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NJ Server Farms Remake the US Financial Markets 216

1sockchuck writes "The engine of Wall Street has shifted from the stock exchange floor to data centers in New Jersey, where computer-driven trading now accounts for 56 percent of all trading activity, according to the New York Times. 'While this Tron landscape is dominated by the titans of Wall Street, it affects nearly everyone who owns shares of stock or mutual funds, or who has a stake in a pension fund or works for a public company,' the Times writes. 'For better or for worse, part of your wealth, your livelihood, is throbbing through these wires.' There are also photos of the data centers powering the high-speed trading operations, while 60 Minutes has video of a huge new 'liquidity center' run by the NYSE."
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NJ Server Farms Remake the US Financial Markets

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  • by FuckingNickName ( 1362625 ) on Monday January 03, 2011 @04:56PM (#34748032) Journal

    And nothing of value was gained.

    • Re: (Score:3, Insightful)

      by purpledinoz ( 573045 )
      Exactly. Goldman Sachs and JP Morgan earn a huge chunk of their profit from high-frequency trading. This profit must come at an expense of someone else (like regular stock holders). In my mind, this is legal theft.
      • by certron ( 57841 )

        This is why the markets creep up on almost no volume and everyone wonders why stocks drop so quickly when someone sells a large enough block of stocks. These programs are the reason for the 'flash crash' and not the ridiculous 'typo by a trader' explanation. The argument of 'providing liquidity' doesn't really seem like it has that much value for a normal investor. It's robots all the way down!

        • "The argument of 'providing liquidity' doesn't really seem like it has that much value for a normal investor."

          Keyword is "normal". This sort of trading is anything but "normal". Only the largest entities can afford this sort of trading backbone--you and I have no such luxuries and have to rely on brokers to even stand a chance.

          When I first scanned the summary I assumed that "Liquidation Center" simply meant an assload of processors to give them an edge in terms of transaction speeds/volumes so that they cou

          • by Antique Geekmeister ( 740220 ) on Monday January 03, 2011 @10:15PM (#34750414)

            It doessn't. Recent regulatory changes at the SEC, and promises to "review" the situation, have carefully avoided striking at the heart of the larger investment companies and groups that both engage in this sort of behavior, and have enough spare cash to fund politicians and arrange their own "reports" for the SEC on how disemboweling thihs sort of high-speed trading would "hinder the market".

            It's insider trading with a high-tech cover. The data is not avaialble to ordinary investors in time for them to take keaningful action: the millisecond of having their servers right near the NySE overwhelm the reponse times of any ordinary trading entity and prevent their meaningful responses.

      • by Yvanhoe ( 564877 )
        Indeed. Actually, making the market trade with a period of one day, and randomizing the priority of orders arriving would sanitize a lot of things.
        I have yet to see a good argument against that. I mean one that doesn't say things like "pschhh, you know nothing about economy, let us manage this thing". Sorry guys. We paid for your dumb errors in the subprime crisis, so now that you are creating speculation on yet another imaginary value (physical closeness to the servers of the stock exchange ? Really ? Ch
        • by pyite ( 140350 ) on Monday January 03, 2011 @07:44PM (#34749492)

          We paid for your dumb errors in the subprime crisis, so now that you are creating speculation on yet another imaginary value (physical closeness to the servers of the stock exchange ? Really ? Changes in the value of a company on the millisecond scale ? Are you serious ? ) you better show your whole scheme.

          Whose dumb errors in the subprime crisis? Those errors were made by multiple parties. First and foremost, the people buying more than they could afford. It's taboo to demonize "Main Street," but let's face it, if people could, or chose to, do basic math, they would have realized they couldn't afford what they were buying. Second, stupid mortgage companies who relied on people's word that they could afford things. Third, those who thought tranching baskets of mortgages and pricing the tranches using default correlations for each tranche that were advantageous just to that tranche rather than rooted in reality.

