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77-509: Flash Boys: A Wall Street Revolt is a book by the American writer Michael Lewis , published by W. W. Norton & Company on March 31, 2014. The book is a non-fiction investigation into the phenomenon of high-frequency trading (HFT) in the US financial market , with the author interviewing and collecting the experiences of several individuals working on Wall Street . Lewis concludes that HFT

154-490: A CNBC interview that "the system isn’t rigged." Arthur Levitt , adviser to high-frequency firm KCG Holdings and former SEC chairman, commented that variation exists within the group of high-speed traders that Lewis’ book describes, saying "What is missed in the book and in the general discussion of HFT is there are some HFT traders who respect the sanctity of the investor, and some who don’t." Finance journalist Matt Levine criticised an emerging pattern of commentators using

231-457: A GPS clock with 100 nanoseconds precision. Spending on computers and software in the financial industry increased to $ 26.4 billion in 2005. The brief but dramatic stock market crash of May 6, 2010, was initially thought to have been caused by high-frequency trading. The Dow Jones Industrial Average plunged to its largest intraday point loss, but not percentage loss, in history, only to recover much of those losses within minutes. In

308-896: A White actor. In May 2018 it was announced that Sony Pictures' option for the screenplay had expired and film rights were acquired by Netflix . Ben Jacoby was named as the new screenwriter. Michael Lewis (author) Too Many Requests If you report this error to the Wikimedia System Administrators, please include the details below. Request from 172.68.168.150 via cp1114 cp1114, Varnish XID 928005088 Upstream caches: cp1114 int Error: 429, Too Many Requests at Thu, 28 Nov 2024 08:48:57 GMT High-frequency trading In 2016, HFT on average initiated 10–40% of trading volume in equities, and 10–15% of volume in foreign exchange and commodities. High-frequency traders move in and out of short-term positions at high volumes and high speeds aiming to capture sometimes

385-459: A 'hot-potato' volume effect as the same positions were passed rapidly back and forth." The combined sales by Waddell and high-frequency firms quickly drove "the E-mini price down 3% in just four minutes". As prices in the futures market fell, there was a spillover into the equities markets where "the liquidity in the market evaporated because the automated systems used by most firms to keep pace with

462-507: A HFT firm is able to access and process information which predicts these changes before the tracker funds do so, they can buy up securities in advance of the trackers and sell them on to them at a profit. Company news in electronic text format is available from many sources including commercial providers like Bloomberg , public news websites, and Twitter feeds. Automated systems can identify company names, keywords and sometimes semantics to make news-based trades before human traders can process

539-436: A buy or sell order depending on the nature of the event being looked for. Tick trading often aims to recognize the beginnings of large orders being placed in the market. For example, a large order from a pension fund to buy will take place over several hours or even days, and will cause a rise in price due to increased demand . An arbitrageur can try to spot this happening, buy up the security, then profit from selling back to

616-406: A competing firm. The epilogue details the author's bicycle journey to observe a string of microwave towers along the same stretch as Spread Networks' fiber-optic line. Lewis notes that the time to send a signal from Chicago to New York and back by microwave signal is about 4.5 milliseconds less than to send it by optical fiber but, when Spread Networks was laying its line, the conventional wisdom

693-643: A contributor to market fragility. Regulators claim these practices contributed to volatility in the May 6, 2010, Flash Crash and find that risk controls are much less stringent for faster trades. Members of the financial industry generally claim high-frequency trading substantially improves market liquidity, narrows bid–offer spread , lowers volatility and makes trading and investing cheaper for other market participants. An academic study found that, for large-cap stocks and in quiescent markets during periods of "generally rising stock prices", high-frequency trading lowers

770-494: A conversation with Washington Post journalist Joel Aschenbach, Lewis stated the trouble was Hollywood won't cast "a movie with an Asian lead." (The real-life main character in Flash Boys , IEX founder Brad Katsuyama , is of Asian heritage.) Lewis stated that private emails leaked in the 2014 Sony Pictures hack revealed studio apprehension with having an Asian lead actor , as well as with an Asian character portrayed by

