“Should We Buy the Fully Submersible Computer?” and Other HFT Questions – Andy Shmoony, 60 Microseconds.

I hate HFT. I mean what does it all mean? What’s this Flash Crash stuff anyway? And circuit breakers… what’s the deal with that? No one really wants to see the nitty gritty of how this market stuff works anyway. And why do they call them flash orders anyway. Seems to me something flashed is anything but hidden. I think of my crazy Uncle Walter in his beige trench coat, but that’s another story. Shouldn’t a flashed order be called a “held-up-and-broadcast order” instead? What’s with this “opposite meaning naming” in the brokerage industry? Liquidity providing that is not really providing. Dark pools that are not dark?

And if you stop trading in an ETF, will it cause more volatility in the stocks in the ETF? Will an ETF hitting a breaker stop the futures from trading? Why is it that all ETF’s seem to have a correlation of 1 in the last two years anyway? If an ETF has a 10% breaker, does that mean the double or triple inverse ETF pegged to it should have 5% or 3.4% breaker? If FAS trips at 5%, should we automatically halt XLF?

Today we just got a call from a firm that sells specialized computing hardware for the online gaming industry. Apparently there are folks who play Call of Duty version XYZ, or whatever game, professionally for money, and these guys need faster speed. Anyways, this firm sells computer servers that are sitting in liquid, so that they are cooler, and can be faster. The gaming professionals buy these servers for this reason. This firm bragged to us that they just sold their server to a High Frequency Trading firm for the first time, and thought we might want one too.

Is this what are markets have come to? We don’t focus on creating a fair infrastructure for folks to trade stocks and invest, but rather we are focused on making sure a subset of market participants can beat each other to stock quotes, and pull their “bids” in time horizons measured in pico-seconds. Are you really a market maker if you are in and out in a second? Are you really a market maker and liquidity provider if you can yank your bids before others can hit them? And are they bids if they are not accessible by anyone unless they are faster than you? Is this the market-making “bridging of the liquidity gap” that needs to be nursed and coddled? Are the capital markets really about making sure that these guys can turn the markets into a giant arms race, where everyone has to pay up for liquid-submersible computers and co-location rents just so that they can get fair access to the same bids and offers? And speaking of co-location, who came up with that name anyway? It sounds like a cereal I eat in the morning so that I can disappear for an hour, mid-morning every day, with the newspaper in my arm.