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Re: Help me understand Michael Lewis' "Flash Boys"

adios_logic wrote:I was referring to IEX's 350 microsecond delay.

Jargon-filled response: The delay is to allow for IEX's NBBO to update so that resting passive peglims don't end up with effectively midspread/aggressive executions from incoming snipes on an NBBO move.
by ftobin
Sat Apr 05, 2014 2:27 pm
 
Forum: Investing - Theory, News & General
Topic: Help me understand Michael Lewis' "Flash Boys"
Replies: 164
Views: 8487

Re: Help me understand Michael Lewis' "Flash Boys"

Surprisingly, the Pinksheet market operates more fairly in this regard. Pinksheets locks in the target MM's obligation when your order is placed. Can you explain a little more? In Pinksheets, for the most part, exchanges don't play a part. Each market maker routes orders to other makers through a c...
by ftobin
Sat Apr 05, 2014 2:19 pm
 
Forum: Investing - Theory, News & General
Topic: Help me understand Michael Lewis' "Flash Boys"
Replies: 164
Views: 8487

Re: Help me understand Michael Lewis' "Flash Boys"

There's nothing technologically challenging or ground-breaking here. Well established synchronization approaches are taught to engineers in their very first digital logic design course. Potential problem areas have been identified and studied to death and there's a rich vocabulary of terms includin...
by ftobin
Sat Apr 05, 2014 2:06 pm
 
Forum: Investing - Theory, News & General
Topic: Help me understand Michael Lewis' "Flash Boys"
Replies: 164
Views: 8487

Re: Help me understand Michael Lewis' "Flash Boys"

Do you think that the smallest several exchanges on this list are adding or extracting value? Brokers basically have to connect and pay their membership and connection fees under Reg NMS. http://batstrading.com/market_summary/ To be fair, with the smaller exchanges, they normally don't have liquidi...
by ftobin
Fri Apr 04, 2014 11:59 pm
 
Forum: Investing - Theory, News & General
Topic: Help me understand Michael Lewis' "Flash Boys"
Replies: 164
Views: 8487

Re: Help me understand Michael Lewis' "Flash Boys"

The idea of Thor was to try to trade on all 8 exchanges at about the same time. This allowed them to avoid leaking the trade information of each exchange that allowed you and others to update your prices. The idea behind Thor is obvious and other people were already doing it... because it was obvio...
by ftobin
Fri Apr 04, 2014 10:49 pm
 
Forum: Investing - Theory, News & General
Topic: Help me understand Michael Lewis' "Flash Boys"
Replies: 164
Views: 8487

Re: Help me understand Michael Lewis' "Flash Boys"

Allow trades to cross only at quantized intervals of time across all exchanges simultaneously, and immediately publish all trades that happened. I like your term "quantized intervals" :) For everyone's knowledge, the usage of a "cross" (in contrast to continuous trading) is some...
by ftobin
Fri Apr 04, 2014 10:18 pm
 
Forum: Investing - Theory, News & General
Topic: Help me understand Michael Lewis' "Flash Boys"
Replies: 164
Views: 8487

Re: Help me understand Michael Lewis' "Flash Boys"

I really am not trying to be Cpt. HFT, but I guess I will be for sake of discussion! Jack's house analogy has some issues. The situation would be more like this, there are 2 houses for sale, both for $100. You walk over to one house and buy it for $100. Your neighbor sees you do that, figures you m...
by ftobin
Fri Apr 04, 2014 6:15 pm
 
Forum: Investing - Theory, News & General
Topic: Help me understand Michael Lewis' "Flash Boys"
Replies: 164
Views: 8487

Re: Help me understand Michael Lewis' "Flash Boys"

Minor point: I think you're conflating RBC and IEX. Thor was developed by Katsuyama, the star of the Lewis book, and his crew while he was at RBC, and it was patented (somehow successfully) by RBC. Katsuyama later left RBC to create IEX. I don't know that IEX has rights to use Thor (maybe you do?),...
by ftobin
Fri Apr 04, 2014 6:09 pm
 
