Turning the table on high-frequency traders

Calling it "insider trading" is maybe a bit misleading (Turning the table on high-frequency traders, July 19). I'd prefer simple "front-running".
Wouldn't a simple way to kill the business model (and to force the HFT proponents to actually put their money where there mouth is) would be just to disallow easy/instant withdrawal of quotes. In other words, once a quote is entered, it can be accepted by the other side and a transaction completes. That still leaves some business for the HFTs - they can actually provide liquidity.
It's the ability for them to put up fake quotes to simply test the order book without any consequences (i.e. being able to avoid at will having to complete the transaction) that is the fundamental problem.
They're currently not entering quotes, they have a free option (at the expense of the "real" traders).

The best protest is a boycott of all manipulated paper markets (Turning the table on high-frequency traders, July 19). Invest in hard assets like land and physical gold and silver.

Where are the regulators? They surely can't all be in the pockets of every corrupt bank or dealer (Turning the table on high-frequency traders, July 19). The futures market has been nothing short of a casino for the last few years. Hedging has been replaced with speculation on a grand scale. The rampant infiltration of HFT robots in the share market has festered out of control.
The absolute classic futures manipulation that has gone on for years without any intervention whatsoever by the US regulatory body CFTC, is the screamingly obvious manipulation of the paper silver market by JPMorgan. Aided and abetted by the CME group, JPMorgan deploy HFT robots to price silver where they want and when they want, raping investors at will. What a diabolical premeditated government sanctioned fraud this is. As with other criminal bankers, Jamie Dimon and his ilk with get off scott free creating huge financial ruin for many, on a truly global scale. HFT robots should be outlawed at best regulated.

Robeert, I agree with your assessment 100%. But ask is preference in obtaining vital information from ASX by large traders New?
Large traders pay to obtain share trade price & company announcements instantly they are posted. This information Individual traders is delayed 20 minutes.They cannot afford to play.
In an "informed Market" I beleive all, irrespective of size would have equal access to this vital information.
I would greatly appreciate your opinion on this matter (Turning the table on high-frequency traders, July 19).

At the core of this debate: Is algorithmic HFT purposely designed to make money for the trader by exploiting fractional share price movements? And are the algorithms purposely designed to manipulate traded price by advantageously fluctuating the size and timing of parcels placed on either side of the trade?
Everyone knows the answers are - Yes and Yes. Then this is price manipulation, plain and simple.
Id like to hear why ASIC doesn't see it this way (Turning the table on high-frequency traders, July 19).

If you make money off every trade as the ASX does and these operators provide 75% of the trades of course the ASX is not going to recommend getting rid of it in fact they are going to do everything in their power to keep it as it makes up the lions share of their profits (Turning the table on high-frequency traders, July 19). Forget any reform coming from the ASX and the regulators are too gutless to do anything. Don't make me laugh about the fines Adam yeah thay make $50 million and pay $100,000 in fines sure that will stop them it is a joke!

HFT has destroyed any connection between a company's value and its share price (Turning the table on high-frequency traders, July 19).
HFT has absolutely nothing to do with discovering undervalued companies for investment. It is purely focused on indentifying small changes in demand and supply, of which it may be the cause, and trading in very small time frames to reap small returns and repeating it many many times over.
And as these computers and their systems are only a few feet from the ASX computer, the normal trader and broker will not be able to see let alone participate in any of these trading setups.
Worst of all, long term investment, ceases to be related to the long term value of a company and with this comes a reluctance of the retail investor to consider participating in the market.
Maybe this explains why the US market is trading near its high with a sluggish economy and the Australian market is trading near its low with a strong economy.
So, the answer:
- get rid of privileged location of HFT computers to the ASX computers, to help level the playing field,
- reinstate brokers id against orders in the system, to help identify single broker setups designed to influence the market
- consider dumping market depth and only show orders near the money, to stamp out off the money large orders that are never destined to be filled but only there to influence,
- consider putting a minimum time period for an unfilled order to remain in the system, say 15 seconds, to discourage HFT in the first place.
- make Black Pools trade at a price that is only on a weighted average of trades, to prevent them being used to manipulate the price of the market with no risk of the Black Pool shares being traded in the market.
- jail any ASX representative that says HFT is great for the liquidity of the market.
You know that this all makes sense.
Thanks.
I'm taking my soap box and going home.

If stock exchanges are to continue to function as investment venues, two possible measures to discourage HFT and other speculative aspects might help (Turning the table on high-frequency traders, July 19).
One is (as already suggested by several commentators) a mandatory minimum validity period for any offer, either to buy or to sell.
The other is a transactions tax on the value of each completed transaction.

