If I Don’t Do It, Somebody Else Will; HFT in Advertising



Never has so much been spent and invested towards the art of intermediation as has been spent in the last fifteen years. You know this of course from being traders in the stock market. Think about all the billionsinvested in: fiber networks under the seas, fiber networks through mountains, microwave networks, hardware – like this Cisco hardware, and of course the billions invested in technology by the stock exchanges, high frequency firms, and dark pools.

More importantly, think about how much you all collectively are spending to keep up in the arms race, and all you are spending (and will spend) in the policing of the labyrinth around your trades.

When you add all of the money up, you quickly can realize that the business of being an intermediary is a lucrative one, no matter what market structure experts have recently been telling you. Just ask yourselves why would dozens of billions of dollars be spent unless they yielded returns in excess of those expenditures?

Perhaps you are an optimist and believe that these tens of billions were charitably spent to save you money – so that you can buy stock with a penny spread, and not an eighth spread. Perhaps you are a skeptic and you believe that the spread does not tell the transaction cost story. Or perhaps you are a Martian looking down at the planet earth in disbelief of how myopic we are as a species, and floored by the endless time, resource, and focus we place on trying to skim off each other.

By now I suspect some of you are frowning, or maybe even laughing, depending on the size of your salary. Some of you are thinking about what meaning our jobs really have – how ludicrous the industry we work in actually is. Some of you may even be depressed, and on a Monday morning no less.

I owe you an apology for that, and I know I need to do something to make it right. Let me try and make you feel better… If you think we are freaks with what we have created, and how we navigate stock markets (with the fragmentation, the microseconds, the hideynotslidies, the RPIs, the PNP Blindies, the ALOISOs, the gateways, the self-match preventies, the coiled magic shoebox routies, the conditionalizies, and pingies), rest easy knowing thatthere are bigger freaks than us!

Let us draw your attention to the advertising industry, which has seen what we have done and has decided to replicate it. Read this Bloomberg Article: High Speed Ad Traders Profit by Arbitraging Your Eyeballs. Note the parallels to our stock markets:



“Even before ads reach the desired audience, they change hands in a complex volley of electronic trades between websites, ad space aggregators, exchanges, data analysts and ad agencies. That’s where the arbitragers come in. Using their own programs, they ferret out underpriced ads and resell them.”

While there’s nothing illegal about what they do, critics say arbitragers are pumping up ad prices. The two traders, who asked to remain anonymous for fear of getting kicked off ad exchanges, say they’re agents of market efficiency, getting ads to the buyers who want them most.”

“Like high-frequency trading firms arbitraging Microsoft Corp. (MSFT) stock between the New York Stock Exchange and Nasdaq, ad traders are wringing inefficiencies from the market — for a price.”

Some agencies are poorly connected to exchanges and can’t respond to a first auction in time, allowing middlemen to buy and flip within the same market, they said.”

“Pubmatic President Kirk McDonald said his company doesn’t block the traders because it’s impossible to control their activity on other exchanges.”

Traders buying and reselling at a higher rate “could be distorting the markets and removing the efficiency that we’re supposed to see through real-time bidding,” he said.”

“Pratt said he noticed that his firm was buying About.com Inc. ads for widely different prices on different exchanges, and was actually paying more for ads that were clicked on less.”


I find the comments of ad exchange Pubmatic’s McDonald particularly interesting. He sees the distortions, acknowledges them, and does nothing about them because he reasons “what’s the point; they will do it in my competitors’ exchanges anyway.” It reminds me of the Dave Bromberg song Such a Night, where a dude steals his friend’s girlfriend at a party, because “if I don’t do it… somebody else will.”

Who is more absurd and freaky than we are? The answer is folks who have witnessed what we have done over time, and have decided to replicate it and use it as a model.

Those ads that you never click when you are on CNBC’s home page have been intermediated and marked up so that the ad creators have overpaid. The money being made by these “intermediators” have come from somewhere; just like in our markets it is a zero-sum game. But which is worse – and ad creator overpaying for your eyeballs thousands of times per day, or an investor overpaying for their investments to fund his old age thousands of time per day?