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Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,048 since Dec 2013
Thanks Given: 4,384
Thanks Received: 10,205
Because you can look at the code and see what the code is programmed to do.
For example if you have an algo that's programmed to show size on the bid and then sell when other bids come in, that will be very obvious in the code.
You can't argue that wasn't your intent if you programmed it that way.
FT had quite a comment on this in his Friday webinar to Stage 5 clients.
As we rolled this week, I started out asking him about the backwardation in the ES and if it was normal or not. (bear with me)
His reply was that:
a) We have had backwardation for a really long time now.
b) It is due to QE and similar programs in other countries keeping interest rates virtually at zero, so there is virtually no carrying cost to a futures contract these days.
c) He feels we wouldn't need something like 575 if there were more diverse opinions in the marketplace, but right now most big players are lining up to see what the fed does next.
d) He hopes that the fed will back away from such low rates and when it does, stuffing will go away by itself because it will no longer be possible.
I thought that was great insight. A lot more than I would have figured out! I guess that's why he's FT.
I strongly disagree. Naturally @artemiso has more experience in this area than me, and I hope he comments. But it seems to me the new rules are just a show and have loopholes big enough to drive an armored truck full of the money they made trading against these rules through them.
Basically it's just a matter of intent/opinion. "But sir, when we placed that order, we would have been willing to get executed on it. Unfortunately, that didn't happen and was out of our control, so we had to cancel it". x 1 million per day.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,048 since Dec 2013
Thanks Given: 4,384
Thanks Received: 10,205
I agree completely. As mentioned already I think everything outlined is already against the rules.
But that was sort of my point. If the Algo is programmed to send the cancel immediately after the order was sent, and before anybody else at the exchange could ever possibly react to it, you really have proof that there was no intent to trade. But as you have pointed out, if you can't see the code, you don't have the proof.
I'm busy and will probably come back to comment later but a few quick points:
1. Explaining code to a room full of compliance guys is impossible.
2. Code can be made up to tell any story.
3. There are so many moving pieces that backtracing it is going to take too much explaining.
What's wrong with modifying orders 1 million times per day? In liquid equities and futures, you're only seeing about 10 order actions per execution. In options, I've seen 10,000+++ order actions per execution.
In fact, if people think canceling orders gives you such an advantage, why not do it yourself? The restrictions are tougher on high volume participants than retail participants. You can add and cancel the same order 500 times on the Eurodollar and you will still not get flagged. I can't get away with 6.