          These three groups of people have almost nothing in common with those who trade equities and equities derivatives. So, please, don't put two things you don't understand into the same bucket simply because both are products of "Wall Street."

          • by Yvanhoe ( 564877 ) on Monday January 03, 2011 @08:06PM (#34749642) Journal
            I have no problem considering a part of "main street" has some responsibility. But people who can't pay their debts is a problem known since millenniums (yes it is). Banker is a profession that is as old as this problem (yes it is). Having bankers unable to evaluate at least approximately the risk of a debt is like a farmer who forgot to plant seeds one whole year. Unforgettable. They showed grave incompetence, we now have to look behind their shoulders for their every move because no politician has the guts to make them pay.
          • Re: (Score:2, Interesting)

            by Anonymous Coward

            While the average investor was partly to blame for not checking his actual buying power, remember that the banks' go to extraordinary lengths to hide the real cost of a loan so that a) home owners don't actually know how much they're going to end up paying in the long run and b) to make the loan look easier to pay than it actually is.

            Don't cut the Wall Street mob any slack. They don't need, nor do they deserve it.

          • by Dhalka226 ( 559740 ) on Monday January 03, 2011 @10:38PM (#34750574)

            First and foremost, the people buying more than they could afford. It's taboo to demonize "Main Street," but let's face it, if people could, or chose to, do basic math, they would have realized they couldn't afford what they were buying.

            While that's not untrue, it's somewhat disingenuous. If people knew basic auto repair, they could save a lot of money on oil changes and auto mechanics. If people knew basic home improvement skills, they could save a lot of money on handymen and repair guys.

            But most people don't, and in that void of ignorance, fear or indifference exists entire industries who we collectively tag with the sometimes laughable title of "professional." A person doing some basic math might have figured out they couldn't afford what they were buying (and you're grossly oversimplifying the problem, by the way), but instead they relied on a series of "professionals" to do it for them -- professionals who are paid handsomely, not only in terms of their own salaries but in terms of commissions (real estate) and interest (banks/mortgage companies). Both of these parties nodded their heads emphatically and declared "of COURSE you can afford this, don't worry about it! Sign here!"

            They did it from simple greed, and from a misguided belief that eh, even if we have to boot these freeloaders out of their house we have some of their money in pocket and real estate prices keep going up so we won't lose THAT much when we sell it to the next sucker. Through their greed, and their staggering unprofessionalism, they essentially collapsed two entire industries with a trickle-down effect that collapsed even more; industries that survive today only through the intervention of the federal government, right or wrong.

            Some extra personal accountability is certainly a good idea to protect ourselves, but when we hire or deal with professionals I don't think any sane person expects them to be so wholly unprofessional as to tank their entire industry. They don't deserve to be let off the hook for that, not to any degree, even if peoples' ignorance is what allows them to operate that way. Ignorance, and more importantly knowledge of their own ignorance, is precisely why people hire professionals in the first place (not that there is much option when we're talking about a mortgage, I admit).

            That these idiots are distinct from equities traders I do not deny, though I also don't think they're quite as separate as you make them out to be.

          • So only big banks are supposed to taking these risks and making huge returns, while Joe Taxpayer is not supposed to do that and just "live within his means"? Why should Joe Taxpayer be locked out of potentially big returns in a hot housing market? And why shouldn't Joe Taxpayer get a bailout when things inevitably go south? Banks take risks all the time to maximize their profits, and they were making huge profits (which turned into huge bonuses for executives) during the housing bubble. Joe Taxpayer was

      • I would guess most of the profit comes from people on the losing side of a high-frequency trade. Buy and hold investors should be largely immune from short term churn.
      • With NTP, why don't they offer 2 buys/sells a minute? That lets everyone look at something, decide if they want to buy or sell, and it stops all this instatrading from happening.

