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Marching In Step

17

October, 2011


On Saturday night, the Chatham Cougars High School Marching Band competed in the 2011 Yamaha Cup in Giants Stadium (sorry, I just can’t call it Met Life Stadium), where they performed flawlessly. Number Two is centered in the above picture holding his trombone, and marching on the NFL paint. Please join me in congratulating all of them on their stellar performance!

And while we are on the topic of “marching in step”, we would like to draw your attention to comments made by a few stock exchange just this past week, at the Securities and Traders Association (STA) 78th Annual Conference. You can read the entire Traders Magazine article here: Traders Magazine STA Update.

On Explosive Quote Traffic and Order Cancellations

NASDAQ’s Michel Finzi: “One must also be careful because there are certain models and folks who provide value to the marketplace,” he added. “That includes market-maker strategies with two-way prices in stocks. In volatile times, they have to address those and amend those quite regularly.” (By the way, we worked with Michel at Instinet years back; great man)

BATS’s COO Chris Isaacson: “I don’t want to put on a fee that is onerous, or be forced to by the SEC. Everyone’s market data technology costs would probably go down, but spreads would widen and investors would be hurt.”

Direct Edge’s Bryan Harkins: “We don’t think the regulators have the authority to dictate order-to-trade ratios or cancellation levels,” Bryan Harkins, chief operating officer at Direct Edge, told the STA crowd. “That’s a commercial decision.”

Direct Edge’s Bryan Harkins: “The criticism is that the exchanges are HFT-friendly,” Harkins added. “But in fact not all traffic is good traffic. We have throttles. Not every customer likes throttles. We do that to protect the market. Every customer has a certain message limit per second.”

So even as the capacity of the SIP (the public quote) is being increased every few months, along with the exchange’s capabilities, and even as HFT firms find way to hit those capacities the day they go into effect, and despite regular recordings of quote stuffing: (read the Strange Days middle column on this NANEX page), these for-profit stock exchanges continue to march in step defending their largest revenue customers. Actually in one of the above cases, Traders Magazine neglected to mention that the exchange is significantly owned by one of the largest HFT firms in the country, which reportedly trades 10% of the daily market volume.

So the next time you meet with exchange officials, who profess to care about your business and how you all as partners can work to make the markets better, feel free to remind them of their repeated locks-step marching to protect their HFT owners and clients..

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