847-421: A fraction of a cent in profit on every trade. HFT firms do not consume significant amounts of capital, accumulate positions or hold their portfolios overnight. As a result, HFT has a potential Sharpe ratio (a measure of reward to risk) tens of times higher than traditional buy-and-hold strategies. High-frequency traders typically compete against other HFTs, rather than long-term investors. HFT firms make up

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924-402: A generator, a concrete bunker, and repeaters that amplify financial signals, were all new. The book has drawn criticism from some academics and industry experts, particularly on Lewis's views on HFT and other claimed factual inaccuracies in its description of trading strategies. Other critics have praised Lewis's explanations of trading concepts and concurred in his criticisms of HFT. However, it

1001-778: A network of former US army antennas. However, microwave transmission requires line-of-sight propagation , which is difficult over long distances, driving some HFT firms to use shortwave radio instead. Shortwave radio signals can be transmitted over a longer distance, but carry less information; in 2020, a hedge fund partner quoted in Bloomberg News said that shortwave bandwidth is insufficient for transmitting full order book feeds for low-latency strategies. Firms have also looked into using satellites to transmit market data. High-frequency trading strategies may use properties derived from market data feeds to identify orders that are posted at sub-optimal prices. Such orders may offer

1078-600: A particular stock on a regular and continuous basis at a publicly quoted price. You'll most often hear about market makers in the context of the Nasdaq or other "over the counter" (OTC) markets. Market makers that stand ready to buy and sell stocks listed on an exchange, such as the New York Stock Exchange , are called "third market makers". Many OTC stocks have more than one market-maker. Market-makers generally must be ready to buy and sell at least 100 shares of

1155-471: A penny or as high as $ 100,000". While some firms exited the market, high-frequency firms that remained in the market exacerbated price declines because they "'escalated their aggressive selling' during the downdraft". In the years following the flash crash, academic researchers and experts from the CFTC pointed to high-frequency trading as just one component of the complex current U.S. market structure that led to

1232-456: A profit to their counterparties that high-frequency traders can try to obtain. Examples of these features include the age of an order or the sizes of displayed orders. Tracking important order properties may also allow trading strategies to have a more accurate prediction of the future price of a security. The effects of algorithmic and high-frequency trading are the subject of ongoing research. High frequency trading causes regulatory concerns as

1309-421: A readable and mostly accurate introduction into such topics as dark pools , front-running , or kickbacks . However, the article suggests that on-site trading practices are too technical for laymen, market observers, or even regulators to fully understand. The author recommends providing incentives for self-regulation rather than SEC regulation. Felix Salmon , a financial columnist for Slate , asserted that

1386-406: A report stating the contrary. They looked at the amount of quote traffic compared to the value of trade transactions over 4 and half years and saw a 10-fold decrease in efficiency. Nanex's owner is an outspoken detractor of high-frequency trading. Many discussions about HFT focus solely on the frequency aspect of the algorithms and not on their decision-making logic (which is typically kept secret by

1463-453: A request by Nasdaq OMX for regulators to investigate the activity at Octeg LLC from the day after the May 6, 2010, Flash Crash through the following December. Nasdaq determined the Getco subsidiary lacked reasonable oversight of its algo-driven high-frequency trading. In October 2013, regulators fined Knight Capital $ 12 million for the trading malfunction that led to its collapse. Knight

1540-548: A second collaboration between Sorkin and Rudin on a Lewis book adaptation, as the pair also filled the same respective roles on Moneyball . By September 2017, the project had not appeared to make any progress, seemingly stuck in development hell . Lewis commented his thoughts as to the stumbling block to a book-to-movie adaptation during a session at the National Book Festival in Washington, D.C. During

1617-475: A single large trade could send stocks into a sudden spiral", that a large mutual fund firm "chose to sell a big number of futures contracts using a computer program that essentially ended up wiping out available buyers in the market", that as a result high-frequency firms "were also aggressively selling the E-mini contracts", contributing to rapid price declines. The joint report also noted "HFTs began to quickly buy and then resell contracts to each other – generating

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1694-439: A stock they make a market in. As a result, a large order from an investor may have to be filled by a number of market-makers at potentially different prices. There can be a significant overlap between a "market maker" and "HFT firm". HFT firms characterize their business as "Market making" – a set of high-frequency trading strategies that involve placing a limit order to sell (or offer) or a buy limit order (or bid) in order to earn