        On top of that, it seems that this lightning fast trading works great and they're happy if they're making money. If something cascades into failure (like it did earlier last year, or was it '09?) then they just say 'oops, do over'. Meanwhile some people were caught up that were cashing out their pensions or transferring funds betwee

      • Re: (Score:2, Insightful)

        by raw-sewage ( 679226 )

        Exactly. Goldman Sachs and JP Morgan earn a huge chunk of their profit from high-frequency trading. This profit must come at an expense of someone else (like regular stock holders). In my mind, this is legal theft.

        I see this mantra repeated often around here, but I'm not so sure it's entirely true. First, what is a "regular stock holder"? On one end, there are small-time, buy-and-hold investors such as myself; on the other end, there are big institutional investors who manage massive portfolios for pension funds, insurance companies, mutual funds, etc. And there's everything in between. From one end of the spectrum to the next, you have very different trading profiles, and thus are affected very differently by h

        • I'm not a fund manager, but my assumption is that, like me and my small buy-and-hold strategy, he also doesn't care about having a small percentage skimmed off of each transaction. To me, it's like buying a big-ticket item, such as a car. Say you budget $27k to buy yourself a new car. Now, some enterprising company goes out and manages a massive, real-time database of every car available for sale in the country. This company can use this database to find you the exact car you want, right now for $27,250. If you're willing to spend $27k, do you really care if you pay an extra $250? And for that $250, you get precisely what you want, and don't have to wait. Compared to going to a dealer, who, if you're lucky, might have what you want at your price... but chances are, the dealer will have something close to what you want, and you'll have to negotiate the price. Or maybe the dealer can get you exactly what you want, but you'll have to wait while he works the intra-dealer process to provision the car. Or maybe he can get you exactly what you want, for even less than $27k, but you'll have to wait for the car to be manufactured. A car buyer can face all these scenarios, but I believe the fund manager most closely mimics the first: that is, he knows exactly what he wants, and he wants it right now.

          Talking about cars and manufacturing completely mischaracterizes the fluid and fungible nature of stocks.

          The problem with your long winded analogy is that [enterprising company] and [fund manager] have access to the same database and the same stocks.
          The only difference is a hundred mili/microseconds or so.

          Whenever there's a technology revolution in any industry, we always see questions of "is it too soon to use this?" For example, vaccines in medicine.

          No, not "for example, vaccines in medicine."
          The first vaccine was created 214 years ago and we've had plenty of time to investigate and regulate.

          High frequency trading, as we know it today, has barely been

    • by istartedi ( 132515 ) on Monday January 03, 2011 @05:33PM (#34748402) Journal

      If you can find a way to reduce bid-ask spreads without this kind of stuff, then I'll agree. Until then, I can't join the chorus of detractors.

      With liquidity in the market, anyone who buys stock gets a narrow spread. Take liquidity out of the market, and you send us back to the dark days when stocks would trade at $1/8th spreads if you were lucky. $1/4 was common. Not only did you pay higher commissions, you paid the spread.

      Unless you're pining for the days when you called your broker, paid him a percentage of the trade, and he placed your order in a market with a huge spread then you should be thanking the liquidity providers, not bashing them.

      The current system doesn't hurt the little guy. The old system made it so the little guy wouldn't even think about it. I know, because I came of age when the old system was still in place for a few years. Buying in with a $1/4 spread on something trading for $10-$20, and then waiting for a significant percentage gain just to cover the spread??? No thank-you. HFTs? I LOVE them.

      • To me a wide bid-ask spread is a small price to pay if the alternative is brokers using their access to the market information in order to extract rents from people who don't have such good information.

        • A wide bid-ask spread IS a form of rent. Just look at the FX shops in any airport.

          • It's only a rent in this case if the the spread results from an information asymmetry. A bid-ask spread happens in the open as a part of the quotation, so it's (ideally) subject to competition and market makers take the spread as a legitimate cost of doing business. Better to make people pay for liquidity in the open than have machines crank it out in the dark, where they can suddenly and mysteriously withdraw it.
      • The old system made it so the little guy wouldn't even think about it.

        In contrast, with the new system you allow big boys to squeeze out your money just to get the illusion that the spreads don't exist.

