Posted on May 2, 2013. Filed under: Exchanges, Flash Crash, Regulations, Securities, Securities and Exchange Commission | Tags: algorithmic trading, Associated Press, Chicago, CNBC, Dow Jones Industrial Average, Edgar Perez, Flash Crash, GETCO, High-Frequency Trading, High-Frequency Trading Book, High-Frequency Trading Conference, Luis A. Aguilar, Manoj Narang, Mary Jo White, Nasdaq, NYSE, Oriel Morrison, President Obama, proprietary trading, Quantitative Trading, Real Time Regulation, Regulation SCI, SEC, SEC chairman, Securities and Exchange Commission, Securities and Exchanges Comission, Systems Compliance and Integrity, The New York Times, The Speed Traders, The Speed Traders Workshop, Twitter Crash, Ultra High-Frequency Trading, White House |

The Speed Traders’ Edgar Perez
On May 6th, 2010, the U.S. stock markets experienced an unusual decline (and an immediate upswing) that temporarily erased $1 trillion in market value (the Dow Jones Industrial Average plunged about 1000 points) and puzzled both actors and experts following the markets. Given the ongoing controversy about “flash orders” and its portrayed usage by high-frequency traders, this incident was quickly referred as the flash crash and just as quickly blame fell on the electronic trading industry. While it is true that some high-frequency trading firms stopped running their algorithms when the decline started (human traders stopped participating in the markets in Black Monday as well), some of them stayed in the market, and helped the markets recover just as quickly as the decline happened.
Fast forward two years and we find a twit from the Associated Press with supposedly breaking news that President Obama was injured due to explosions at the White House. That report made $136 billion in market value temporarily disappear, with the Dow Jones Industrial Average quickly dropping 150 points before swinging back.
Examples of dramatic swings can go all the way back to the origins of stock markets. We only need to take a look at Black Monday, October 19th, 1987, when the Dow Jones Industrial Average dropped by 508 points, 22.61%; by the end of October, stock markets in the United States had fallen by 22.68%, not showing any improvement for many weeks. Meanwhile, on May 6th, the Dow Jones had regained most of the drop only twenty minutes later.
Like major technology innovations in the past, computer trading was blamed for Black Monday back in 1987; as observed by economist Richard Roll though, program trading strategies were used primarily in the United States, and not in markets such as Australia and Hong Kong where the crisis started. Therefore, it is unsurprising by now that high-frequency trading has been blamed for the flash crash, the now called Twitter crash, and mini-flash crashes of certain stocks, commodities and currencies.
As Manoj Narang, CEO, Tradeworx, says in my book The Speed Traders, no matter what regulators do, there will be times when herd-like behavior among long-term investors will all be stampeding for the exits at the same time, and simply there won’t be enough high-frequency trading to cover the demand for liquidity. That is exactly what happened on May 6th, as described in painstaking detail in the CFTC/SEC report of September 30th, 2010; the report made clear that a mutual fund, identified by Reuters back in May 14 as Waddell & Reed Financial Inc., initiated a program to sell a total of 75,000 E-Mini contracts (valued at approximately $4.1 billion), certainly influenced by the pessimism in the markets due to street protests in Greece, among other reasons; the computer algorithm used to trade the position in the futures markets was set to target an execution rate set to 9% of the trading volume calculated over the previous minute, but without regard to price or time. Similarly, we will always experience technology and human errors. Dave Cummings, Chairman, Tradebot, would ask about the flash crash, “Who puts in a $4.1 billion order without a limit price?” That was the catalyst that initiated the flash crash. Knight Capital Group Inc.’s $440 million trading loss in August 1st, 2012, when the firm lost approximately $10 million per minute, is another recent example that comes to mind.
On March 7th, 2013, the U.S. Securities and Exchange Commission announced Regulation SCI (Systems Compliance and Integrity). As explained by Commissioner Luis A. Aguilar, the proposed rule would move beyond the current voluntary program and require entities to establish, maintain, and enforce written policies and procedures reasonably designed to ensure that its systems have adequate levels of capacity, integrity, resiliency, availability, and security to maintain the entity’s operational capability and promote the maintenance of fair and orderly markets, mandate participation in scheduled testing of the operation of the entity’s business continuity and disaster recovery plans, including backup systems, and coordinate such testing on an industry- or sector-wide basis with other entities, and finally make, keep, and preserve records relating to the matters covered by Regulation SCI, and provide them to Commission representatives upon request.