Forum: Investing - Theory, News & General
Topic: Help me understand Michael Lewis' "Flash Boys"
Replies: 164
Views: 8487

Re: Help me understand Michael Lewis' "Flash Boys"

What drove the RBC (Royal Bank of Canada) to create Thor to avoid front running from HFTs? And why did the underlying team go create IEX (investors exchange) to prevent the same? Well, everyone is trying to create systems to get themselves the best execution. Thor is such an implementation, and the...
by ftobin
Fri Apr 04, 2014 6:00 pm
 
Forum: Investing - Theory, News & General
Topic: Help me understand Michael Lewis' "Flash Boys"
Replies: 164
Views: 8487

Re: Help me understand Michael Lewis' "Flash Boys"

nisiprius wrote:Do high-frequency traders get to cancel their orders for free?

Everyone does.
by ftobin
Fri Apr 04, 2014 5:42 pm
 
Forum: Investing - Theory, News & General
Topic: Help me understand Michael Lewis' "Flash Boys"
Replies: 164
Views: 8487

Re: Help me understand Michael Lewis' "Flash Boys"

So: 1) if using the SIP is optional, what was supposed to be the point of regulation NMS? 2) Is Hunsader correct that what the exchanges are doing is not just unfair, but "actually illegal under Reg NMS?" The point of RegNMS was to ensure that you were always executed within the NBBO. Exc...
by ftobin
Fri Apr 04, 2014 5:29 pm
 
Forum: Investing - Theory, News & General
Topic: Help me understand Michael Lewis' "Flash Boys"
Replies: 164
Views: 8487

Re: Help me understand Michael Lewis' "Flash Boys"

If the SIP doesn't have the actual best price, how do you know whether Fidelity got it for you? Fidelity is saying they'll provide NBBO price that they know from the SIP when your order enters. It might be a millisecond or too slow, but that's fine. Your order just getting to Fidelity probably took...
by ftobin
Fri Apr 04, 2014 5:25 pm
 
Forum: Investing - Theory, News & General
Topic: Help me understand Michael Lewis' "Flash Boys"
Replies: 164
Views: 8487

Re: Help me understand Michael Lewis' "Flash Boys"

manwithnoname wrote:Jack Bogle has no problem with HFT.

People from the institutional world have only very, very slowly come to know what occurs in market microstructure.
by ftobin
Fri Apr 04, 2014 5:20 pm
 
Forum: Investing - Theory, News & General
Topic: Help me understand Michael Lewis' "Flash Boys"
Replies: 164
Views: 8487

Re: Help me understand Michael Lewis' "Flash Boys"

the SEC is slow, so what? the rules are still valid. Remember, the rules are not specific. That's what FINRA and compliance departments add to. The SEC provides general rules, like best-ex. It's not a specific rule. But you have to be abiding by it -- your compliance department is supposed to enfor...
by ftobin
Fri Apr 04, 2014 5:19 pm
 
Forum: Investing - Theory, News & General
Topic: Help me understand Michael Lewis' "Flash Boys"
Replies: 164
Views: 8487

Re: Help me understand Michael Lewis' "Flash Boys"

All these trading activities are regulated by the exchanges and the SEC which have not restricted them. So what is the evil being committed under the SEC regs Including NMS? First, the SEC is very, very, very slow to pick on on things. This is also FINRA's responsibilities, who are just as slow. Wa...
by ftobin
Fri Apr 04, 2014 11:53 am
 
Forum: Investing - Theory, News & General
Topic: Help me understand Michael Lewis' "Flash Boys"
Replies: 164
Views: 8487

Re: Help me understand Michael Lewis' "Flash Boys"

At the level of the actual trades, are participants--the front-runners, in this case--allowed to make offers in bad faith, offers to sell stock they actually do not intend to sell (because the only purpose of the offer is to get the would-be buyer to reveal their intentions), and then renege on the...
by ftobin
Fri Apr 04, 2014 11:24 am
 