        • That's a compelling argument.

          Bid-ask spread is readily quantified, and readily available. Any inequity due to HFT might be harder to quantify.

          In highly liquid, HFT dominated markets, it's possible for the price to be unfairly set. The big problem? How do we know what a fair price is?

          There are a lot of standard numbers you use to evaluate stocks: P/E, etc. At the end of the day though, it always boils down to market price.

          The idea that the old bid-ask spread is "hiding" in the new market is possible; but

      • ... Take liquidity out of the market, and you send us back to the dark days when stocks would trade at $1/8th spreads if you were lucky ... Unless you're pining for the days when you called your broker, paid him a percentage of the trade, and he placed your order in a market with a huge spread then you should be thanking the liquidity providers, not bashing them ... I know, because I came of age when the old system was still in place for a few years. Buying in with a $1/4 spread on something trading for $10-$20, and then waiting for a significant percentage gain just to cover the spread??? ...

        I believe you are misrepresenting the old system to a degree. You did not have to call a broker, the do-it-yourself fixed-cost-trade online brokers were available long before decimalization. I also don't recall much difficulty getting something at the 1/8 limit I wanted. Now I wasn't doing some kind of twitchy trading, if I put in a limit order and it took an hour or two to close that was no problem. I don't think 1/8 vs 0.01 pricing makes much different unless you are frantically day trading.

      • by swb ( 14022 )

        While what you say makes sense, I think the entire philosophy is wrong. I think it's fueled by short term profiteering vs. investing for a profit.

        Wider spreads and a more limited market were a disincentive for small-value, short-hold stock trading; they really didn't have any impact on long-term investing in stocks, which was more about buying, holding and collecting dividend checks. Mutual funds had to be more straightforward "baskets of stocks" and not complex, opaque investment vehicles with more churn

        • America, particularly the western states, were much more inclined to gamble back in the 'ol days. Gold mining claims, striking out into the territories to reap a harvest or get reaped.

          When guys weren't gambling their lives in mines or on horseback, they were gambling around a card table (OK, maybe not as much as the movies depicted, but the West was full of risk).

          Shit. The whole country was a gamble. If anything, I'd say the introduction of high-stakes financial poker into our living rooms represents a

    • by hitmark ( 640295 )

      and each year it will get worse, as some 3 billion and change (with compound interest) will need to find a place to be invested to keep the growth rate of the global economy that one have come to expect since the industrial revolution.

  • by alphatel ( 1450715 ) * on Monday January 03, 2011 @04:58PM (#34748046)
    Not only are you completely powerless to do anything about it now, but when some glitch causes your pension fund to suddenly be worth 10 cents, you won't be able to sue anyone.
    • by SirGeek ( 120712 )
      Or someone manipulates the markets and causes an mini-crash again.
      • It wouldn't even need deliberate manipulation. When there are thousands of programs all making the same decisions on the same input, even a natural fluctuation can trigger a disaster. A stock falls a bit, programs see it, and within milliseconds are selling - triggering a further fall, a feedback cycle of collapse.
        • by Surt ( 22457 )

          One would hope, though it would not always be true, that there would be an equal number of programs seeing an unnatural downward deflection and issuing buy orders.

          • Where would the profit be in buying a declining stock?

            I oversimplified the example for clarity - in realise the algolrythms used are far more complex, and include some safeguards against this type of collective behavior, otherwise it would happen all the time. Still, the possibility is there. The 2010 Dow mini-crash was caused in large part by high-frequency tradeing which amplified a minor variation into a severe one - and came dangerously close to progressing into a full-blown crash. It was only a combin
            • And before anyone mocks me for that absolutly terrible spelling error: I'm short on sleep, caffeine, and... I can't even be bothered to finish that sentence. Consider my excuse preemptively made.
            • Value trading. You buy it in the hope that it will bounce back again. For example, the people who bought BP shares while the oil was spilling out onto the Gulf of Mexico are now sitting on large profits.

