HFT, Frontrunning, Computer Code, & Taxing the 'RICH'

[WhiskeyGirl]

High frequency trading has been compared to a front running scheme.

Front running is the illegal practice of a stock broker executing orders on a security for its own account while taking advantage of advance knowledge of pending orders from its customers. When orders previously submitted by its customers will predictably affect the price of the security, purchasing first for its own account gives the broker an unfair advantage, since it can expect to close out its position at a profit based on the new price level. The front running broking either buys for his own account (before filling customer buy orders that drive up the price), or sells (where the broker sells for its own account, before filling customer sell orders that drive down the price).

http://en.wikipedia.org/wiki/Front_running

High-frequency trading is the execution of computerized trading strategies characterized by extremely short position-holding periods. In high-frequency trading, programs running on high-speed computers analyze market data, using algorithms to utilize trading opportunities that may open up for only a fraction of a second to several hours.[1] High-frequency trading, often abbreviated HFT, uses quantitative investment computer programs to hold short-term positions in equities, options, futures, ETFs, currencies, and all other financial instruments that possess electronic trading capability.[2][3] High frequency traders compete on a basis of speed with other high frequency traders, not long term investors (who typically look for opportunities over a period of weeks, months, or years), and compete with each other for very small, and very consistent profits.[2][4] As a result, high-frequency trading has been shown to have a potential Sharpe ratio thousands of times higher than the traditional buy-and-hold strategies.[5]

By 2010, High Frequency Trading is accounting for over 70% of equity trades taking place in the US, and is rapidly growing in popularity in Europe and Asia. Aiming to capture just a fraction of a penny per share or currency unit on every trade, high-frequency traders move in and out of such short-term positions several times each day. Fractions of a penny accumulate fast to produce significantly positive results at the end of every day.[2] High-frequency trading has become more popular recently thanks to technological innovation, and growing awareness of its profitability.[6] High frequency trading firms do not employ significant leverage, do not accumulate positions, and typically liquidate their entire portfolios on a daily basis.[4]

http://en.wikipedia.org/wiki/High-frequency_trading

What value does HFT add to anything?  Liquidity?  Buying, holding, and selling in nanoseconds somehow makes the market better?  Fractions of pennies add up over the long term?

Deals that happen between other slower deals?

Why aren't Congress & the White House taxing all these fractions of pennies?  If they add up for Wall Street, maybe they'll add up to help pay down the debt?

[WhiskeyGirl]

Former Societe Generale Trader Found Guilty in Manhattan Federal Court of Stealing High-Frequency Trading System Code

anhattan U.S. Attorney PREET BHARARA stated: "As the Manhattan federal jury has now found, Samarth Agrawal was a thief who hoped to make a small fortune by stealing and copying sophisticated computer code that was the equivalent of gold bullion to his former employers. Today’s verdict sends a clear message that this office and the FBI will investigate and prosecute the theft of valuable trade secrets for the serious crime that it is."

According to the evidence introduced at the trial and other documents and proceedings in the case:

From March 2007 to November 2009, AGRAWAL worked at SocGen’s New York offices, first as a quantitative analyst and then as a trader in SocGen’s High Frequency Trading Group. Over the past several years, SocGen has spent millions of dollars developing a computer system and associated computer code (the "Code") that allowed SocGen to engage in sophisticated, highspeed trading on various securities markets. The Code and its associated trading programs have generated millions of dollars in profits for SocGen. SocGen has taken several steps to protect the confidentiality of the Code, including limiting access to only those employees whose jobs require it, and then to only those portions of the Code related to their job; monitoring its computer systems and restricting electronic transfers outside of its computer systems; and preventing the computers used by individuals in the High Frequency Trading Group from making portable electronic copies of the Code.

Mr. BHARARA praised the investigative work of the FBI in this case. Mr. BHARARA also thanked Societe Generale for its cooperation in the investigation.

This case is being prosecuted by the Office's Complex Frauds Unit. Assistant U.S. Attorneys THOMAS G.A. BROWN and DANIEL LEVY are in charge of the prosecution.

Prior to the time he obtained access to the Code, printed it out, and took it home, AGRAWAL had been trying to leave SocGen to find more lucrative work at another company that engaged in high-frequency trading. In particular, AGRAWAL was negotiating with Tower Capital Research LLC ("Tower"), a proprietary trading group and hedge fund, to develop a highfrequency trading system for Tower. During a meeting on June 8, 2009, with partners of Tower, AGRAWAL claimed he had a complete understanding of SocGen’s Unit A trading system and said that he wanted to build a copy of the same trading system at Tower.

http://newyork.fbi.gov/dojpressrel/pressrel10/nyfo111910.htm

Why isn't the FBI finding out where all the TARP money went?  Why all those banks didn't seem to notice that those mortages were in trouble?  For years? 

If millions are made are they being taxes?

How much of the HFT is done in dark pools, places that don't report trade?  Are they paying taxes on the money they make?

Why aren't Congress and the White House investigating hedge funds and big banks that do HFT and dark pools as additional sources of revenue?  HFT & fat cat bankers? 

[WhiskeyGirl]

It seems like Congress & the White House keep going to the same old sources to solve their spending problem - the backs of taxpayers.

Why aren't they going after new money?  HFT money?  Dark Pool money?  Hedge fund profits?

[WhiskeyGirl]

Every time I read about HFT it seems to involve someone stealing computer codes that make it run faster, better, or make more money.

How does any of this benefit the folks making the trade without benefit of all this software?

Are all these nano-second transactions recorded somewhere?  Who?  What?  When? How much?

Are they paying taxes?  Maybe they (humans, investment vehicles, hedgefunds) all live in Switzerland and pay no taxes?

Maybe they pay no taxes because they exit only in cyberspace, take the fractions of pennies, and leave no paper trail?

Seems like something that spends millions on software would be an excellent new revenue source.

Does the HFT add ANY value to the transaction?

It reminds me of the old stories about computer programmers that 'shaved' of the fractions of pennies at banks.  Customers never missed the fractions, banks never missed the fractions, the they added up for the programmers.  The programmers went to jail.

I don't see HFT being much different.

Maybe someone could provide a simple model?  Show the value on paper?

[WhiskeyGirl]

The only thing that comes mind is two people want to make a trade, HFT steps in and shaves off some pennies, or takes a cut of the deal.  Several times a day, and the money adds up.

How many HFT transactions go on before the deal is made between the two?  How much money is made overall?

Doesn't seem like this benefits the two involved in the long term trade, the trade that exists for more than a nano-second.

What value does HFT add to Main Street?

Where are the transactions recorded?  The who?  What?  When?  How much?

[WhiskeyGirl]

Sit back and think -

For some reason, our borders with Mexico remain a war zone.  Obama has money to throw at crimes and criminals that affect Wall Street, global banks, and hedge funds, but no money or will to protect the live on Main Street.

For some reason, no one seems to be finding answers to the financial collapse of 2008.  How could so many have ignored the mortgage problem for so long? 

I have to believe all those mortgages didn't go bad overnight.  How did those companies stay in business for so long losing TRILLIONS?

Why did all those TRILLIONS of bad mortgages end up on the backs of taxpayers?

Money to investigage crimes on Wall Street, at big banks, and that affect hedge funds, nothing for Main Street.

No justice for thousands that die along the border, are killed in airplane attacks, or through drugs, lots of resources to protect banks, Wall Street, and hedge funds.

just my humble opinions