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Fil Mackay's Blog

Sponsored Access: feathering the nest of a Black Swan?

October 7, 2013 Comments (0)

Market Access Mechanisms Over time the equities marketplace has evolved from phone-based trade execution, to using computerised channels such as Direct Market Access. Direct Market Access This is where a trader sends an order electronically to their broker who, assuming everything is OK, simply passes it straight through to the market. Unlike in the past, where the trader may have placed an order with the broker, granting them some discretion over when and how to execute it; DMA is simply a...

A New Model for Understanding High Frequency Trading

October 7, 2013 Comments (0)

I have found the term High Frequency Trading to be somewhat overloaded, and now unusable term. Instead of referring to high-tech traders, the terms is now referring to more traditional traders who are dragged into the technology war in order to protect themselves. To throw both of these groups under the one "HFT" label is to completely misunderstand what is going on. I would like to propose a model for HFT that splits the term into 4 subcategories: Components of HFT: Market Making:...

Chi-X Australia take off?

October 7, 2013 Comments (0)

With the expiry of ASIC's transitional arrangements for best execution I think the dynamics of the Australian cash equities market is about to shift dramatically. Thus far, Chi-X AU as been trapped in the first phase of liquidity capture: market makers being the predominant quoter of resting orders on the venue. While other brokers have been taking better prices when available, they predominantly quote on ASX. The key barrier to Chi-X at this point is the reluctance for brokers to quote orders...

New Age TCA

October 7, 2013 Comments (0)

A few interesting articles on Tabb Forum this week about TCA. Couldn't have said it better myself Larry! I have developed a "high frequency TCA" technology that assists buy-side firms (and by extension sell-side) to see deeper inside their execution processes. While traditional TCA takes an aggregate approach to evaluating the performance of execution, HF-TCA aims to also inspect what happens to each child order once it is sent for execution. But liquidity is liquidity, right? If you...

AFR: Call for tax that already exists?

October 7, 2013 Comments (0)

Keeping up the momentum, the AFR posted this article on "Call for tax to rein in high-speed trading". Unfortunately for the title, it's already in effect. This article is based on a pretty good report from Baseline Capital. FSC chief executive John Brogden rejected any suggestion of an outright ban on high-speed trading of shares, but said regulators needed to keep a tight rein on the sector to prevent market manipulation and negative consequences for investors. “Both dark pools and...

AFR: Pay up, high-frequency traders told

October 7, 2013 Comments (0)

The AFR ran an article on HFT, purporting to report on an increased desire to push more supervision costs onto HFT. The central tennant of the article does not make sense, and perhaps by extension the Treasury report it's based on. A substantial increase in algorithmic trading including HFT [high-frequency trading] – incorporating not only increased trading volume but increased cancelled orders and messages for each transaction executed – has led to a general increase in ASIC’s workload, The...

AFR: A little transparency would go a long way

October 7, 2013 Comments (0)

Adele Furguson wrote a not-bad piece on the removal of broker ID's from the Australian equities market back in 2005. One aspect of the story she didn't mention was the fact that pre-2005 only brokers could see the ID's (at least in theory). This created information asymmetry, which the brokers did not mind, since their clients would need to constantly ring them to find out the identity of orders they were interested in. Fixing this gap was certainly a positive. At the time I rallied against the...

The NBN of Liquidity

October 7, 2013 Comments (0)

Previously I have proposed TimeMatch, a system where every order is auctioned in a timeframe that the order's owner chooses. This would mitigate the speed advantages enjoyed by the technology firms. It basically means that investors get to choose, when they place an order, how much they value speed of execution verses improved prices. They are not forced to value speed of execution over improved prices, as the current price-time priority rules say. Let's look at another thought experiment: a...

The Aus: HFT an unlevel playing field?

October 7, 2013 Comments (0)

Andrew Main wrote a piece in The Aus on HFT, interviewing Zac May the author of the Industry Super Network ASIC consultation paper response I responded to earlier. Zac May says: High Frequency Trading is the creation and then the exploitation of an unlevel playing field HFT certainly didn't create the market we currently have. It is human intuition that said that the guy that matches the order first gets the trade (price-time priority). HFT's have just become the most efficient at adapting to...

Fears about HFT dislocated from reality

October 7, 2013 Comments (0)

Gareth Hutchens posted this followup to the weekend article. Lets look at the weekend article first: Not everyone thinks so. Some sections of the financial industry are privately seething that Funke Kupper and others have been whipping up hysteria about high-speed trading. In the bars of Sydney's financial district, the topic is waved away with scorn. ''It's just become a scapegoat,'' is the refrain. Funke Kupper is both responding to concerns in the public about HFT, and at the same time...