            • by Surt ( 22457 )

              The profit in buying a declining stock comes in catching the rebound.

            • by Steeltoe ( 98226 )

              Well, the point is that you never actually know wether a stock will rise or fall, so what do you do?

              If you go chasing after "rising stock", you will hit the top more often than not, and thus actually lose money pretty fast when fees are deducted.

              So real traders always buy a declining stock in a positive trend. They time their trade so that they know it should rebound and continue the positive trend, preferably more often than not to be profitable. The excellent traders, can trade sideways and falling market

  • by sycodon ( 149926 ) on Monday January 03, 2011 @04:59PM (#34748068)

    ...that automated trading has and will cause more trouble than it is worth to the overall economy.

  • Looks like virtually any other commercial datacenter I've been in. Nothing I saw these articles leads me to believe they're any different. Replace "Wall Street" with virtually any other company with an internet presence and you get the same thing.

    • The blue lights. According to TFA,

      And yes, there are blue lights to keep things cool – both the equipment and the visuals.

      I'll bet your clunky ol data center doesn't have lots of blue lights.

    • Re:Whoop De Doo (Score:5, Informative)

      by SuricouRaven ( 1897204 ) on Monday January 03, 2011 @05:15PM (#34748238)
      There is just one difference, though. The trading machines, regardless of their location, have the same length cable to the switch. Even if it means coiling some of it up. The latency demands are so strict, the customers even care about the cable length - and it's just easier to give all the customers the same length than to maintain tiered pricing on the racks.
      • by vlm ( 69642 )

        There is just one difference, though. The trading machines, regardless of their location, have the same length cable to the switch. Even if it means coiling some of it up. The latency demands are so strict, the customers even care about the cable length - and it's just easier to give all the customers the same length than to maintain tiered pricing on the racks.

        Its marketing. The propagation delay between different pairs can vary by up to 50 ns due to the different twists. That is why the fancier "VGA over CAT-5" converter box thingies have a skew compensator. If you use a layer 1 that uses all 4 pairs it doesnt matter, but if you use a layer 1 that uses only two pair, then theoretically some customers will have a ping time 50ns lower than the slowest customers. one foot roughly equaling one nanosecond means the electrical delay can't be specified more accurat

        • It actually would be lower latency too. The speed of light in glass is higher than the speed of electrical signals in cat5. I don't know the cat5 speed from memory, but IIRC the speed in coax is around 2/3 C.

          From what I've read in the networking magazine we get at work, the current debate in high-speed tradeing IT is 10-gig ethernet vs infiniband, with the latter offering lower latency in the end devices.
  • by Tackhead ( 54550 ) on Monday January 03, 2011 @05:02PM (#34748100)
    Oh, that's right. Even 22 years later, VAXen [crash.com], my children, just don't belong in some places :)
  • by blair1q ( 305137 ) on Monday January 03, 2011 @05:09PM (#34748162) Journal

    “Markets are there for capital formation and long-term investment, not for gaming,” [Michael Durbin] says here [nytimes.com]

    Amen to that. The markets should operate as though there are humans at every step. Otherwise there's no need for humans on the edges, either.

    • Re: (Score:2, Insightful)

      by khallow ( 566160 )

      Amen to that. The markets should operate as though there are humans at every step. Otherwise there's no need for humans on the edges, either.

      Conversely, if I want to use a market, I don't want it saddled with Luddite hysteria. The value of a market is not in the employment it provides to us, but to the goods and services we can acquire through it. I couldn't care in the least, if there is a complex ecosystem of unsupervised trade programs operating at minute time scales on the market. Instead, like any tool, I merely wish it to work when I use it.

  • by cpm99352 ( 939350 ) on Monday January 03, 2011 @05:19PM (#34748270)
    Majority of trading (at least in the US) is computer. According to this [nakedcapitalism.com], average length of time a stock is held is under 35 seconds.