Forum: Investing - Theory, News & General
Topic: Help me understand Michael Lewis' "Flash Boys"
Replies: 164
Views: 8487

Re: Help me understand Michael Lewis' "Flash Boys"

Question #1: The bad guys actually need to buy X , right? And they don't necessarily know how much of X is collectively on offer at $100.00. Why doesn't it happen that they buy their 49,900 shares, paying $4,990,000, only to find that there's plenty of X out there at $100.00. The RBC gets its order...
by ftobin
Fri Apr 04, 2014 11:10 am
 
Forum: Investing - Theory, News & General
Topic: Help me understand Michael Lewis' "Flash Boys"
Replies: 164
Views: 8487

Re: Help me understand Michael Lewis' "Flash Boys"

larryswedroe wrote:it's in milliseconds.

Small nitpick: microseconds.
by ftobin
Fri Apr 04, 2014 10:50 am
 
Forum: Investing - Theory, News & General
Topic: Help me understand Michael Lewis' "Flash Boys"
Replies: 164
Views: 8487

Re: Help me understand Michael Lewis' "Flash Boys"

nisiprius wrote:Question #4. So what happens to all those 100-share offers that are being made just to get information?

They don't have to actually place the 100-share offers, just listen to exchange A's data feed to pull the quotes on other exchanges.
by ftobin
Fri Apr 04, 2014 10:49 am
 
Forum: Investing - Theory, News & General
Topic: Help me understand Michael Lewis' "Flash Boys"
Replies: 164
Views: 8487

Re: [High-frequency trading hurts regular customers]

Why do you think market participants can't get access to the relevant technology? I mean, yeah, I don't own a car factory, but that doesn't mean I have to ride a horse to work. [Translation: get a decent broker.] Not all market participants can get access to the "relevant technology" beca...
by ftobin
Thu Apr 03, 2014 11:19 pm
 
Forum: Investing - Theory, News & General
Topic: [High-frequency trading hurts regular customers]
Replies: 107
Views: 6230

Re: [High-frequency trading hurts regular customers]

Another note: people keep mentioning about how we now have narrower spreads. Several years ago QQQ went to trading to 4 decimal places; orders could be placed with that precision. It was a mess, with people constantly re-jiggering their price, improving by 0.0001 in front of the next guy, re-pricing...
by ftobin
Thu Apr 03, 2014 2:45 pm
 
Forum: Investing - Theory, News & General
Topic: [High-frequency trading hurts regular customers]
Replies: 107
Views: 6230

Re: [High-frequency trading hurts regular customers]

Use limit orders. It's so darn simple. Limit orders don't solve the problems the author was talking about. In one of the problem scenarios, it's not that you don't get a bad price, it's that you don't get the shares you were trying to access. Example: HFT is showing shares on several exchanges. You...
by ftobin
Thu Apr 03, 2014 2:15 pm
 
Forum: Investing - Theory, News & General
Topic: [High-frequency trading hurts regular customers]
Replies: 107
Views: 6230

Re: Bogle: Tilt To Corporates For More Yield

But if the Treasury issues more debt, an active manager has to actually buy it and value it in relation to existing debt, no? No. Google Ben Bernanke or Janet Yellen :D But didn't the Bond index followed change explicitly to exclude the Fed's holdings? I thought that's why the "Barclays U.S. A...
by ftobin
Thu Apr 03, 2014 1:24 pm
 
Forum: Investing - Theory, News & General
Topic: Bogle: Tilt To Corporates For More Yield
Replies: 60
Views: 5659

Re: Bogle: Tilt To Corporates For More Yield

Pportfolio manager for an insurance company may have a charter that says he will fund future obligations at the best cost. But if his future obligation is 30 years he can't buy a 10 year note because it has a better value. He is unable by charter to assume the term risk for years 10 through 30. Oth...
by ftobin
Wed Apr 02, 2014 11:23 pm
 