1771-640: A systemic risk, and lowers transaction costs for retail investors, without impacting long term investors. Other studies, summarized in Aldridge, Krawciw, 2017 find that high-frequency trading strategies known as "aggressive" erode liquidity and cause volatility. High-frequency trading has been the subject of intense public focus and debate since the May 6, 2010, Flash Crash. At least one Nobel Prize–winning economist, Michael Spence , believes that HFT should be banned. A working paper found "the presence of high frequency trading has significantly mitigated

1848-431: A trade request". Using these more detailed time-stamps, regulators would be better able to distinguish the order in which trade requests are received and executed, to identify market abuse and prevent potential manipulation of European securities markets by traders using advanced, powerful, fast computers and networks. The fastest technologies give traders an advantage over other "slower" investors as they can change prices of

1925-501: Is a major theme in the book; the faster a market participant's computer system can receive and act on data, the better their edge, and opportunity to profit, with even nanoseconds making a difference. The central story details financial executive Brad Katsuyama's discovery of how access to this fiber-optic cable—as well as other technologies and special arrangements between HFT firms, exchanges , and large Wall Street banks—presents an opportunity for those insider institutions to profit at

2002-420: Is actively used in all liquid securities, including equities, bonds, futures, foreign exchange, etc. Such strategies may also involve classical arbitrage strategies, such as covered interest rate parity in the foreign exchange market , which gives a relationship between the prices of a domestic bond, a bond denominated in a foreign currency, the spot price of the currency, and the price of a forward contract on

2079-876: Is more "fiction than fact," claiming Lewis needs a primer in HFT. A review by academic blogger Scott Locklin notes that Lewis had never spoken to, nor cited, a single high-frequency trader in the book. Andrew Ross, writing in The Guardian , praised the book as an "effective exposé" but criticizes the author for arguing for the "heroism" of one group of financial insiders over another. A month later, an article in The Economist noted that Lewis's book had generated "vigorous criticism", but that there may be some merits in its liquidity concerns. A Financial Post reviewer suggested that Lewis intentionally omitted details that point to market-stabilizing benefits of HFT: "Ironically,

2156-431: Is subject to disciplinary action. It involves quickly entering and withdrawing a large number of orders in an attempt to flood the market creating confusion in the market and trading opportunities for high-frequency traders. Much information happens to be unwittingly embedded in market data, such as quotes and volumes. By observing a flow of quotes, computers are capable of extracting information that has not yet crossed

2233-453: Is suggested that he neglected to pay attention to the larger issue of financial regulation, and excessively simplified the relationships between institutions in the financial market. Some industry executives have dismissed the book as "closer to fiction". Michael Lewis responded that those who said he "got it wrong" have a financial stake in the existing system. Manoj Narang, CEO of high-frequency trading firm Tradeworx, argued that Lewis' book

2310-747: Is that true market makers don't exit the market at their discretion and are committed not to, where HFT firms are under no similar commitment. Some high-frequency trading firms use market making as their primary strategy. Automated Trading Desk (ATD), which was bought by Citigroup in July 2007, has been an active market maker, accounting for about 6% of total volume on both the NASDAQ and the New York Stock Exchange. In May 2016, Citadel LLC bought assets of ATD from Citigroup. Building up market making strategies typically involves precise modeling of

2387-410: Is used as a method to front run orders placed by investors. He goes further to suggest that broad technological changes and unethical trading practices have transformed the U.S. stock market from "the world's most public, most democratic, financial market" into a "rigged" market. Flash Boys maintains a primary focus on Brad Katsuyama and other central figures in the genesis and early days of IEX ,

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2464-767: The FBI 's investigation into high frequency trading, a day after the book's release, was directly motivated by the book's claims. Lewis's phrase "The market is rigged" was often referenced. The chairwoman of the Securities and Exchange Commission (SEC), Mary Jo White , stated in Congressional testimony on April 29, 2014, that U.S. financial markets "are not rigged" in response to a direct question on claims in Lewis's book. Former New York City mayor Michael Bloomberg disputed claims made in Lewis' book on May 2, 2014, stating in