    The mainstream financial reporting in the US is a complete joke -- everyone fixates on the Dow, as though it held any meaning. At the end of each day, some "meaningful" reason is given for a less than 1% move, however automated trading never seems to be included.

    Netflix joins the Dow??? Is that what this country is reduced to? No manufacturing, just service?

    Meanwhile, SEC regulation is a total joke, insider selling is rampant, accounting is a joke...

    But, if you're a retiree, where else can you hunt down returns? CDs are long dead.
    • by Desler ( 1608317 )

      No manufacturing, just service?

      It's amazing that the US can be both the #1 manufacturer in the world and at the same time according to you have "no manufacturing" at all.

  • by Dachannien ( 617929 ) on Monday January 03, 2011 @05:22PM (#34748296)

    In other words, the IT guys who maintain these servers all have greasy hair, don't wear shirts, and are total douchebags.

    • May their hair be set aflame by the heat from the servers.
    • "In other words, the IT guys who maintain these servers all have greasy hair, don't wear shirts, and are total douchebags."

      Where do I apply?

  • In the 60 minute video, he goes on about saying something about how quite the machines are (exception being the air conditioning). Is there something I'm missing? I've been in plenty of server rooms and servers always seem to be noisy. Is he trying to contrast a traditional trading floor with the server room (being quite)? OR Are these some type of super new server that doesn't make any noise that I'm simply not aware of? The other thing I'm wondering about is the 65 micro (not milli) second times. W
    • by hitmark ( 640295 )

      could be they are runking everything off ram and ssd so to minimize latency. Less moving parts equals less overall noise.

      • by maxrate ( 886773 )
        Yes, I thought this as well. I still think the CPU's and power supplies fans would be noisy (ac or dc). Good call on RAM and SSD.
    • Quite [meriam-webster.com] what?

      Sorry for being such an ass. I realize you meant "quiet", but seeing that typo over and over in your comment felt like someone was repeatedly stabbing my brain with a toothpick :(

      • by maxrate ( 886773 )
        My goodness - how embarrassing - thank you for pointing this out to me. I'd like to blame it on a typographical error, but the truth is that the error is a hybrid between a 'muscle memory' effect and me being an non proof reading mental case. Thanks for pointing this out. Don't apologize - I couldn't agree with you more here. Sorry!
    • by Jeremi ( 14640 )

      In the 60 minute video, he goes on about saying something about how quite the machines are (exception being the air conditioning). Is there something I'm missing?

      I'm not sure, but in the video the computers appear to be inside wire cages, in the center of a very large, warehouse-like room. I'd imagine that all the usually fan noise (etc) simply dissipates into the large space. In a lot of smaller "computer rooms", OTOH, the room is packed with computer equipment and thus the sound has nowhere to go and bo

      • by maxrate ( 886773 )
        You could be right - I just find the 1U and 2U stuff extra noisy - even if there are no hard drives and even if the room is 'cold' (keeping the RPM of the fans lower). Been in many data centers and I've never considered them to be quiet. Thanks for your insight.
  • Change the rules. You can't sell a stock within 24hrs of buying it. There is absolutely no benefit in the hyper trading of stocks like this. Computers are just going to get exponentially faster until trading is so fast the entire market could crash before regulators could do anything about it. Hasn't it happened several times already and they had to roll back trades for several hours because the market was so screwed up?
    • No, we should not limit what people can do with a stock. We could however make it expensive to trade this way. Change capital gains to (Less then 1 day, 50% capital gains.) (1 day to 1 month, 40% capital gains.) (1 month to 2 years, current short term capital gains.) (2 year - 20 years, current long term capital gains.) (20+ years, no capital gains.) This would allow people to trade less then a day, and others trade real long term. I like the idea of making it expensive to do rapid short term trades, but le

      • by TheSync ( 5291 )

        Change capital gains to (Less then 1 day, 50% capital gains.)

