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Re: High frequency trading and a 4ms faster cable

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On 4/9/2014 12:51 AM, Randy Westlund wrote:
> On 2014-04-08, Dave Garland wrote:
>> On 4/6/2014 8:05 PM, Randy Westlund wrote:
>>> But what's the proper way to regulate this?  I don't think they're
>>> doing anything wrong, but it's leading to undesirable behavior.
>>> Regulation of HFT would be very difficult to do justly, I think.
>>
>> Put a 0.1% transaction tax on every completed transaction, and the
>> problem would cure itself. And probably solve the national deficit in
>> the process.
>>
>> Putting a 5s delay between bid and acceptance (or not) would probably
>> do the trick, too. (I'm guessing that would make it comparable to
>> manual floor trading.)
>>
>> I don't see why either could be considered "unjust".
> 
> I don't see anything necessarily unjust about that, but I don't
> think it would solve the problem -- it would just change the time
> scale.
> 
> In either case, algorithms would have to wait longer between trades,
> either because they needed the share value to increase more to cover
> the cost of the tax, or because of the hard limit caused by the
> delay.  

I posit that it would make algorithm trading far less attractive,
because it would increase the chances of a bad outcome. With the
transaction tax, you need to be confident that the price will change
(in the direction you want) by enough to at least cover the tax. With
the delay, you need to be confident that the price will continue to
change in your direction during the delay.

But we'd still have thousands of algorithms interacting in
> nondeterministic ways and inexplicable share values that don't
> reflect market conditions, which I think is the real problem.

Indeed. But how do you make algorithm trading unattractive? Right now,
for smaller investors (everybody except the 1%) it's a shell game, an
unregulated gambling device. Some friction needs to be introduced into
the system to damp wild oscillations.

> 
> Come to think of it... By skimming some off the top, the tax would
> reduce the total amount of money invested in the market and reduce
> the returns each person gets from investing in companies, which is
> not what we want.

If _my_ return was reduced by 0.1%, I wouldn't notice.  Now, if I was
trading in and out of that stock 50 times during the course of a day,
I'd notice. But those are the people who are causing the problems, not
the ones like Warren Buffet who are soberly researching a company and
then buying or selling it. In that case, 0.1% more or less probably
doesn't make much difference to them, either.

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High frequency trading and a 4ms faster cable RS Wood <rsw@therandymon.com> - 2014-04-06 19:20 +0000
  Re: High frequency trading and a 4ms faster cable Randy Westlund <Vorzakir@invalid.invalid> - 2014-04-06 19:44 +0000
    Re: High frequency trading and a 4ms faster cable Dag-Erling Smørgrav <des@des.no> - 2014-04-06 22:21 +0200
      Re: High frequency trading and a 4ms faster cable Randy Westlund <Vorzakir@invalid.invalid> - 2014-04-07 01:11 +0000
    Re: High frequency trading and a 4ms faster cable Hils <hils@saynotospam.net> - 2014-04-06 21:23 +0100
      Re: High frequency trading and a 4ms faster cable Randy Westlund <Vorzakir@invalid.invalid> - 2014-04-07 01:05 +0000
        Re: High frequency trading and a 4ms faster cable Dave Garland <dave.garland@wizinfo.com> - 2014-04-08 15:36 -0500
          Re: High frequency trading and a 4ms faster cable Randy Westlund <Vorzakir@invalid.invalid> - 2014-04-09 05:51 +0000
            Re: High frequency trading and a 4ms faster cable Dave Garland <dave.garland@wizinfo.com> - 2014-04-09 16:24 -0500
              Re: High frequency trading and a 4ms faster cable Randy Westlund <Vorzakir@invalid.invalid> - 2014-04-10 17:40 +0000
    Re: High frequency trading and a 4ms faster cable Hils <hils@saynotospam.net> - 2014-04-06 21:39 +0100
    Re: High frequency trading and a 4ms faster cable Hils <hils@saynotospam.net> - 2014-04-06 21:39 +0100
      Re: High frequency trading and a 4ms faster cable RS Wood <rsw@therandymon.com> - 2014-04-07 08:57 +0000

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