Whoops! Sentences are hard! That invitiation must have been lost in the mail, that is.

Uh, I'm sorry, the invitation to the club meeting where we let "them" into "our ranks".

(hint: Collective accountability is a bullshit philosophy.)

Where do you get this nonsense from?

-Matt

The spreads are smaller because of computerized trading, *NOT* because of HFT. HFT itself, verses normal computerized trading and non-HFT computer trading, is not going to have a big impact on the spread. In fact, HFT algorithms themselves do not really work all that well if there is any significant spread. They require volume to operate... no volume, no HFT.

-Matt

I think reality tends to trump thought experiments. I don't dislike the 1-second auction idea, I think it would work quite well. But I disagree that IEX's ability to stop the HFTs cold is a fluke that will disappear as their volume goes up. Their reasoning is sound and obvious and immediately solves the biggest problem that money managers have these days when trying to buy or sell large amounts of stock. I don't see how volume changes the equation at all.

Besides, his paper does not appear to say what you summarized at least in regards to IEX. It simply states that IEX is solving one aspect of the problem. It's pretty easy to argue that the piece they are solving is the biggest piece of the pie. Personally speaking, I don't care about the aspects of HFT which only involve standard arbitrage.

In terms of HFT... it was obviously fraudulent from the day it started beind used. The SEC should have acted immediately and didn't. Companies were spending hundreds of millions of dollars on infrastructure to get sub-millisecond transit improvements and they were lying to our faces talking about improving liquidity, magically, well in excess of the capital they actually had in play, when it was obvious that they were only exploiting flaws in the system.

It was a failure of the financial media as much as it was a failure of the SEC, but the SEC *should* have acted immediately and they didn't. And the result is a major loss of trust in the mechanisms of the stock market to the point where many retail investors who didn't understand the low scale of the fraud exited the market and stayed out of the market when they should have stayed in. I'm not going to make excuses for those people, I certainly wasn't scared away, but the general public deserves better than what the media and the government has handed to them over the last ~6 years.

-Matt

What, you mean pensions that companies are unable to make good on? Sounds to me like they SHOULD be eliminated.

And you forgot the single biggest reason why poor people stay poor. It's a four-letter word. D.E.B.T. #1 reason. Not 'Jim Crow' laws, regulatory capture (huh?), the destruction of unions, or anything else. You seem to have a chip on your shoulder yet you don't know the #1 reason for why poor people stay poor?

-Matt

In fact, the biggest money maker for a high frequency trader *IS* front-running someone else's order. Other profits from HFT algorithms, such as simple arbitrage, are a lot lower than profits from front-running opportunities. I very much doubt that the infrastructure investments HFT firms have made would be worth doing without the front-running component, so it will be interesting to see what happens down the line.

The front-running is possible when the other person's order is placed on multiple exchanges but not delayed so it hits them all at the same time. If the order hits, say, the BATS exchange first and there is a 100ms delay before it hits, say, the NYSE, then HFT algorithms will see the order on BATS and will be able to front-run the order on the NYSE using their superior network connections to the NYSE to get ahead of the original order that is still in-transit to the NYSE.

-Matt

This might be a surprise to you, but it has already happened. The growth in dark pools is directly attributable to major investment managers exiting the public markets and doing their trading in the pools in order to avoid the HFTs and other shenanigans (both real and imagined). The public exchanges have lost a huge amount of business over the last few years... hoist by their own petard, so to speak. At least to a degree.

Insofar as regular investors go, HFT doesn't really have much of an effect so there's no reason to take our business elsewhere. Losing a penny here and there, when it happens at all, is nothing compared to what trading cost us even 10 years ago. Our trades are simply too small for the HFTs to be able to act on.

But if you are really worried, just use limit orders that are slightly outside the bid/ask range (i.e. so they don't fill instantly) and wait for the fill. Nobody can front-run a small order so making it public beforehand prevents the HFTs from being able to do anything with it. You have to be a bit patient, but that's all. (this advise does not apply to thinly-traded names, only to liquid names).

-Matt

Hedge funds tend to be used by the affluent, not by regular people with regular incomes. In addition, hedge funds usually lock your funds up... there may be only a few times a year where you can cash out and you have to give them notice (3-6 months, depending). Only investors with serious excess capital that they can afford to put aside for a few years uses a hedge fund.