        Or perhaps corporations should consider offering a class of less-volatile shares. As far as I know, there is nothing stopping a company from issuing a class of shares that, for example, can not be sold for 24 hours after purchase. Many executives and founders are issued shares with significant restrictions on sales.

        I would suspect such a class of shares would in general trade for less than the more flexible shares.

    • I think you will find stockbrokers want to sell their shares as quickly as possible. They make their money from trading, not from holding and if they had to carry the risks of ownership, then buying and selling shares would become a lot more expensive.

  • ... it will become important to model the behaviour of this software and not how "the financial market" behaves.

  • Tax all trades ~1%, problem solved.

  • by tyen ( 17399 ) on Monday January 03, 2011 @09:28PM (#34750114) Journal

    The standard explanation proffered by the HFT owners and customers is they "add more liquidity". This is repeated so many times that laypeople buy it; see typical comments in this thread like "we have traded wider spreads for higher instability" [slashdot.org]. This is not the entire story: the liquidity is for them, not for you . That there is sometimes a spillover liquidity and spread improvement for participants in the wider market is merely a convenient observation suitable for PR. The past and ongoing flash crashes demonstrate that when the liquidity trades against them, they pull this vaunted liquidity quicker than you can blink, literally. They're not going to leave money on the table supplying liquidity into the market if they don't have to.

    Another oft-made claim is "anyone is welcome to do what we do, there are no barriers to entry". That is not quite the entire story as well. The defining feature of an HFT firm over the retail investor apart from scale (you need accredited investor-scale financial depth just to ante up the money to the exchange to cover their risk for you fracking up your code and making market on your fracked up orders they then have to make good upon) is access, as the articles this story links to amply documents. They are quite different from most market participants. While it is true that one doesn't have to have special institutional privileges and access to buy these newfangled digital-age "exchange seats", and "merely satisfying" some financial and technical criteria make these seats putatively easier to obtain than the old seats, make no mistake about it, they are more privileged than the old school NYSE exchange seat holders: they enjoy special access to the markets that "non-seat holders" do not, namely preferential positioning in the order flow inspection pipeline, or put another way, they enjoy market making access without market making responsibilities. Just because you no longer have to have a hallowed name descending from the Mayflower, a family history intertwined with the exchange, and an imposing granite edifice for offices to qualify for an exchange seat that buys access to the order flow doesn't mean that preferential access is open to everyone. The day the exchanges open up the HFT level and quality of tick access for the same price as 15-minute delayed ticker quotes, would be the day that I withdraw this observation.

    If you chafe at these new special breed of privileged market participants, then an old school remedy is still available: with privileged market access, comes market making responsibilities and market making regulatory oversight. Perhaps not as much responsibility as the exchanges, but definitely more than those without the preferential access, commensurate with their impact upon the market as shown by the flash crashes. Let them have the special access, but make good on the liquidity and spread claims with regulatory enforcement; that is, they continue eating at the trough even when the liquidity and spread moves against them. It didn't stop the old school market makers from coming up with different licenses to print money, so they'll still make great bank (though they'll bitch like a platoon of coked-up noob IB's at Penthouse for having to run through regulatory hoops that didn't exist before, instead of spending that time cranking the next batch of algorithms onto FPGAs), but coupling privileged market access with market making responsibilities did truly impart long-term benefits to participants in the wider market. Arguable if the benefit was proportional, but as long as we will tolerate differential access, we might as well at least maintain the marginal benefits of status quo ante, eh?

    • Re: (Score:3, Insightful)

      by alexmin ( 938677 )

      When retail investor enters orders into his Schwab/Ameritrade/Interactive Brokers web portal, guess where those orders go? Yep, his broker colo facilities in Mahwah (NYSE), Carteret (NASDAQ) or Weehawken (ARCA/BATS). Main difference is that those orders get exercised by broker-owned systems and not customer's. Want your's gear in place? Power, cooling are not free as you probably know so be ready to pay up beyond $10/month account maintenance fee.

      Anyway, you are missing the point. Investment in stock market

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