2541-541: The Flash Crash itself was just glossed over. Could that be because the primary cause of that momentary blip lay in a confluence of regulatory mistakes and that it was many of the demonized HFTs who actually stood fast throughout and thereby ensured that the damage was a fraction of what it could have been had only the shell-shocked, traditional participants been left to respond?" An Oxford University Press handbook chapter authored by Andreas Fleckner calls Flash Boys

2618-590: The 2010 UK market share, also suggesting that in Europe HFT accounts for about 40% of equity orders volume and for Asia about 5–10%, with potential for rapid growth. By value, HFT was estimated in 2010 by consultancy Tabb Group to make up 56% of equity trades in the US and 38% in Europe. As HFT strategies become more widely used, it can be more difficult to deploy them profitably. According to an estimate from Frederi Viens of Purdue University , profits from HFT in

2695-460: The Atlantic. This has led to discussion of whether high-frequency market makers should be subject to various kinds of regulations. In a September 22, 2010, speech, SEC chairperson Mary Schapiro signaled that US authorities were considering the introduction of regulations targeted at HFT. She said, "high frequency trading firms have a tremendous capacity to affect the stability and integrity of

2772-599: The Investors' Exchange. Sergey Aleynikov , a former programmer for Goldman Sachs , serves as a secondary focus. The introduction begins by naming Aleynikov and describing his arrest, along with the author's personal history on Wall Street, as the impetus for writing the book. The first chapter tells the story of a $ 300 million project from Spread Networks that was underway in mid-2009—the construction of an 827-mile (1,331 km) fiber-optic cable that cuts straight through mountains and rivers from Chicago to New Jersey—with

2849-784: The TABB Group, HFT accounted for more than 60 percent of all futures market volume in 2012 on U.S. exchanges. High-frequency trading is quantitative trading that is characterized by short portfolio holding periods. All portfolio-allocation decisions are made by computerized quantitative models. The success of high-frequency trading strategies is largely driven by their ability to simultaneously process large volumes of information, something ordinary human traders cannot do. Specific algorithms are closely guarded by their owners. Many practical algorithms are in fact quite simple arbitrages which could previously have been performed at lower frequency—competition tends to occur through who can execute them

2926-406: The U.S. has been declining from an estimated peak of $ 5bn in 2009, to about $ 1.25bn in 2012. Though the percentage of volume attributed to HFT has fallen in the equity markets , it has remained prevalent in the futures markets . According to a study in 2010 by Aite Group, about a quarter of major global futures volume came from professional high-frequency traders. In 2012, according to a study by

3003-467: The US, gained market share from less automated markets such as the NYSE . Economies of scale in electronic trading contributed to lowering commissions and trade processing fees, and contributed to international mergers and consolidation of financial exchanges . The speeds of computer connections, measured in milliseconds or microseconds, have become important. Competition is developing among exchanges for

3080-459: The aftermath of the crash, several organizations argued that high-frequency trading was not to blame, and may even have been a major factor in minimizing and partially reversing the Flash Crash. CME Group , a large futures exchange , stated that, insofar as stock index futures traded on CME Group were concerned, its investigation had found no support for the notion that high-frequency trading

3157-514: The bid-ask spread. By doing so, market makers provide a counterpart to incoming market orders. Although the role of market maker was traditionally fulfilled by specialist firms, this class of strategy is now implemented by a large range of investors, thanks to wide adoption of direct market access . As pointed out by empirical studies, this renewed competition among liquidity providers causes reduced effective market spreads, and therefore reduced indirect costs for final investors." A crucial distinction

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3234-459: The companies that develop them). This makes it difficult for observers to pre-identify market scenarios where HFT will dampen or amplify price fluctuations. The growing quote traffic compared to trade value could indicate that more firms are trying to profit from cross-market arbitrage techniques that do not add significant value through increased liquidity when measured globally. More fully automated markets such as NASDAQ , Direct Edge, and BATS, in

3311-456: The cost of trading and increases the informativeness of quotes; however, it found "no significant effects for smaller-cap stocks", and "it remains an open question whether algorithmic trading and algorithmic liquidity supply are equally beneficial in more turbulent or declining markets. ...algorithmic liquidity suppliers may simply turn off their machines when markets spike downward." In September 2011, market data vendor Nanex LLC published

