What costs $1.8 billion dollars and people go there all day to gamble?
What costs $1.8 billion dollars and people go there all day to gamble? If you answered the latest Las Vegas casino, you are incorrect. The correct answer is the investment in data centers last year from equity trading firms. According to our buddies at the Tabb Group, equity firms spent $1.8 billion last year on data centers; half of that total came from sell-side shops. But even though they are spending tons of cash on the infrastructure, they are not exactly doling out the cash to their programmers. According to a recent Forbes article, many of these HFT programmers are starting to feel underpaid considering how much money their firms have been making. Forbes says that, “many programmers are immigrants or were hired out of college for $80,000 to $150,000 a year.” They mentioned one programmer who said that his firm was “generating $100,000 a day from his high-frequency trading software and paying him only $150,000 a year.” Now, the HFT programmers are standing up and fighting back. They are taking their computer software and launching their own firms. And, again according to the Forbes article, they think they are going to “make a ton” of money. It sounds to us like another bubble is about to pop.
Yesterday, we had our fifth circuit breaker pop since the pilot program was announced. This time the stock was CSCO and 7 trades of 100 shares priced between $24 and $26 caused the breaker to go off. All of these trades occurred on the NYSE Amex. You’ll recall that we just wrote about the NYSE Amex trading NASDAQ stocks in a recent post. It didn’t take long for that little experiment to cause problems. The question that now needs to be asked is why did the NYSE Amex allow a trade to occur through the market by such a large percentage? CSCO is one of the most active stocks, and let there be no doubt that there were plenty of offers to fill a 700 share buy order at competing venues. It appears that rather than route to another venue, NYSE Amex routed the buy order to their own best offer first (which was far away from the NBBO). Wait a minute, stop right there, we are throwing a flag and asking for some instant replay. In addition to being a clear violation of Rule 611 of Reg NMS, this smells of internalization. Is the NYSE Amex experimenting with some sort of “flash” order? Inquiring minds would like to know. We haven’t seen the data feed spec yet for the NYSE Amex but you can count on us to take a look and report back to you if we see something funny going on there.
To further illustrate our point, a Bloomberg article this morning questions the routing ability at the NYSE Amex. The article says, “The five-minute halt in Cisco Systems Inc. yesterday highlighted a flaw in how NYSE Amex executes orders it can’t fill on its book at the best price.” http://www.businessweek.com/news/2010-07-30/cisco-halt-exposes-flaw-as-nyse-amex-handles-nasdaq-trading.html