raging bulls

Naslund, Steve SNaslund at medline.com
Wed Aug 8 15:24:21 UTC 2012

This is a bit like an arms race.  The markets will most likely have to
level their own playing field.  That is up to them.  The markets may
like high frequency trading but if more and more traders become
disadvantaged they will act to level things out.  They also would not
like the government to step in which they are always apt to do.  The
government in general I think seems highly negative on high frequency
trading because there is some systemic risk in systems handling large
amounts of transactions at such a high rate.  We have seen tremendous
errors in the past and we are almost reaching the point where a firm
will not be able to survive a system error or could cause a cascade

The question the markets and regulators always have to ask themselves is
whether the market is fundamentally fair.  The government has the
additional duty of determining whether a market activity is detrimental
to the economy of the nation involved.  It is not for me to answer the
question of whether this should be implemented, I am just saying that it
is technically feasible to do so.

As far as locating all the servers in the same place on the same length
of cable, that apparently is not in the cards or you would not see the
high cost specialized networks from Chicago to NYC.  


-----Original Message-----
From: joel jaeggli [mailto:joelja at bogus.com] 
Sent: Wednesday, August 08, 2012 9:23 AM
To: Naslund, Steve
Cc: nanog at nanog.org
Subject: Re: raging bulls

On 8/8/12 6:52 AM, Naslund, Steve wrote:
> It seems to me that all the markets have been doing this the wrong
> Would it now be more fair to use some kind of signed timestamp and 
> process all transactions in the order that they originated?
Given an uneven distribution of sizes it's kind of hard to fill orders
in the order in which they arrived (unmatched orders are part of a
normally functioning market). A large bid may require the accumulation
of sell orders while smaller orders may be more easily matched. Some HF
trading strategies of course rely on this. Today large orders may be
filled on more than one ecn at a time so the notion of central agency in
clearance is also a little challenging.
>    Perhaps
> each trade could have a signed GPS tag with the absolute time on it. 
> It would keep everyone's trades in order no matter how latent their 
> connection to the market was.  All you would have to do is introduce a

> couple of seconds delay to account for the longest circuit and then 
> take them in order.  They could certainly use less expensive 
> connections and ensure that international traders get a fair shake.
it's simpler to just locate the trading platforms in the same place and
give everyone the same length cable.
The incentives are in the wrong place too deliberately induce delay
without some externality (like a regulator) guiding behavior.

If one sees current behavior as undesirable there are other methods such
as the adjustment of transaction costs that might be more effective.

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