Forum: Investing - Theory, News & General
Topic: Bogle: Tilt To Corporates For More Yield
Replies: 60
Views: 5659

Re: Bogle: Tilt To Corporates For More Yield

I agree with everyone (including, apparently, Bogle) that TBM is not really the optimal bond vehicle as one's fixed income risks shouldn't really be determined by what issuers happen to be adding to the market--just because XYZ is selling doesn't mean I need to be buying. I really don't get this. N...
by ftobin
Wed Apr 02, 2014 12:23 am
 
Forum: Investing - Theory, News & General
Topic: Bogle: Tilt To Corporates For More Yield
Replies: 60
Views: 5659

Re: [High-frequency trading hurts regular customers]

I'm not sure I follow), and they plugged the RBC guy's new trading venue, with the looped-cable delays, without explaining clearly what problem that solved, or how. One of IEX's value-adds solves a different problem. HFT sends an aggressive buy to a darkpool immediately after the offer moved up a p...
by ftobin
Wed Apr 02, 2014 12:11 am
 
Forum: Investing - Theory, News & General
Topic: [High-frequency trading hurts regular customers]
Replies: 107
Views: 6230

Re: Why is ordered filled at a split penny price point ?

If I cannot trade in increments smaller then 1.0 cent (I've asked about doing this), how can the fill be done at a tiny fraction below the ask? Orders cannot be placed in subpenny increments, but the person handling the other side of the trade can offer what's called "price improvement", ...
by ftobin
Mon Mar 31, 2014 10:11 am
 
Forum: Investing - Theory, News & General
Topic: Why is ordered filled at a split penny price point ?
Replies: 15
Views: 883

Re: [High-frequency trading hurts regular customers]

. This is a very common practice and you see it when your order clears at some tiny fraction of a cent, like $20.0999. What happens is, let's say I enter a limit order to sell at $20.10, and you are happy with that price, and offer to buy at $20.10. Instead of trade occurring at $20.10, an HFT sees...
by ftobin
Sat Mar 29, 2014 2:04 am
 
Forum: Investing - Theory, News & General
Topic: [High-frequency trading hurts regular customers]
Replies: 107
Views: 6230

Re: Really confused by Bernstein

To provide a more complete picture of retirement savings, Fidelity also studied the combined balance for investors who hold both a 401(k) and Individual Retirement Account (IRA) with the firm3. For these investors, the combined 401(k)/IRA average balance is $261,400, up 16 percent from the end of t...
by ftobin
Mon Mar 24, 2014 5:32 pm
 
Forum: Investing - Theory, News & General
Topic: Really confused by Bernstein
Replies: 168
Views: 12879

Re: Really confused by Bernstein

So passive investing is just as much a fraud as active investing and ultimately is just another way that gurus can make money off of people by selling a philosophy that doesnt work anymore than traditional wall street. Either way you are doomed but it does seem to me that active investing at least ...
by ftobin
Mon Mar 24, 2014 2:29 pm
 
Forum: Investing - Theory, News & General
Topic: Really confused by Bernstein
Replies: 168
Views: 12879

Re: Ordering Rules at Market Open

I found a rules reference here: http://www1.american.edu/academic.depts/ksb/finance_realestate/mrobe/Library/Nasdaq_opening.pdf Just to be clear, each exchange has its own mechanism; NASDAQ and ARCA are very similar, but have different cutoff times. With NY-listed stocks it's manual and not determi...
by ftobin
Mon Mar 24, 2014 12:38 am
 
Forum: Investing - Theory, News & General
Topic: Ordering Rules at Market Open
Replies: 10
Views: 940

Re: Ordering Rules at Market Open

grabiner wrote:I don't know what the rule is for selecting a price.

