One to watch: FINRA & SEC going after HFT algorithms

[Ruby the Liberal]

:wow:

Found this link buried deep in the Civil War on Wall Street article.

(Reuters) - U.S. securities regulators have taken the unprecedented step of asking high-frequency trading firms to hand over the details of their trading strategies, and in some cases, their secret computer codes.

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.

More: http://www.reuters.com/article/2011/09/01/us-financial-regulation-algos-idUSTRE7806J420110901


Everyone got your shorts booked?

:popcorn:

[Warpy]

1. A per trade tax is what is needed

and that would turn those computers into useless junk overnight, waiting until they manage to predict markets they don't rig first. In addition, it's not like the government doesn't need the money.

[Ruby the Liberal]

2. Yes. A thousand times this.

I have been saying this for years. Even $0.01 per trx would raise enough money to fund the deficit (not to mention slow these fuckers down).

One glitch that blows through all the stops and HFT recovers in seconds while our 401k plans and Pensions are going "WTF?" for another day.

[brewens]

3. The way I understand it, you have trades going on that would

require actually bugging someones office or phone back before the internets. Maybe someone on the inside illegally working with you to put trades in to get the jump on the info you got from the taps.

Then there are the naked short sales and stuff like that going on. Back in the 60's you would have had to actually counterfeited stock to pull some of those deals off. No way you'd stay out of prison back then.

[Ruby the Liberal]

4. Yeah - thats called front running.

Placing prop bets before your clients' orders.

Today, the algos are programmed with very complex grids. Not to be too simplistic, but things like 50 day moving avg vs 150 day moving avg (buy/sell when it crosses one direction or another), if this (insert statistic) moves 0.001% then buy/sell (sector/stock XYZ) - and with tens of thousands of moves in play every nanosecond.

MIT used to produce scientists and engineers. now all these kids go into statistical analysis in order to get jobs on Wall Street instead. They analyze the data, determine what affects what and how, code it in, and let 'er rip.

Like all Casinos, even the smartest financial analyst in the world (card counter) will never be able to beat the house with those automated odds stacked against them. No one can count that many decks of cards at once.

[truedelphi]

9. Thank you for the detailed explanation.

Very much appreciated.

[elleng]

5. Good work; thanks.

Shall we await FINRA head to be 'Spitzered?'

[Turbineguy]

6. This is what is creating the volatility

the tail wagging the dog.

[cottage10]

7. Long, long, long overdue

HFT is nothing but the wealthy taking advantage over everyone else. It shouldn't be legal (IMO) since it depends on getting a peek at the trading activity ahead of everyone else--and screws the small time investor and trader in the process. Since they say that HFT is @70% of all trading on the stock market these days, you can tell that they are discouraging other investors. If SEC doesn't act, trading will be 100% HFT and so much volatility the stock market will act like a roulette wheel.

[formercia]

8. I'm Shorting Pounds of Flesh

I think there may soon be an oversupply.

[bemildred]

10. HFT should be outlawed, reality is not continuous, it is discrete. nt

[brooklyn297]

11. agreed