End the danger to the market and unfair competition by implementing changes to High Frequency Trading!

United States

Financial System

Problem

The current environment for high frequency trading firms supports a technological arms race that seeks to speed up the processing of trades simply for gaining millisecond advantages that can be arbitraged in front of retail and institutional investors. This activity does not support identifying the true "value" of assets that are traded, which is the basis for our market system. The argument that high frequency trading adds "liquidity" to the markets is false. The ability of firms to quote prices and quickly cancel them merely gives the illusion of liquidity that is really a mechanism to manipulate the market, and get "in front" of institutional and retail investors trades. While "automated" trading has great benefits in terms of lower transaction costs, the real problem is in the ability of trading algorithms to create false quotes to manipulate the price in front of retail and institutional investors. This manipulation is analogous to naked short selling, which allows a market participant to manipulate prices by creating phantom supply.

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There is no economic value in the HFT. The only value comes from "front-running" those that are unaware of you unfair advantage. "But Hunsader also pointed out that trading after 9:55 a.m. dried up after press reports revealed the advantage in June. Other investors felt they were getting taken advantage of and stopped trading upon receiving the data at 9:55 a.m. That had the effect of driving the high-frequency traders to stop trading at 9:54:58 because there was no one to front run" http://blogs.marketwatch.com/thetell/2013/08/12/trading-volume-dries-up-around-umich-report-following-disclosure-of-early-release/ -- V3ritas Posted At: 2013-08-12 17:01:19 UTC

Solution

Implement the 6 recommendations drafted in the working paper by the Chicago Federal Reserve in their entirety: Recommendations for Equitable Allocation of Trades in High Frequency Trading Environments: http://www.chicagofed.org/digital_assets/publications/policy_discussion_papers/2013/PDP2013-01.pdf Abbreviated Summary: 1.Where appropriate, utilize a new trade allocation formula that is intermediate between the Pro Rata trade allocation formula and the Price/Time or FIFO trade allocation formula. 2.Create a new, optional, term limit order type that, as part of the trade allocation process, would reward traders for the time that their orders are committed to be resting in the Order Book. 3.Completely dark orders or the hidden portion of resting orders that are not fully displayed (lit) in the Order Book should go to the very end of the queue (within limit price) with respect to trade allocation. 4.Prior to trade allocation, multiple small orders from the same legal entity entered contemporaneously for the sole purpose of exploiting the rounding conventions of a trading venue should firstly be aggregated as a single order and should carry the lowest allocation priority time stamp of all of the orders so aggregated.\r\n\r\n5.\r\nRather than running a continuous trade match, trading venues should divide their trading sessions into periods of one half second. At a completely random time within each half second period, the trade match and trade allocation algorithms should be run once. 6.Visibility into the Order Book should be no more granular than aggregate size at a limit price. Market participants should neither be able to view the size of individual orders nor any other identifiers of any orders of others. This more granular information is not information that any market participant needs to make a fully informed economic decision as to the instantaneous value of the instrument being traded.

Comments

Facts

Wikipedia: http://en.wikipedia.org/wiki/High-frequency_trading Watch the growth in High Frequency Trading since 2007: http://thinkprogress.org/economy/2013/03/08/1693041/price-high-frequency-trading/?mobile=nc

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Thomson Reuters will stop giving high-speed traders a two-second head start: http://qz.com/101387/thomson-reuters-will-stop-giving-high-speed-traders-a-two-second-head-start/ -- T.J. Posted At: 2013-07-08 17:36:11 UTC
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can i format this so it links? -- justin Posted At: 2013-06-26 22:24:08 UTC
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May 17, 2013 - Anadarko Petroleum, a $45 B Market Capitalization company went from $90 a share to a penny a share in seconds. From the article - "Nowadays, however, limit orders are mostly placed by short term, hyper speed liquidity providers’ who quickly cancel at the sign of any trouble." -- T.J. Posted At: 2013-06-27 18:01:42 UTC

Action

If you agree with the need to create a more equitable and fairer trading environment for average investors and end the technology arms race that current high frequency trading supports; CHOOSE NOT TO PARTICIPATE IN THE MARKET Starting September 15, 2013, all of us who support this solution will stop our automatic contributions to our 401(k) and IRA accounts. The boycott of the market by average investors will continue until the agreed upon solution is signed into law. The requirements will be permitted to have an effective date no later than January 1, 2015 to allow time to work out the specifics for implementation of the changes.

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Update the action date to May 15, 2014 to gain public attention. -- T.J. Posted At: 2014-04-01 19:09:41 UTC

Posted by justin

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