithmic trading data as part of its authority to examine financial firms for compliance with U.S. regulations, according to agency officials and outside lawyers.
The requests by SEC examiners are not necessarily related to any suspicions of specific wrong-doing, although the decision to ask for it can be triggered by a tip, complaint or referral.
It’s all in the code:
Trading code is a high-stakes secret for high-frequency firms that battle each other to earn razor-thin profits on tiny price imbalances in the market. Such firms can make thousands of trades per second and provide much liquidity to the market.
High-frequency trading is estimated to be involved in more than half of all U.S. stock trading. Regulators have said the algos behind such trading were a factor in the flash crash, but that they did not cause it.
Carlo di Florio, who heads the SEC’s Office of Compliance, Inspections and Examinations, said the agency started asking firms for proprietary algorithmic trading data over a year ago, and has since more broadly incorporated such requests into its risk-based exams.
Most of the algo-related requests, he said, have been made to hedge funds that use quantitative trading strategies.
Although some lawyers and industry sources have said the SEC has asked for the actual computer code itself, di Florio said such a request is “very rare.” Instead, most of the time the SEC has been asking for research papers containing sensitive information about trade reasoning and proprietary formulas.”
-REUTERS (Via Tyler Durden @ ZeroHedge
like anybody at the sec is going to be able to decipher millions of lines of code from various firms. the notion is completely insane and who says that hedge fund x produces the right code the sec isnt gonna know the difference. if the govt wanted to put an end to hft they would introduce the tobin tax end of story.
I don’t have an opinion either way- just posting an update;)
im just commenting on the article, it makes no sense whatso-ever for a bunch of lawyers to attempt to decipher undecipherable code it will take them 300 years
I agree! Looks like Posturing to me;)
I”m a life long software engineer with a strong interest in A. I. and Algorithmic trading strategies. I’ve studied and even created HFT algos. I can say with strong assurance that both the volume and time variables of an HFT trade are not sufficient to move the market in any one direction for any significant distance. That’s considering one trade at any one moment in time. As you add trades (buy and sell) to the same moment in time, the risk assessment changes for each new trade increasing the risk against continued profitability and thereby diminishing the number of trades that would be executed due to risk factors. In all this, the market hasn’t moved much, even when the numbers reach a couple thousand trades over a few seconds. The SEC already knows this BTW. They knew it BEFORE the flash crash. There were several “research” studies they pursued about the topic before that crash. This is proprietary theft, hands down. So your sense that it is political posturing is correct and keep in mind this one thought: You can’t find a single use case in the history of the United States government where the driving notion behind any particular political posturing WASN’T for some major personal or political gain. Think $$$. Now you see it’s Proprietary Theft. The FED and whoever has the closest ties to politicians will get the best HFT code that has been raped from individual proprietary owners of that code.
I agree that automated trading in and of itself is not necessarily bad and that if you have the talent, time and money to do it that’s great. But let’s not forget the retail investor. Remember the moderator of this forum and his open letter to the group about spamming. We all suffer when someone abuses the system. That’s the problem that I have with HFT systems. I don’t care if large companies that buy millions of shares in stock XYZ have automated systems that will buy and sell when the market is right so that they can control their activity and that other people can’t follow what they are doing.
But when I read about HFT systems stuffing the system with orders that they never intend to fill in an apparent effort to game the system or manipulate the stock price, only to cancel the orders later before they can be filled. I have a problem with that. That’s market manipulation. I was under the impression that was illegal.
I think I heard them say on CNBC one day that 80% of all stock transactions now only have a duration of a couple of minutes. I was busy doing something else at the time and only half heard it. But it made me do a double take. What? Can anyone else confirm that? I sent them an email asking them about it but never got a response.
If that’s true, then the computers have already taken over and the retail investor is lost. I’m just looking for a level playing field where everyone has a fair chance. If we can’t establish that then my clients and I are wasting our time at best, or are just patsies for the system at worst. Our best efforts are just to be robbed my some HFT firm that just figured out a new trick, or just has the most money to hire the best coders.
I haven’t forgotten about you. I need to get back to you and ask some more questions about the code but I’ve been pre occupied. You know how it goes
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