( ) Research question: Why is it important to understand the physical limits of financial trading?
( ) Application: possible training course for supervisors and regulators around the world
I shall be adding to this list of references from time to time and reorganising its entirety when appropriate:
( ) IOSCO'S Recommendation for Standard Regulation on HFTs
Regulatory Issues Raised by the Impact of Technological Changes on Market Integrity and Efficiency - Consultative Report
OISU - ISOCO (July 2011)
http://www.iosco.org/library/pubdocs/pdf/IOSCOPD354.pdf
( ) SEC Report on May 6, 2010 Flash Crash (100930)
http://www.sec.gov/news/studies/2010/marketevents-report.pdf
( ) Zerohedge (100623): http://www.zerohedge.com/article/how-hft-quote-stuffing-caused-market-crash-may-6-and-threatens-destroy-entire-market-any-mom
( ) Nanex Analysis of the Flash Crash (100618): http://www.nanex.net/20100506/FlashCrashAnalysis_CompleteText.html
[ ] pay particular attention to "quote stuffing" which Nanex says should be banned: http://www.nanex.net/20100506/FlashCrashAnalysis_Part4-1.html
( ) Nanex Analysis of the SEC's Flash Crash (May 6, 2010) Report of Sept 30, 2010 (120412):
( ) Email exchange on the definition of LIQUIDITY: http://www.nanex.net/aqck/2977.html
( ) Nanex updated analysis on April 11, 2011--check out the 2nd chart especially when Wadell and Clarke whom the SEC has blamed for the Flash Crash and the W&C has accepted such blame, could NOT PHYSICALLY be the one who was involved in the perpetration of the flash crash! http://www.nanex.net/FlashCrashFinal/FlashCrashAnalysis_WR_Update.html
Background Readings:
[ ] http://www.zerohedge.com/article/guest-post-deconstructing-algos-part-1
[ ] http://www.zerohedge.com/article/guest-post-deconstructing-algos-part-2-leveraging-chaos-high-frequency-arbitrage-opportuniti
[ ] http://www.zerohedge.com/article/guest-post-deconstructing-algos-3-quote-stuffing-means-restoring-arbitrageable-latency-or-cq
[ ] http://www.zerohedge.com/news/guest-post-deconstructing-algos-part-4-phase-space-reconstructions-cnty-busted-trades-suggests-
HFT REVIEW White papers, academic and industry reports
ACADEMIC ARTICLES ON POINT
http://www.hftreview.com/pg/main/academic-studies/
INVESTIGATIONS
[ ] SEC Probes Ties to High Speed Traders
http://online.wsj.com/article/SB10001424052702303816504577321864050711038.html
NY TIMES ARTICLES
135 articles on high frequency trading as of April 4, 2012
http://topics.nytimes.com/topics/reference/timestopics/subjects/h/high_frequency_algorithmic_trading/index.html
EUROPEAN REGULATIONS
[ ] MiFID 2 Barnier
http://hft.thomsonreuters.com/2010/09/23/eus-barnier-throws-spotlight-on-dark-pool-trades/
REUTERS THOMSON HFT NEWS
http://hft.thomsonreuters.com/
WHARTON article
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2345
INSTITUTIONAL INVESTOR
10 articles
http://www.iijournals.com/page/HighFrequencyTrading
ACADEMIC PAPERS
[ ] Conflicting Codes and Codings
How Algorithmic Trading Is Reshaping Financial Regulation
Marc Lenglet
Abstract
Contemporary financial markets have recently witnessed a sea change with the ‘algorithmic revolution’, as trading automats are used to ease the execution sequences and reduce market impact. Being constantly monitored, they take an active part in the shaping of markets, and sometimes generate crises when ‘they mess up’ or when they entail situations where traders cannot go backwards. Algorithms are software codes coding practices in an IT significant ‘textual’ device, designed to replicate trading patterns. To be accepted, however, they need to comply with regulatory texts, which are nothing else but codes of conduct coding accepted practices in the markets. In this article, I draw on ethnographic fieldwork in order to open these black boxes, while trying to describe their existence as devices encapsulating several points of views. I address the question of a possible misalignment between those visions, and more specifically try to draw the consequences raised by such discrepancies as regards the future of financial regulation.
