Sunday night, 60 Minutes explained today’s fashionable whiz bang technology in terms even we can understand. It sounded like these new quant guys enjoy the status of floor traders, exchange members who’ve been around forever. Floor traders pay no commissions and stand right there among the booths, or at least used to, quintessential insiders trading for their own account with our brokers as well as each other.
Nowadays quant geeks at dozens of firms, some old and some new, program quantitative trading platforms into high-speed computers to skim pennies, or fractions thereof, from stock market orders. The software is simply designed to get to the transaction point faster. Programmers draw on no accounting or investment expertise, not even the technical stuff built around charting.
We already knew that these wise guys were hiding behind the vocabulary. Quant, cute for quantitative, means they use numbers. Algorithm refers to any series of calculations, simply some combination of adding, subtracting, dividing, or multiplying, including exotic forms like standard deviations and, if you ever took statistics, worse. Platform is a spiffy word business types came up with to charge more for the whole ball of wax, a total software package here. Specific algorithms are often referenced to bury us in arcane arithmetic irrelevance.
All their terms are just smoke and mirrors. High-speed says you have a brand new mainframe that gets your order in first, and that‘s all we need to know.
Literally first. The electrons, or whatever, actually engage everyone else’s electrons in a race. Results at the finish line also depend on where your cable is connected to the main circuit. The physical location. Like kids angling for a seat, first one to the Chevy’s door gets to ride shotgun for Dad.
These machines are wired into whatever computer system each stock exchange uses, and we now have over 80 exchanges to accommodate them. A guy at the Big Board even showed off the new space quant traders can rent for $10 thousand a month right inside the NYSE data transmission facility.
This nonsense has replaced the specialist. That’s right, replaced. The market maker who physically matched orders by hand to make sure nobody got swindled. Who bankrolled the liquidity in his assigned stock if necessary, often taking a beating when something went awry, recouping once the imbalance straightened itself out again. The company CEO and anyone else he needed were personally accessible to this guy during trading hours, assuring us that his decisions would be the right ones.
We at the MacDougal Post did not know this before Sunday night. The Securities and Excuses Commission saw no need to inform the small investor that the only man standing between him and potential minute-to-minute aberration ruination, the underpinning of the whole floor trading concept, has been gunned down. It was left to an investigative TV correspondent to let us in on the news. As an aside at that.
A correspondent who had no idea that this loss trumped anything else that could have been said all night. And we wonder why nobody goes to jail.
The media has no idea what’s going on. None whatsoever. That’s why perps never get locked up.
This 60 Minutes segment covered high-speed computing. What the loss of the specialist has done, starting with the Flash Crash, and will continue to do to our markets, is yet to be addressed.
Anyway, here’s your algorithm. Place an order to sell at 30. It fills at 29.995 because a buy was put on at 30 as well, letting some high-speed computer trap both trades and subtract or add all over them, costing you half a cent a share. Math guy got in at 29.995 and out at 30.005, and all this happened in a nanonanosecond, which is our quant for simultaneously.
Now program your computer to do the thing with the sell after anticipating it will be able to complete the buy too. That’s what they’d like us to believe is happening.
It isn’t. If you know these rackets, you’ll realize they‘re lying. Reward yourself by checking out The MacDougal Post Archive, and look up Lewie the Dip (July 2010).
Lewie didn’t use a fancy algorithm to stick it to you real good. They don’t either.
No way. Gangsters use light speed for one reason, and one reason only, the time warp. See the paragraph with 29.995 in it above. The part about present and future becoming one.
And after you’ve dipped into a mark on a specific order, nobody else can.
Neener, neener, I got there fiiiiiirst.
No other explanation makes any sense. And that is the one I learned at my mob connection’s knee, this, as some of you may already know, a man with close matrimonial ties to my mother, who was a saint.
60 Minutes said the SEC is looking into high-speed trading. Maybe somebody there knows what a specialist used to do too and can check into the ramifications over his sudden demise. One can only hope with them.
Keep placing limit orders. That’s all this calamari means to us. That and knowing where those third and fourth decimal places on our confirmations come from. Quant trading is expected to account for 70% of volume pretty soon. Those extra thousandths and ten thousandths in the recorded prices are definitely going to be driving some people nuts.
Now that we know what’s going on.
Oh, all right, I’ll give 60 Minutes credit for that. Getting some really valuable information out. Only one of all those quant trading outfits would speak with the correspondent, though even their representative never said what they did for a living exactly.
Just that they did it a lot.
There are only two sources of money on Wall Street, yours and theirs, and now they’re pocketing yours one fallutin’ penny at a time. Or less.
One cent. Half a cent was mentioned. Less can be found on some of our own recent confirmations. Mob offed the investing public’s floor specialist for that. To paraphrase a familiar slogan, these hoods are the plundering herd.
Plundering herd of pocket picking punks.