Electronic trading, like any other area of finance, should have sensible regulations imposed to promote sound trading practices and protect the average American investor from predatory behavior. If a market participant who does not use high-frequency trading believes that he or she cannot enter into fair transactions, then that individual will not invest in that market. But regulators could restore trust in the market without eliminating high-speed trading. They simply must be armed to analyze trading activity in real time.
In an area of finance predicated on speed, regulation must be as well. Real-time information would allow regulators to see everything that is occurring in the markets, no matter how quickly the order information is being posted and transactions are occurring. This would require significant commitments to invest in both human capital and information technology, but the investment is worthwhile: it is vital for regulators to level the playing field of electronic trading in general.
Real-time policing for potential malfeasance is the most efficient way to regulate high-frequency trading. Analysis of real-time data would provide for effective regulation of these trades. This in turn would provide peace of mind for market participants big and small.
Having spoken with professionals in the world’s most important financial centers, I can attest that America’s capital markets continue being the envy of the world, thanks to the innovation people like high-frequency traders, educated in the country’s top schools, bring to the markets. Let’s allow innovations like high-frequency trading to continue and regulators to police them accordingly, and not try to ban them, as vocal activists tried once with major innovations such as automobiles and derivatives.
Read Full Post |
Make a Comment ( None so far )
Posted on November 12, 2012. Filed under: Flash Crash, Technology, Exchanges, Securities, Securities and Exchange Commission, Conference | Tags: The Speed Traders, High-Frequency Trading, Edgar Perez, Tradeworx, Flash Crash, SEC, algorithmic trading, CNBC, High-Frequency Trading Conference, Securities and Exchange Commission, GETCO, Wall Street, HFT, The New York Times, Tabb Group, Rosenblatt Securities |

From The New York Times, once the hottest thing to hit Wall Street in years, high-speed or high-frequency trading — known as H.F.T. — is now struggling to make gains in today’s stock market.
Read Full Post |
Make a Comment ( 2 so far )
Posted on August 6, 2012. Filed under: Exchanges, Flash Crash, Practitioners, Regulations, Securities and Exchange Commission, Technology | Tags: algorithmic trading, Alternative Investments, Ameritrade, automated trading, Blackstone, Broken Markets, Center for Economic and Policy Research, Chicago, Dark Pools, Dean Baker, Don’t Ban the Trades, Edgar Perez, End of Equities Investing, Facebook IPO, Forbes, Futures and FX, GETCO, Goldman Sachs, hedge fund manager, Hedge Funds, HFT Expert, HFT Seminar, HFT workshop, HFTLeadersForum.com, High Frequency Trading Leaders Forum 2012, High Frequency Trading Networking, high frequency trading speaker, High-Frequency Finance, High-Frequency Trading, High-Frequency Trading Book, High-Frequency Trading Conference, High-Frequency Trading Expert, High-Frequency Trading Happy Hour, High-Frequency Trading Seminar, Hong Kong, House Financial Services Committee, How Algorithmic and High Frequency Traders Leverage Profitable Strategies to Find Alpha in Equities, How Traders Profit From High Speed Trading, Investing World, Jefferies Group, Joseph Saluzzi, Kiev, Knight Capital, Knight Trading, Knightmare on Wall Street, Kuala Lumpur, London, Malaysia, Market Abuse Unit, Mary Schapiro, McKinsey, Mexico, MIT Sloan, Moscow, Neil Barsky, new york, New York Stock Exchange, New York University, NYSE, Options, Pace University, Polytechnic Institute, Quantitative Trading, Regulate Them in Real Time, Sal Arnuk, Sao Paulo, SEC, Securities and Exchange Commission, Seoul, Shanghai, singapore, South Korea, Stephens Inc ., Stifel Nicolaus, Stuart Theakston, The Malaysian Insider, The New York Times, The Speed Traders, The Speed Traders Workshop, The Speed Traders Workshop 2012, The Speed Traders Workshop 2012 Sao Paulo, Thomas Joyce, trading strategy, Ultra High-Frequency Trading, Weibo |
In my latest piece in The New York Times, I argue that wrongdoing existed long before the advent of high-frequency trading, and it will always be a part of markets. High-frequency trading is simply a tool; it can be positive or negative for investors and markets. To maximize the benefit and minimize the downsides, regulators need to catch up with the technology.
High-frequency trading has been under a microscope since the infamous “flash crash” in 2010. Let’s remember, though: The market rebounded that day almost as fast as it fell, and regulators ultimately determined that the crash was initiated by human error. But many in the financial sector and in government were uncomfortable at the thought that high-frequency trading programs could vaporize huge amounts of equity in a matter of minutes.
