Scribbles-June 2014
Flash Boys by Michael Lewis is another example of great investigation and writing, but another disturbing view of Wall Street taking pennies out of every pocket. Similar to the salami fraud technique of slicing a bit off from each transaction, high frequency trading (HFT) enabled by the broker establishment are similarly fleecing individual investors out of a penny on each share traded. The middle men are gaming the system ... which is paid for by the individual investor.
- Great quote from Don Bollerman, pg 164: ''On the savannah, are the hyenas and the vultures the bad guys? We have a boom in carcasses on the savannah. So what? It's not their fault. The opportunity is there." Which boils down to never being able to change human nature, but this leads to ... change the environment in which it can operate.
- The market designed to prevent predatory behavior: IEX
- The list of firms (brokers) that are subscribers to IEX http://www.iextrading.com/services/#subscribers
- Quotes from Vanguard 4/4/2014 at Blooberg.com, Vanguard Says Minority of High-Speed Traders May Abuse
- How does Vanguard route orders? See the SEC Rule 606 Report at http://vrs.vista-one-solutions.com/msi/reports/index.html?clientid=ssic. The primary routings are: KCG Americas LLC, Citigroup Global Markets, UBS Securities LLC, Citadel Securities
- Scottrade addresses trade execution and quality in general terms on their website. Best-Execution Index??? any stats?
- How does Scottrade route orders? See the SEC Rule 606 Report at http://vrs.vista-one-solutions.com/msi/reports/index.html?clientid=ssic. The primary routings are: KCG Americas LLC, Citigroup Global Markets, UBS Securities LLC, Citadel Securities
Citadel Securities, KCG Americas LLC, DirectEdge ECN (EDGX), Nasdaq Execution Services, Citigroup Global Markets, G1 Execution Services
- Where are the Regulators??? HELLO SEC!!!
- Charlie Munger High-Frequency Traders Like ‘Rats’ in a Granary CNBC
Personal trading
Looking for that personal solution? How to not get ripped off by HFT Place a limit order at the BUY price. Or help to make the market move by going 1 cent higher than the BUY price. Don't (DON'T!!) let the HFT make the spread and pay for taking liquidity. (see the NASDAQ price list for trading connectivity fees / rebates.
Chis Stucchio, the author of the article referenced above, has a very well organized explanation of how HFT works at http://www.chrisstucchio.com/blog/2012/hft_apology.html , http://www.chrisstucchio.com/blog/2012/hft_apology2.html , and http://www.chrisstucchio.com/blog/2012/hft_whats_broken.html
Another perspective on HFT
The hanging thread ... as Flash Boys ends with a reference to a microwave tower in Pennsylvania with the FCC license number 1215095
The application to use the tower to send a microwave signal had been filed in July 2012, and it had been filed by … well, it isn’t possible to keep any of this secret anymore. A day’s journey in cyberspace would lead anyone who wished to know it into another incredible but true Wall Street story of hypocrisy and secrecy and the endless quest by human beings to gain a certain edge in an uncertain world. All that one needed to discover the truth about the tower was the desire to know it.
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