Whatever price maximizes the executed shares is the one used.
by ftobin
Sun Mar 23, 2014 3:02 am
 
Forum: Investing - Theory, News & General
Topic: Ordering Rules at Market Open
Replies: 10
Views: 940

Re: Ordering Rules at Market Open

Related questions: If one places an order before the open, does it matter in any way how soon before the open the order is placed? For example, is there any queue-related or price advantage or disadvantage to placing an order 10 hours before the open vs. 5 hours vs. 1 minute? Thanks. Best, Neil It ...
by ftobin
Sun Mar 23, 2014 3:01 am
 
Forum: Investing - Theory, News & General
Topic: Ordering Rules at Market Open
Replies: 10
Views: 940

Re: Target date retirement funds

dkturner wrote:(3) last year international bonds became 20% of total fixed income exposure.


To be fair, replacing domestic bonds with international bonds did not make the portfolio more aggressive. Vanguard had reports showing volatility goes *down* by using international bonds.
by ftobin
Mon Mar 17, 2014 9:35 am
 
Forum: Investing - Theory, News & General
Topic: Target date retirement funds
Replies: 20
Views: 2162

Re: Blog article: S&P and Russell drop BDCs

Thank you for writing this article. This is useful knowledge to have.
by ftobin
Fri Mar 07, 2014 1:04 pm
 
Forum: Investing - Theory, News & General
Topic: Blog article: S&P and Russell drop BDCs
Replies: 2
Views: 284

Re: Can I still fund my HSA for 2013

You are far better off making all contributions through payroll deduction to your employer's bank and transferring to HSA Bank. This is because contributions made by payroll deduction are also not subject to FICA taxes. This is not true of standalone contributions. Just for my own clarification, th...
by ftobin
Sat Feb 15, 2014 9:50 pm
 
Forum: Investing - Theory, News & General
Topic: Can I still fund my HSA for 2013
Replies: 3
Views: 461

Re: Placing a trade while the market is closed

But with a low-volume ETF, there may be no crossing orders unless someone places a market order. If the highest bid is $50 and the lowest ask is $50.50, with 1000 shares each, and you place a market order to buy 500 shares at the open, you will take the $50.50 ask and lose the large spread. If you ...
by ftobin
Sun Feb 02, 2014 10:36 pm
 
Forum: Investing - Theory, News & General
Topic: Placing a trade while the market is closed
Replies: 19
Views: 1521

Re: Placing a trade while the market is closed

That's not strictly true, though. If you place a market order to buy before the session then what you will get (assuming no volume and sequencing issues) is the opening ask price. Your trade, the first of the day, will then become the opening price. Your information is a bit dated -- all exchanges ...
by ftobin
Sun Feb 02, 2014 3:27 am
 
Forum: Investing - Theory, News & General
Topic: Placing a trade while the market is closed
Replies: 19
Views: 1521

Re: Placing a trade while the market is closed

Is there any way to place a trade while the market is closed and ensure I'll get a fair price once the market does open? If you place an order after the market is closed, you'll get the next day's opening price, provided you've put in a market order or a limit buy price higher than the open, or a s...
by ftobin
Sat Feb 01, 2014 2:12 am
 
Forum: Investing - Theory, News & General
Topic: Placing a trade while the market is closed
Replies: 19
Views: 1521

Re: Bond funds are not riskier than bond ladders

That's my understanding of the mechanism as well, but a) it seems like it would cut both ways (just as likely to profit from the mis-pricing as to be harmed by it, and b) have never seen even the slightest shred of evidence (including anecdotes like "Mysterioso Corporate Fund cost investors 50...
by ftobin
Fri Jan 17, 2014 12:51 pm
 
Forum: Investing - Theory, News & General
Topic: Bond funds are not riskier than bond ladders
Replies: 120
Views: 6399

Re: Bond funds are not riskier than bond ladders

Both Larry's book and I believe Annette Thau's book state such a thing is possible, so I'm willing to entertain the possibility. However, I've asked for years now about theoretical and concrete mechanisms by which this could occur, and haven't gotten very far. So either this possibility is vanishin...
by ftobin
Fri Jan 17, 2014 12:13 pm
 