And even then, hedge funds are hardly any guarantee of good returns. As a class Hedge funds returns have been horrible over the last year, for example. And while the media likes to hype up the returns that some hedge funds have been able to make, they tend to ignore the larger number of hedge funds that underperform the market.

-Matt

That is total and complete nonsense. Ultimately the stock price is a reflection of the company, not the other way around. If a stock winds up being mis-priced due to an out-of-control trading program (and I've seen that happen plenty of times), it doesn't stay that way for long as investors pounce on it. You should count your blessings when it happens, because being able to buy a stock that an out of control trading program drops $10 in 60 seconds is virtually guaranteed profit.

-Matt

There are a number of good solutions available. If anyone actually read the book, defeating the HFTs basically comes down to adding a delay to multi-exchange transactions such that the transaction reaches each exchange at the same time.

The real problem here is that the regular exchanges prioritized their own profits over their duty to provide a fair market to participants. That much is obvious, and frankly I think there should be criminal prosecutions for what they did (I doubt it will happen though).

This sort of things has happened in other areas. There are several market reports that sell early copies to a select group of clients. One just recently was selling an 'electronic' version even earlier than its main group of clients. It turned out that the HFTs who purchased the ultra-early version were using the data to front-run the normal clients (who in turn were trying to front-run regular investors reacting to the report when it goes public).

The instant it was revealed what the early-early group was doing, the regular clients stopped trading on the early news and the early-early group were suddenly not able to make any money front-running the regular clients. The producer of the report was forced to retract the early-early report or lose *all* of their regular clients who were tired of being front-run.

The stock exchanges are engaged in the same sort of crap with the HFTs, selling them special access and trade types that other investors do not have. Now the exchanges are in a position of having to deny that they are making things unfair when it is obvious that they are making things unfair.

This just goes to show how convoluted things can become. But once it gets into the light of day, corrective action can happen pretty quickly.

If our regulatory agencies were more competent, this would have been dealt with years ago instead of letting it fester as long as it has.

-Matt

Apple has bought back a huge number of shares, as well as increased their dividend 8% this round. The share buy-back is capital-efficient for investors and a big deal. Not only that, but at a minimum they can fold in the dividend they don't have to pay any more for those repurchased shares into the dividend they are paying the remaining shareholders, so you get the best of both worlds.

Believe me, it actually is a big deal. Ignore the crap that comes out of the media.

-Matt

Well, you are assuming that the company is valueless when you say that. Most companies are not valueless. Most, in fact, make a profit, and as an investor you own a piece of that profit. The profits are not a phantom... that's cold hard cash and it means something whether the company has a dividend or not. It's very real.

Many people treat the market like a game, and there are some game-like elements to it, but the underlying reality is that it isn't a game. The secondary markets have many uses... it is the liquidity and transactional efficiency of the secondary market that gives U.S. industry a level of flexibility that no other country can compete with. our energy infrastructure, renewables industries, small businesses. When the world changes, dollars flow where they are needed.

By dismissing the secondary market you basically dismiss any need for liquidity. You are wrong. The markets aren't about giving people a free pass... it's survival of the fittest. If anything, investors have it the easiest. We can shift our resources literally in a few seconds, and other than the crash of 1929, no crash since has lost investors who stuck with it any money in any reasonable period of time unless they were stupid and sold at the bottom (not understanding what stock ownership actually means).

Look at a graph of the 2008 crash. The economy might have gotten screwed due to the lack of regulation of the financial industry, but the markets recovered relatively quickly and that happened because the efficiency of the secondary markets allowed investment resources to be shifted very quickly. Just looking at tops and bottoms doesn't give you a full picture... very few investors actually went 'all-in' at the top and sold 'all-out' at the bottom. No matter how hyped-up a story you get from the media, it isn't an accurate representation of what people actually made or lost.

If you think the stock market is a crap-shoot then you are probably thinking a bit too short-term. It's never been a crap-shoot. Not even during the 1929 crash.

-Matt

have a great deal of respect for you

Sorry, I should have made it more obvious that I was writing tongue in cheek about the monarchy. Not about SpaceX though. I'm pretty impressed.

It doesn't work to do this with a democratic government. We need a monarchy :-(

It seems to me that SpaceX is on the path to a solution that might be affordable by a single administration, though.