We always have our eyes peeled for new developments in technology, market microstructure, rule filings, and general equity-market-related developments. One site we always find enriching is Mike O’Hara’s HFT Review, where he always seems to interview opinion leaders in our industry, and present those interviews in very balanced and respectful ways.
This past week, HFT Review presents Improving Academic Research into HFT & Fighting High Frequency Spam, an interview with Eric Scott Hunsader, the founder of Nanex LLC. While conflicted stock exchange heads have accused him of wearing a tin-foil hat, we know him at Themis as The Data King. While many of you know him for his “Crop Circles”, first shown to us all on the ZeroHedge website, we know him for his tenacious pursuit of truth through data.
Read the interview; you will be happy you did.
A few teasers:
The SEC/CFTC report [on May 6th] stated that the execution algorithm used by the “large seller” (i.e. Waddell & Reed) gave no regard to price or time, but once I started looking through the data, it became pretty clear that the execution algorithm did in fact use both time and price, so I started wondering whether the SEC & CFTC really looked at this data? Then out of the blue, Waddell & Reed sent us all 6,438 eMini trade execution reports. That led me to asking questions about the algo from the guy at Barclays, the execution broker for Waddell & Reed, who verified the trade executions sent from W&R. When the question came up on why Barclays didn’t clearly explain to the SEC & CFTC during the investigation interview that the execution algo does in fact use time and price, I received the stunning answer: “They never interviewed us”. The very next week, the CFTC invites Barclays to a meeting.
[On May 6th] at 14:42:44, there was this event in the e-mini in Chicago where somebody sold a few thousand contracts right through the book, like “I want to sell these now!” At that exact moment in New York (and not 14 milliseconds later, which is how long it takes light to travel from Chicago), somebody sold an equal amount of SPY, QQQ, MMM, DIA, all the big index ETFs that cover the market. There were also a number of large cap stocks that got hit too. So this wasn’t an arbitrage reaction to what was happening in Chicago, it was simultaneous selling — had to be the same seller, or a fantastic coincidence. We thought maybe someone was testing out a new algorithm that had found a way to be ahead of the arbitrage….
When everything is about speed, you lose a lot of diversity; you don’t have all those different players with different view points using different algorithms and with different strategies at play. You end up killing all of them, it’s all shoot first and ask questions later.
The interview was a treat, and I hope you take the time to enjoy it.