Comments on: Don’t cry for “the little guy on Wall Street” A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: ADZimm Sat, 07 Sep 2013 16:27:04 +0000 Thanks for a very informative article. I was under the impression that the main problem with HFT was that it had wiped out traditional market-makers, so no one is on the hook to provide meaningful quotes during times of market disruption. So all liquidity can suddenly dry up and cause a “flash crash”.

I guess that idea is inherent in the following quote?
“The real costs of HFT are found in fat tails and systemic risks and the problems that are endemic to ultra-complex systems.”

I’m trying to get my head around this topic. Could one say that this is a failure of regulators, who allow HFTs to make profits as market makers, but don’t force them to take on the associated obligations?

By: christophernagy Wed, 04 Sep 2013 12:06:59 +0000 Here’s the Hendershott research available to anyone for free: NBBO.pdf

By: LeeFisher Tue, 03 Sep 2013 19:56:57 +0000 Felix,

We offer this joint study on our website here:

The fact-based approach of your response is valued. Feel free to reach out to me at

By: LeeFisher Tue, 03 Sep 2013 13:55:34 +0000 Felix,
the Hendershott et al NBBO paper can be requested from our homepage banner or specifically here:

Feel free to communicate with us via e-mail to

By: Christofurio Tue, 03 Sep 2013 13:33:33 +0000 A Bank of England study found that “there are instances where HFTs contribute significantly more noise than the rest of the traders,” and where the aggressive group contributes a good deal more noise than the passive one within the HFT domain.

One reason for this is that HFTs typically want to end the day with their positions flat. This may require a lot of uninformed or noisy trades toward the end of a trading session.

The conclusion of all this, for the B. of E., was ambivalence. “[The] overall welfare implications of HFT are unclear; these will depends on how the marginal benefit of information at some times compares with the marginal cost of excess volatility at other times, including in periods of market stress.”

That sentence is not perhaps quite so ambivalent on a second reading as it is on the first. After all, what it means is that HFT is likely to disserve the public in periods of market stress — it will cause problems just when there are already problems galore.

Here’s the URL for that study: ons/Documents/workingpapers/wp469.pdf

So: what should be done? I think there are sensible measures that can be taken, although they aren’t on the sorts of list that usually make the rounds.

By: Th.M Tue, 03 Sep 2013 12:27:09 +0000 Andrei Kirilenko and co-authors did a study on the profits of HF traders on the Emini S&P contract. On average, he found profits in the magnitude of 50k per day per trader on this contract alone (it was back in 2010).

From the same study,though,not all HFT are liquidity providers, some are aggressively removing liquidity.

By: SniperInMahwah Tue, 03 Sep 2013 11:01:38 +0000 The paper quoted by Rob Curran’s piece for Fortune is “How Slow is the NBBO?. A comparison with Direct Exchange Feeds”, by Terrence Hendershott (Berkeley), John Hanna (employed by Redline Trading Systems during the project) and Shengwei Ding (associate employed by Wells Fargo Securities). It was published on the Berkeley website on July 8, 2013… The conclusion if the paper is clear (and obvious) : direct data feed are faster than NBBO prices, and colocation offers latency arbitrage. I downloaded the paper just after it was uploaded on the Berkeley website… but the question is… why this paper disappeared from Berkeley website? Why Curran does not quote the title of the paper? There are issues here…

By: upstater Tue, 03 Sep 2013 10:16:09 +0000 The “markets” are a rigged game. Co-location of servers, non-public or premium information, quote stuffing, insider trading, etc, etc.

It is rigged.

Felix, why don’t you dig into whether the NSA of GCHQ are front running?

By: StopItPlease Tue, 03 Sep 2013 10:13:09 +0000 1. The paper cited is titled “How Slow is the NBBO.”
a. Redline used to make is available on their Internet site. Now, you have to request it.
b. It used to be available on Berkeley’s website but appears to have been taken down.
c. It was written by Shengwei Ding, John Hanna, Terrence Hendershott. Google those names and title and you should track it down.

2. It is not reasonable at all to assume the same profits on 5,000 stocks that you make on Apple. Apple is a huge stock that trades a lot.

3. Redline just sells data. But, I believe they are owned by Goldman Sachs.

4. Spreads on NBBO are indeed rather low. That is cold comfort to an investor who is consistently on the disadvantageous side of trades taking place outside the NBBO.

5. NYT article from 5/16/10 said “The founder of Tradebot, in Kansas City, Mo., told students in 2008 that his firm typically held stocks for 11 seconds. Tradebot, one of the biggest high-frequency traders around, had not had a losing day in four years, he said.”

6. Exchanges have obligations for best execution.

By: billyjoerob Tue, 03 Sep 2013 09:52:23 +0000 Certainly if you buy and sell a big cap stock, you will get a price with very little margin to the broker or the market makers. But on small cap and lightly traded stocks, if you want to buy more than a token amount, it can be difficult to find a bid or a seller. Usually it will be 100X100. You can put in a market order, and sometimes get a very bad price. You can put in a limit order and watch the market move against you. So no, I wouldn’t say things have improved for small investors. It used to be that you could put in a market order for a large amount of a thinly traded stock a (say 10000 shares of a stock that trades 60000/day) and immediately get filled pretty close to the last price. That is no longer the case. Market making has dried up, meaning that each investor is left to match wits with the bots. That can be hit or miss, depending on the time of day and the trading volume. I’ve had the bots sometimes try to figure out if I’m a bot too, and get filled on one share of my orders, meaning that I get charged full commission for a one share fill. So things are screwed up in some ways and going back to the old market making model with wider bid offer but real bids and offers is a good idea, imo.