algorithmic trading codes of conduct codings financial markets practices regulation
Articles citing this article
Codes and Codings in Crisis: Signification, Performativity and Excess
Theory, Culture & Society November 1, 2011 28: 3-23
AbstractFull Text (PDF)
[ ] Investigating Financial Fraud in High Frequency Trading
Afroditi Katika
University of Manchester
Babis Theodoulidis
University of Manchester - Manchester Business School
David Diaz
University of Manchester - Manchester Business School; Universidad de Chile - Escuela de Economia y Negocios
December 20, 2011
Abstract:
Market monitoring is a very important process to the stock market. It is necessary in order to verify that all trades comply with the existing rules, as well as to detect any act of manipulation. Recently, a new kind of trading has emerged, High Frequency Trading, which allows traders to place and execute orders within milliseconds via a program running in a computer. It is doubtful whether existent market systems are capable of detecting inconsistencies in trades at this speed. This project has attempted to propose a design of a detection engine that could be incorporated to a monitoring framework so as to accommodate High Frequency trades. Understanding the field of stock markets and High Frequency Trading was a crucial part of this project. Since it is such a recent phenomenon with no confirmed cases (to the best of our knowledge) of market manipulation, we attempted to answer whether there are certain conditions that could benefit market manipulators. We used business intelligence techniques to analyse historical data and discover what sort of indications our detection engine should look for. Our results show that there have been violations of regulations that were not blocked in real-time which proves the inefficiency of current market monitoring systems. We also prove that an extreme number of orders within seconds can delay an exchange’s processes and systems. In the end we propose a design that takes those results into consideration.
Keywords: high frequency trading, flash crash, quote stuffing, financial markets, market manipulation, fraud detection, market monitoring, market surveillance
Working Paper Series
Date posted: December 20, 2011
Suggested Citation
Katika, Afroditi, Theodoulidis, Babis and Diaz, David, Investigating Financial Fraud in High Frequency Trading (December 20, 2011). Available at SSRN: http://ssrn.com/abstract=1974911
[ ] On the Dark Side of the Market: Identifying and Analyzing Hidden Order Placements
Nikolaus Hautsch
Humboldt-Universität zu Berlin; CASE - Center for Applied Statistics and Economics; CFS
Ruihong Huang
Humboldt University of Berlin
February 8, 2012
Abstract:
Trading under limited pre-trade transparency becomes increasingly popular on financial markets. We provide first evidence on traders' use of (completely) hidden orders which might be placed even inside of the (displayed) bid-ask spread. Employing TotalView-ITCH data on order messages at NASDAQ, we propose a simple method to conduct statistical inference on the location of hidden depth and to test economic hypotheses. Analyzing a wide cross-section of stocks, we show that market conditions reflected by the (visible) bid-ask spread, (visible) depth, recent price movements and trading signals significantly affect the aggressiveness of 'dark' liquidity supply and thus the 'hidden spread'. Our evidence suggests that traders balance hidden order placements to (i) compete for the provision of (hidden) liquidity and (ii) protect themselves against adverse selection, front-running as well as 'hidden order detection strategies' used by high-frequency traders. Accordingly, our results show that hidden liquidity locations are predictable given the observable state of the market.
