{"id":11125,"date":"2015-08-16T09:19:59","date_gmt":"2015-08-16T14:19:59","guid":{"rendered":"http:\/\/olduvai.ca\/?p=11125"},"modified":"2015-08-16T09:19:59","modified_gmt":"2015-08-16T14:19:59","slug":"the-hft-treasure-map-presenting-the-rigged-stock-markets-full-latency-abritrage-in-one-chart","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=11125","title":{"rendered":"The HFT “Treasure Map” – Presenting The Rigged Stock Market’s Full “Latency Abritrage” In One Chart"},"content":{"rendered":"

The HFT “Treasure Map” – Presenting The Rigged Stock Market’s Full “Latency Abritrage” In One Chart<\/a><\/h3>\n

Last week, when poring through the SEC’s complaint over ITG’s criminal frontrunning of client order flow in a “experiment” prop trading group within its Posit dark pool known as “Project Omega”, we\u00a0clearly laid out the “criminal fraud<\/a>” that allowed the original dark pool to make money\u00a0without any risk<\/strong><\/em>, and explained why\u00a0HFT’s never lose money<\/a>.<\/p>\n

Only, in this particular case, the fraud was so egregious, even the SEC had to step in and slam ITG with the biggest fine on record for a private Wall Street exchange (at least until the\u00a0fine about to be levied at Credit Suisse’s own dark pool<\/a>, the biggest in the US, Crossfiner is revealed).<\/p>\n

The reality is that most HFTs do not engage in such brazen criminal activity – most act within the confines of the law. And yet, as Virtu has shown year after year, they never lose money. How can the two coexist?<\/p>\n

Simple: the answer is that in the aftermath of Reg NMS, and the terminal capture of regulators by those who benefit from market fragmentation, regulators blessed a two-tier market, one in which HFTs can frontrun non-HFT order flow and not be worried one bit about the consequences.<\/p>\n

The technical term for this gross aberration of market fairness and efficiency is\u00a0latency arbitrage<\/em>, and it is best shown on the following annotated “map”\u00a0courtesy of Nanex’ Eric Hunsader<\/a>, laying out the embedded, and regulator blessed, latencies between the three big New Jersey exchange centers: Mahwah (NYSE), Secaucus (BATS), and Carteret (Nasdaq) for everyone but the top tier – the High Frequency Traders, whose only advantage is having the millions to spend both in one-time collocation setup as well as recurring microwave\/laser fees to obtain faster data access which thenallows them to frontrun everyone else\u00a0<\/em>and generate massive returns on their investment. Returns that are due only to done thing: frontrunning.<\/p>\n

\"\"<\/a><\/p>\n

 <\/p>\n

What the map clearly shows is the unprecedented timing advantage HFTs have not only over the Securities Information Processor (SIP), which is used by virtually all non-HFT participants, who pay millions for real time feeds.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

The HFT “Treasure Map” – Presenting The Rigged Stock Market’s Full “Latency Abritrage” In One Chart Last week, when poring through the SEC’s complaint over ITG’s criminal frontrunning of client order flow in a “experiment” prop trading group within its Posit dark pool known as “Project Omega”, we\u00a0clearly laid out the “criminal fraud” that allowed […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[7574,400,8163,8164,4919,5894,5416,669,8165,819,4318],"class_list":["post-11125","post","type-post","status-publish","format-standard","hentry","category-economics","tag-bats","tag-hft","tag-latency-arbitrage","tag-mahwah","tag-nasdaq","tag-new-york-stock-exchange","tag-prop-trading","tag-reality","tag-reg-nms","tag-twitter","tag-zerohedge"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/11125","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=11125"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/11125\/revisions"}],"predecessor-version":[{"id":11126,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/11125\/revisions\/11126"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=11125"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=11125"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=11125"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}