3388-415: The crash. The report found that the cause was a single sale of $ 4.1 billion in futures contracts by a mutual fund, identified as Waddell & Reed Financial , in an aggressive attempt to hedge its investment position. The joint report also found that "high-frequency traders quickly magnified the impact of the mutual fund's selling." The joint report "portrayed a market so fragmented and fragile that

3465-606: The currency. High-frequency trading allows similar arbitrages using models of greater complexity involving many more than four securities. The TABB Group estimates that annual aggregate profits of high-frequency arbitrage strategies exceeded US$ 21 billion in 2009, although the Purdue study estimates the profits for all high frequency trading were US$ 5 billion in 2009. Index arbitrage exploits index tracker funds which are bound to buy and sell large volumes of securities in proportion to their changing weights in indices. If

3542-483: The equity markets. Currently, however, high frequency trading firms are subject to very little in the way of obligations either to protect that stability by promoting reasonable price continuity in tough times, or to refrain from exacerbating price volatility." She proposed regulation that would require high-frequency traders to stay active in volatile markets. A later SEC chair Mary Jo White pushed back against claims that high-frequency traders have an inherent benefit in

3619-600: The events of May 6, 2010. In 2015 the Paris-based regulator of the 28-nation European Union, the European Securities and Markets Authority , proposed time standards to span the EU, that would more accurately synchronize trading clocks "to within a nanosecond, or one-billionth of a second" to refine regulation of gateway-to-gateway latency time—"the speed at which trading venues acknowledge an order after receiving

3696-492: The expense of retail investors. To counter this, Katsuyama bands together a team that sets out to develop a new exchange, called IEX , designed specifically to prevent the unfair advantage enjoyed by HFT firms in the rest of the market. The final chapter is dedicated to the tribulation of Sergey Aleynikov , a former Goldman Sachs programmer twice prosecuted and twice acquitted for a single act of allegedly copying proprietary computer source code from his employer before joining

3773-510: The fastest processing times for completing trades. For example, in 2009 the London Stock Exchange bought a technology firm called MillenniumIT and announced plans to implement its Millennium Exchange platform which they claim has an average latency of 126 microseconds. This allows sub-millisecond resolution timestamping of the order book . Off-the-shelf software currently allows for nanoseconds resolution of timestamps using

3850-424: The fastest rather than who can create new breakthrough algorithms. The common types of high-frequency trading include several types of market-making, event arbitrage, statistical arbitrage, and latency arbitrage. Most high-frequency trading strategies are not fraudulent, but instead exploit minute deviations from market equilibrium. According to SEC: A "market maker" is a firm that stands ready to buy and sell

3927-505: The first quarter in 2009, total assets under management for hedge funds with high-frequency trading strategies were $ 141 billion, down about 21% from their peak before the worst of the crises , although most of the largest HFTs are actually LLCs owned by a small number of investors. The high-frequency strategy was first made popular by Renaissance Technologies who use both HFT and quantitative aspects in their trading. Many high-frequency firms are market makers and provide liquidity to

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4004-556: The frequency and severity of end-of-day price dislocation". In their joint report on the 2010 Flash Crash, the SEC and the CFTC stated that "market makers and other liquidity providers widened their quote spreads, others reduced offered liquidity, and a significant number withdrew completely from the markets" during the flash crash. Politicians, regulators, scholars, journalists and market participants have all raised concerns on both sides of

4081-411: The low margins with incredibly high volumes of trades, frequently numbering in the millions. A substantial body of research argues that HFT and electronic trading pose new types of challenges to the financial system. Algorithmic and high-frequency traders were both found to have contributed to volatility in the Flash Crash of May 6, 2010 , when high-frequency liquidity providers rapidly withdrew from

4158-587: The majority of exchanges do not offer flash trading, or have discontinued it. By March 2011, the NASDAQ , BATS , and Direct Edge exchanges had all ceased offering its Competition for Price Improvement functionality (widely referred to as "flash technology/trading"). In March 2012, regulators fined Octeg LLC, the equities market-making unit of high-frequency trading firm Getco LLC , for $ 450,000. Octeg violated Nasdaq rules and failed to maintain proper supervision over its stock trading activities. The fine resulted from