Isn't it illegal to place dummy auction bids at a property auction? (Turning the table on high-frequency traders, July 19.)
How is placing bids in the stock market with the sole purpose of influencing/driving market price any different. HFT does not add anything to the market it is merely a parastic organism sapping the life out of the market. There is only so many dollars available from real purchasers willing to provide capital for companies or has ASIC and the ASX forgotten what the real purpose of the stock market is? Screw your real customers at your peril, eventually you'll have two black boxes fighting it out at 15ft and two nano-seconds and no capital market.

G'day Robert,
I wrote to you yesterday in support of your disclosures regarding this matter (Turning the table on high-frequency traders, July 19). I write again today to congratulate you on continuing to air this matter which I have observed for myself. I urge you to continue youe campaign for ASX action on this practice.
You have a public forum which people like me don't have and I believe it is your responsibility to push for an investigation of this practice.
Small traders like me , are losing faith in the market and we will withdraw gradually and you will all be left without a job.

With the world now widely aware of the greed, corruption and immorality of much of the "investment"banking industry it would seem a perfect time for the appropriate authorities to ban dark pools and eliminate HFT. The stock exchanges could rule that all securities of all listed companies MUST be traded on market.The relevant governments should impose a tax[Stamp Duty?] of 0.1 per cent on all those transactions. Real investors would barely notice it but the HFT cowboys would find it unbearable. Their squeals would be a delight to investor's ears (Turning the table on high-frequency traders, July 19).

In general I enjoy your articles Robert, but once in a while you're really way off the mark (like when you thought James Murdoch performed well in front of the British parliamentary commission). This is another such case, despite the almost unanimous support you're getting for this article (Turning the table on high-frequency traders, July 19).
Calling HFT trading legalized insider trading is so uninformed, it's a really silly comment. There is no inside info involved at all, it's purely trading the market algorithmically. Anybody is welcome to try it, but it is a very challenging endeavour to succeed at. I suspect part of the hysteria about this, is a lot of misinformation and also small traders looking for scapegoats when they're not successful.

This is great. Day traders will get wiped out by algos and have to get real jobs instead (Turning the table on high-frequency traders, July 19).

The biggest joke is that this topic is actually being seriously discussed!
One of the problems is that the ASX is a for profit organisation and the fact that it happens on overseas markets gives it credibility.
And yes, it is legal as somebody has already said. Change the law and then it becomes illegal. Simply really (Turning the table on high-frequency traders, July 19).

JJ Brits - it may not be a 'traditional' insider trading scheme, which will always need close vigilance due to greed (Turning the table on high-frequency traders, July 19). But some skimming Algo that can 'see' the flow & act unseemly, creating mirages on depth, cue jumping etc. as fast as fibre optic will allow, isn't really giving other players a fair go either is it? As it's described here And Elsewhere it appears there is a lot of unfair shennenigans going on & the winners are the monied players who can afford to create & exploit these distortions & extortions - same as it always was - till they can squeeze no more.
If we're all so misinformed? Perhaps you could enlighten us, or provide a few informative links that would educate us to the error of our ways (I'm quite open minded), instead of just spouting without substance.

Manipulation and queue jumping is unaustralian, leaves a bad taste. Join the queue or be made to leave.
(Turning the table on high-frequency traders, July 19).

HFT do not predict the future. They analyse the supply and demand with computers and make a bet. They don't know that they will be right. And let's face it, the reason that HFT firms can be profitable is because your regular institutions are lazy in the way they execute their orders. You often see institutions want to buy large quantities with little regards to price paid. Even if the HFT can know your order and steal shares ahead of you at $1.00 (which they can't - they can try to predict your order, but they can't "know" that) and tries to sell it back to you at $1.01... they only make a profit when you reach up to buy at $1.01. Keep your buy order at $1.00 and the HFTs have no business. The long-only institutions are being outsmarted because they are lazy and take little care managing their clients funds. Soall they can do is cry foul.
And the accusation of leaking information and insider trading... if it happens you don't need HFT to make a profit. The use of HFT to conduct such illegal activities doesn't make HFT itself wrong or illegal. If I use the phone to place an order from inside informationm, would you suggest banning the copper wire as well?
Get your facts and logic right rather than writing mis-informed articles like these (Turning the table on high-frequency traders, July 19).