Forum: Investing - Theory, News & General
Topic: Bond funds are not riskier than bond ladders
Replies: 120
Views: 6399

Re: Fidelity HSA- $48/year

HSAs have been around for quite a while. I don't see any changes that will increase competition as employers pick custodians based upon the cost and convenience for the employer. I would not expect to see any major changes in the costs in the near future, unfortunately. Indeed, the fees at HSA Bank...
by ftobin
Thu Jan 02, 2014 9:08 pm
 
Forum: Investing - Theory, News & General
Topic: Fidelity HSA- $48/year
Replies: 15
Views: 1382

Re: Fidelity HSA- $48/year

Currently I have the HSA bank - TD Ameritrade deal. Can you comment on the ease of managing your investments? My HSA is tied to Optum Financial, their web interface is IMO brutal. It has been a work in progress for the four years I've had my HSA. I am anchored to them until retirement (fees paid by...
by ftobin
Thu Jan 02, 2014 4:52 pm
 
Forum: Investing - Theory, News & General
Topic: Fidelity HSA- $48/year
Replies: 15
Views: 1382

Re: TIPS vs. Unhedged International Bonds

I won't go into my personal situation since I posted this in the theory forum. My concern about TIPS is that the the government gets to decide how to define the CPI and that creates a moral hazard. Unhedged International bonds seem like a more straightforward form of inflation protection provided t...
by ftobin
Tue Dec 31, 2013 4:30 pm
 
Forum: Investing - Theory, News & General
Topic: TIPS vs. Unhedged International Bonds
Replies: 12
Views: 503

Re: How much TIPS during accumulation phase?

Imagine a world in which only TIPS existed, and then only later did nominal bonds came along. People would be saying "why would you take the extra risk with these new-fangled nominal bonds? You're just subjecting yourself to unexpected inflation risk. Sure you *might* come out ahead due to the ...
by ftobin
Tue Dec 31, 2013 11:11 am
 
Forum: Investing - Theory, News & General
Topic: How much TIPS during accumulation phase?
Replies: 74
Views: 4496

Re: Bogleheads 2014 Hedge fund contest

Your Money in Better Hands & Co.

Long: GGS - Global Geophysical Services, Inc.
Long: BODY - Body Central Corp

Short: TSLA - Tesla Motors
Short: BAGR - Diversified Restaurant Holdings,
by ftobin
Fri Dec 27, 2013 6:57 pm
 
Forum: Investing - Theory, News & General
Topic: Bogleheads 2014 Hedge fund contest
Replies: 132
Views: 8702

Re: How much do mom and pop count for?

While retail investors may be 26% of the market, I'm under the distinct impression that "mom and pop" are a small subset of "retail". Among households, by income, the top 1% owns 38% of the market, the and top 10% owns, 82% of the market. That leaves the other 90% of households o...
by ftobin
Tue Dec 17, 2013 3:09 pm
 
Forum: Investing - Theory, News & General
Topic: How much do mom and pop count for?
Replies: 4
Views: 864

Re: is there skill in the mutual fund industry

From article: "Journal of Finance, took an extensive look at the stock selection skills of active fund managers and found that on a risk-adjusted basis the stocks active managers selected outperformed their benchmark by 0.7 percent per annum." Does this imply that if you have select diver...
by ftobin
Fri Dec 13, 2013 1:41 pm
 
Forum: Investing - Theory, News & General
Topic: is there skill in the mutual fund industry
Replies: 32
Views: 1713

Re: Schwab has ETF's that have a lower Expense Ratio than Va

They track different types of indexes. Schwab's ETF (SCHF) is international large-cap. Vanguard's is all-cap international.
by ftobin
Tue Nov 26, 2013 10:57 am
 
Forum: Investing - Theory, News & General
Topic: Schwab has ETF's that have a lower Expense Ratio than Vangua
Replies: 18
Views: 1112
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