4235-413: The market (post at the same price as an order on the other side of the order book ) for a small amount of time (5 milliseconds). This order type was available to all participants but since HFT's adapted to the changes in market structure more quickly than others, they were able to use it to "jump the queue" and place their orders before other order types were allowed to trade at the given price. Currently,

4312-452: The market paused" and scaled back their trading or withdrew from the markets altogether. The joint report then noted that "Automatic computerized traders on the stock market shut down as they detected the sharp rise in buying and selling." As computerized high-frequency traders exited the stock market, the resulting lack of liquidity "...caused shares of some prominent companies like Procter & Gamble and Accenture to trade down as low as

4389-592: The market which lowers volatility and helps narrow bid–offer spreads , making trading and investing cheaper for other market participants. In the United States in 2009, high-frequency trading firms represented 2% of the approximately 20,000 firms operating today, but accounted for 73% of all equity orders volume. The major U.S. high-frequency trading firms include Virtu Financial , Tower Research Capital , IMC , Tradebot , Akuna Capital and Citadel LLC . The Bank of England estimates similar percentages for

4466-400: The market. Several European countries have proposed curtailing or banning HFT due to concerns about volatility. Other complaints against HFT include the argument that some HFT firms scrape profits from investors when index funds rebalance their portfolios. The rapid-fire computer-based HFT developed gradually since 1983 after NASDAQ introduced a purely electronic form of trading. At

4543-529: The markets. SEC associate director Gregg Berman suggested that the current debate over HFT lacks perspective. In an April 2014 speech, Berman argued: "It's much more than just the automation of quotes and cancels, in spite of the seemingly exclusive fixation on this topic by much of the media and various outspoken market pundits. (...) I worry that it may be too narrowly focused and myopic." The Chicago Federal Reserve letter of October 2012, titled "How to keep markets safe in an era of high-speed trading", reports on

4620-399: The negative impact of high-frequency trading was restricted to "very rich" financial intermediaries, such as hedge funds . He noted that Lewis's story "needs victims" and that he portrayed several billionaire characters as victims "by pulling out every rhetorical device he can muster." In a crucial part of the book's narrative, a mutual fund manager named Rich Gates was "shocked" to find out he

4697-458: The new market provided ideal conditions for HFT market-making, low fees (i.e., rebates for quotes that led to execution) and a fast system, yet the HFT was equally active in the incumbent market to offload nonzero positions. New market entry and HFT arrival are further shown to coincide with a significant improvement in liquidity supply. Quote stuffing is a form of abusive market manipulation that has been employed by high-frequency traders (HFT) and

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4774-423: The news screens. Since all quote and volume information is public, such strategies are fully compliant with all the applicable laws. Filter trading is one of the more primitive high-frequency trading strategies that involves monitoring large amounts of stocks for significant or unusual price changes or volume activity. This includes trading on announcements, news, or other event criteria. Software would then generate

4851-533: The news. A separate, "naïve" class of high-frequency trading strategies relies exclusively on ultra-low latency direct market access technology. In these strategies, computer scientists rely on speed to gain minuscule advantages in arbitraging price discrepancies in some particular security trading simultaneously on disparate markets. Another aspect of low latency strategy has been the switch from fiber optic to microwave and shortwave technology for long distance networking. The switch to microwave transmission

4928-465: The pension fund. This strategy has become more difficult since the introduction of dedicated trade execution companies in the 2000s which provide optimal trading for pension and other funds, specifically designed to remove the arbitrage opportunity. Another set of high-frequency trading strategies are strategies that exploit predictable temporary deviations from stable statistical relationships among securities. Statistical arbitrage at high frequencies

5005-453: The regulatory bodies, and since stock exchanges had turned into entities also seeking to maximize profits, the one with the most lenient regulators were rewarded, and oversight over traders' activities was lost. This fragmentation has greatly benefitted HFT. High-frequency trading comprises many different types of algorithms. Various studies reported that certain types of market-making high-frequency trading reduces volatility and does not pose