I find the first comment pretty incredible (Turning the table on high-frequency traders, July 19).
Assertion-based society, etc? I'm at a lost to understand what that has to do with anything here. Sounds like some intellectually acrobatic way of attacking a lot of stuff without any real substance. Many sides of politics, economics, etc have irrational and vehemently idealogical advocates. How does that apply here?
This article however seems like a whinge from special interests who are losing out because HFT is lowering commissions and beating manual traders at execution. No surprise that a broker is complaining.
Increasing market impact?! For the fund, yes but that's within every person's right to buy and sell stocks if they think they're going up. That brings us closer to equilibrium which generally means that it makes the market more efficient.
Obviously since "equilibrium" is debatable as is fair value sometimes speculative activity (of any kind) pushes us away from that point. HFT included.
Finally, it is certainly NOT insider trading. That'd only be the case if they KNOW of an order. They're simply trying to GUESS where the flow is going like any other speculator.
All this is not to say that HFT is completely blameless but just refuting what I think might be demagogic arguments above. You need to point to specific immoral acts however.
Market manipulations is one such thing as is trying to crash/slow down servers with spoofing trades. That's quite different than being smarter and faster than the competition.

Is this an opportunity for Chi-X to differentiate itself from ASX? (Turning the table on high-frequency traders, July 19).

Hi Robert, Charlie Aitken and your good self have hit the nail on the head (Turning the table on high-frequency traders, July 19). This little fish has zero, nadda and zip confidence in the stock market. Let's look at the all ready severe limitations on a small retail investor. 1 can you trust the management of a company you are buying? 2- as Buffett states do they have some kind of competitive advantage thus requiring you as a labourer etc to decide whether say Westfield can move forward profitably ( I'm still waiting for Frank to call me for advice)3- even with diversification in order to buy a meaningful amount of shares at the beginning a single stock may take up a sizable portion of your portfolio while you build up your portfolio thus increasing risk. 4- Australian shares can be adversely affected by events that you have no control over eg wars, OPEC ( serial price fixers)etc
So to add to this list of challenges add a group of greedy monkeys and their algos that get to have first crack at buy and sell orders courtesy of the ASX. Thus as Mr Aitken predicted I and am sure many others have recently forgone the share market and purchased boring as bat s_it CBA bonds. I won't be getting rich but I won't lose capital to Australia's other faceless men.

The price discovery arguments are the same ones used to defend naked short selling scams which were used to wreck some listed companies at the time of the GFC and which resulted in huge losses by many ordinary shareholders including superannuation funds while a collection of spivs walked away with bags of money (Turning the table on high-frequency traders, July 20). It took a very public campaign in which I took a leading part to restrict short selling and force greater transparency although we are yet to be as open as the interests of ordinary shareholders demand. High frequency trading disadvantages everybody else in the market and has the potential to bring the Australian market in listed securities into significant disrepute.

I’m sorry about your account Dave, but the HFT9000 series has proven to be 100% reliable and completely error free . Any trading losses must be the result of human error (Turning the table on high-frequency traders, July 20). How about a nice game of chess?

HFT has increased volatility of prices.you see millions of shares traded with volume of single digits for ASX 100 shares.
Does not provide any trends for trading. Still to understand what benefit it provides for investors or traders other than for ASX (Turning the table on high-frequency traders, July 19).

To John Skuja - you are spot on (Turning the table on high-frequency traders, July 19). We need a Tobin tax (transaction tax if you like). The French & Germans want one. A Tobin tax needs to be implemented globally. That will severely hobble the HFT activities.
To Robert Kimber. Chi-X is not the solution. I recall a recent article that indicates that a major shareholder of Chi-X is a major player in HFT.
HFT activities need to be banned.

The media doesn't understand HF trading. As a result neither does the general public (Turning the table on high-frequency traders, July 2).
The HFT strategies reported in the media are not widespread (flash orders) and have been now largely expunged by regulatory and exchange imposed directives. Contrary to popular belief, the regulators have a strong influence on the internal practices of HFT firms - there's a paranoid aversion to doing anything that might draw their ire. The flash crash was not caused by HFT, this from the SEC report: "a large fundamental trader (a mutual fund complex) initiated a sell program to sell a total of 75,000 E-Mini contracts ... to target an execution rate set to 9% of the trading volume...without regard to price or time."
Tobin taxes and the like will certainly cause the majority of HFT firms to go bust (resulting in a tax take of about 10% of forecasts) and cause retail transaction costs to revert to those incurred 10 years ago. It is probably true that current liquidity/spreads are actually lower/higher than observed due to the HFT execution advantage. The poignant question is whether, net, the market is more competitive than 10 years ago.
What is clear in these times is that HFT makes a good scapegoat. Private investors are not abandoning the market due to being "front run" by HFT, they're leaving due to GFC related lackluster performance of stock markets (which despite some media reports, was not caused by HFT). It suits many in the industry to have a scapegoat. As evidenced by the explosion of SMSFs, the superannuation industry - backed by the government - milks retail investors for far more than any perceived loss from HFT. Fees were tolerated in rising markets but recent below par performance has increased awareness of the superfund gravy train inhabited by fund managers without skill. The public should be better informed as to who they should wield their pitchforks against.