Number of Pages in PDF File: 43
Keywords: limit order market, hidden liquidity, high-frequency trading, non-display order, iceberg orders
JEL Classifications: G14, C24, C25, G17
Working Paper Series
Date posted: February 13, 2012
Suggested Citation
Hautsch, Nikolaus and Huang, Ruihong, On the Dark Side of the Market: Identifying and Analyzing Hidden Order Placements (February 8, 2012). Available at SSRN: http://ssrn.com/abstract=2004231 or http://dx.doi.org/10.2139/ssrn.2004231
CASE STUDIES
[ ] BATS Take-down
http://www.zerohedge.com/news/skynet-wars-how-nasdaq-algo-destroyed-bats
[ ] http://www.zerohedge.com/news/presenting-todays-21-least-mini-flash-crashes
[ ] http://www.zerohedge.com/article/fractal-limit-order-buster-latest-market-manipulation-algo-gimmick
[ ] Man Vs Machine: How Each Sees The Stock Market
Submitted by Tyler Durden on 04/03/2012
available at: http://www.zerohedge.com/news/man-vs-machine-how-each-sees-stock-market
[ ] http://www.zerohedge.com/news/fractal-algo-strikes-again-time-impacts-popular-bond-bear-etf-tbt
[ ] http://www.zerohedge.com/news/stop-loss-terminator-algo-reemerges-picks-national-bank-greece-todays-victim
[ ] http://www.zerohedge.com/news/dear-hft-please-explain
[ ] http://www.zerohedge.com/news/step-right-its-hft-whack-mole-time
[ ] http://www.zerohedge.com/news/whack-mole-algo-back
[ ] http://www.zerohedge.com/article/are-hft-algos-taking-aim-dominating-and-manipulating-wonderful-world-etfs-next
[ ] http://www.zerohedge.com/article/visualizing-market-topology-video-real-time-exchange-routing
[ ] http://www.zerohedge.com/news/does-high-frequency-trading-adds-market-liquidity-vote-here
[ ] http://www.zerohedge.com/article/hft-now-business-frontrunning-each-others-regulatory-capture
[ ] http://www.zerohedge.com/article/caught-act-hft-option-algos-observed-frontrunning-todays-pmi-release
[ ] http://www.zerohedge.com/article/some-observations-spy-vwap-and-block-manipulation-fsa-launches-probe-front-running-block-tra
[ ] http://www.zerohedge.com/article/no-its-not-nat-gas-fractal-algo-nanex-discloses-very-ominous-implications-todays-berserk-cru
[ ] http://www.zerohedge.com/article/another-algo-gone-wild
RANDOM QUOTES:
[ ] Guest Post: Deconstructing Algos, Part 4 -Phase Space Reconstructions Of CNTY Busted Trades Suggests High Speed Gang-Bangs In The Market
Submitted by The World Complex Deconstructing Algos, Part 4: Phase Space ... Volatility Submitted by The World ComplexDeconstructing Algos, Part 4: Phase Space Reconstructions ... the algos picked up by Nanex on June 21, 2011 in CNTY using the data appended here . ...
Story - Tyler Durden - 07/31/2011 - 17:43 - 39 comments - 0 attachments
[ ] Guest Post: Deconstructing Algos, Part 2: Leveraging Chaos Into High-Frequency Arbitrage Opportunities
Submitted by The World Complex Deconstructing Algos, Part 2: Leveraging Chaos Into High-Frequency Arbitrage Opportunities The recent elegant explanation for the activities of the HFT algos ... Natural Gas Submitted by The World ComplexDeconstructing Algos, Part 2: Leveraging Chaos ...
[ ] Story - Tyler Durden - 07/01/2011 - 00:21 - 32 comments - 0 attachments
Guest Post: Deconstructing Algos 3: Quote Stuffing As A Means Of Restoring Arbitrageable Latency; Or Is The CQS TRYING To Crash The Market?
Submitted by The World Complex Deconstructing Algos 3: Quote Stuffing As A Means ... ComplexDeconstructing Algos 3: Quote Stuffing As A Means Of Restoring Arbitrageable LatencyIn a recent article Nanex has ... at least 33% too low. 3. An algo is testing how much more quote noise it needs to generate to cause ...
[ ] Story - Tyler Durden - 07/08/2011 - 22:08 - 63 comments - 0 attachments
Guest Post: Deconstructing Algos, Part 1
Submitted by The World Complex Deconstructing algos, part 1 The third part ... Natural Gas Submitted by The World ComplexDeconstructing algos, part 1 The third part of the series ... are critical to the decision-making module of the algo. The reconstructed phase space The difficulties ...
[ ] Story - Tyler Durden - 06/24/2011 - 21:16 - 82 comments - 0 attachments
Gold Tumbles More Than $100 As $1700 Stops Triggered
to algo driven liquidations following the earlier described shift in sentiment, or has some assistance ... whispers? Felt Any MFG style whispers? Felt like a bit more than algos. More like a company iquidation ...
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