5082-408: The regulatory term front-running incorrectly to refer to price discovery . In April 2014, Sony Pictures acquired the film rights to the book. In June that year, it was announced that Flash Boys was to be adapted into a major motion picture , with acclaimed screenwriter / producer Aaron Sorkin penning the screenplay, and Scott Rudin and Eli Bush producing the film. The project would be

5159-473: The results of a survey of several dozen financial industry professionals including traders, brokers, and exchanges. It found that The CFA Institute , a global association of investment professionals, advocated for reforms regarding high-frequency trading, including: Exchanges offered a type of order called a "Flash" order (on NASDAQ, it was called "Bolt" on the Bats stock exchange) that allowed an order to lock

5236-583: The securities they trade. According to author Walter Mattli , the ability of regulators to enforce the rules has greatly declined since 2005 with the passing of the Regulation National Market System (Reg NMS) by the SEC. As a result, the NYSE 's quasi monopoly role as a stock rule maker was undermined and turned the stock exchange into one of many globally operating exchanges. The market then became more fractured and granular, as did

5313-428: The sole goal of reducing the transmission time for data from 17 to 13 milliseconds . (The construction of the line was dramatized in the 2018 film The Hummingbird Project .) Lewis goes on to describe the modern world of electronic trading and how it differs from the past—when trading was mostly performed in open outcry pits on physical trading floors —and how that change has impacted the market. The speed of data

5390-460: The target market microstructure together with stochastic control techniques. These strategies appear intimately related to the entry of new electronic venues. Academic study of Chi-X's entry into the European equity market reveals that its launch coincided with a large HFT that made markets using both the incumbent market, NYSE - Euronext , and the new market, Chi-X. The study shows that

5467-490: The turn of the 21st century, HFT trades had an execution time of several seconds, whereas by 2010 this had decreased to milli - and even microseconds . At that time, high-frequency trading was still a little-known topic outside the financial sector, with an article published by the New York Times in July 2009 being one of the first to bring the subject to the public's attention. On September 2, 2013, Italy became

5544-505: The world's first country to introduce a tax specifically targeted at HFT, charging a levy of 0.02% on equity transactions lasting less than 0.5 seconds. In the early 2000s, high-frequency trading still accounted for fewer than 10% of equity orders, but this proportion was soon to begin rapid growth. According to data from the NYSE, trading volume grew by about 164% between 2005 and 2009 for which high-frequency trading might be accounted. As of

5621-460: Was because microwaves traveling in air suffer a less than 1% speed reduction compared to light traveling in a vacuum, whereas with conventional fiber optics light travels over 30% slower. Especially since 2011, companies involved in HFT have massively invested in microwaves infrastructure to transmit data across key connections such as the one between New York City and Chicago but also between London and Frankfurt , going through Belgium thanks to

5698-460: Was found to have violated the SEC's market access rule, in effect since 2010 to prevent such mistakes. Regulators stated the HFT firm ignored dozens of error messages before its computers sent millions of unintended orders to the market. Knight Capital eventually merged with Getco to form KCG Holdings . Knight lost over $ 460 million from its trading errors in August 2012 that caused disturbance in

5775-500: Was paying 0.04% per trade due to his fund's dependence on an HFT front. The reviewer noted that Gates' own mutual fund charged an average of 2.41% for "expenses" to retail investors. In April 2014 the book reached No. 1 on The New York Times Best Seller list , remaining on the top for three weeks, before being overtaken by Capital in the Twenty-First Century on May 18, 2014. Jonathan Weil at Bloomberg suggests that

5852-544: Was related to the crash, and actually stated it had a market stabilizing effect. However, after almost five months of investigations, the U.S. Securities and Exchange Commission ( SEC ) and the Commodity Futures Trading Commission ( CFTC ) issued a joint report identifying the cause that set off the sequence of events leading to the Flash Crash and concluding that the actions of high-frequency trading firms contributed to volatility during

5929-426: Was that microwave transmission's data capacity was too limited and unreliable due to sensitivity to inclement weather. "But what if microwave technology improved?," the author wondered. The story ends as the author climbs up a mountain summit where one of the towers is stationed. He notes the tower showed signs of age, and could have been erected some time ago, for some other purpose, but the ancillary equipment including

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