Read More
Read Full Post |
Make a Comment ( None so far )
Posted on July 26, 2012. Filed under: Conference, Event Announcements, Exchanges, Practitioners, Regulations, Strategies, Workshop | Tags: algorithms, An Insider's Look at the New High-Frequency Trading Phenomenon That is Transforming the Investing World, Bankier.pl, Beijing, Bloomberg Hedge Fund Brief, BMF 89.9, BNN Business Day, Business Times, Business Tonight, Caixin, CBN Newswire, CCTV China, Cents & Sensibilities, Channel NewsAsia, Chicago, China, China Financial Publishing House, Chinese Financial News, Citigroup, CNBC, CNBC Cash Flow, CNBC Squawk Box, Columbia Business School, Dalian Commodity Exchange, Dallas Morning News, Dark Pools, DCE, Dubai, Finance.QQ.com, Finance.Sina.com, FIXGlobal Trading, Futures and FX, Futures Daily, GPW Media, Harvard Business School, hexun.com, high frequency trading speaker, high frequency trading workshop, High-Frequency Trading Conference, High-Frequency Trading Expert, High-Frequency Trading Forum, High-Frequency Trading Seminar, High-Frequency Trading Training, High-Frequency Trading World, High-Frequency Trading World’s Capital, HKEx, Ho Chi Minh, Hong Kong, Hong Kong Stock Exchange, How Algorithmic and High Frequency Traders Leverage Profitable Strategies to Find Alpha in Equities, IBM, ifeng.com, iMoney Hong Kong, International Finance News, investment, Investment Management Conference, Jakarta, Kiev, Kuala Lumpur, Leaderonomics, London, McGraw-Hill Inc., McKinsey & Co. consultant, Mexico City, MIT Sloan, Moscow, new york, New York University Adjunct Professor, Options, Oriental Daily News, proprietary trading, quantitative, quants, Sao Paulo, Securities and Exchange Commission, Seoul, Shanghai, Shanghai Futures Exchange, Shanghai Stock Exchange, SHFE, singapore, SSE, The Korea Herald, The Korea Times, The New York Times, The Speed Traders, The Speed Traders Workshop, The Speed Traders Workshop 2012, The Speed Traders Workshop 2012 Hong Kong, The Speed Traders Workshop 2012 Shanghai, The Star, The Wall Street Journal, TheStreet.com, TODAY Online, Tradetech, Valor Econômico, Warsaw, Xinhua, ZCE, Zhengzhou Commodity Exchange |

2012国际高频交易高峰研讨会・上海
The high-frequency trading world’s capital is moving to China this August with Mr. Edgar Perez, author of The Speed Traders, and former McKinsey & Co. consultant and New York University Adjunct Professor, presenting The Speed Traders Workshop 2012: How Algorithmic and High Frequency Traders Leverage Profitable Strategies to Find Alpha in Equities, Options, Futures and FX, in Shanghai and Hong Kong.
Top securities firms and traders from China, Hong Kong and Singapore trading at Zhengzhou Commodity Exchange (ZCE), Shanghai Stock Exchange (SSE), Dalian Commodity Exchange (DCE), Shanghai Futures Exchange (SHFE), Hong Kong Stock Exchange (HKEx), and Singapore Stock Exchange (SGX), are joining these enlightening workshops, which display an agenda full of information and insights, as can be seen through the following sessions:
1. Understanding High Frequency Trading in Equities and other Asset Classes
- The need for speed and sophisticated computer programs in generating, routing, and executing orders
- Co-location and individual data feeds to minimize latency
- Time-frames for establishing and closing highly-liquid positions
- Review of the most important strategies: market making, trend following, value arbitrage and others
2. Key Enablers for High Frequency Trading
- Technological innovation: computing power, complex event processing, and low-latency bandwidth
- Shift to electronic trading and the rise of alternative trading systems
- In-depth look at strategies high frequency traders leverage to find alpha in equities, options, futures and FX
- The profitability of typical high frequency trading strategies and its evolution
3. Global Regulatory Overview: from the U.S. and Europe to China and Brazil
- Regulations in place before the “flash crash”
- Proposed regulatory initiatives after the “flash crash” in the U.S. and Europe, circuit breakers, limit up limit down and consolidated audit trail
- High frequency trading in Asia, from Japan, Singapore and India to Hong Kong and China
- Regulating speed trading to samba beats: Brazil and Mexico
4. The Future of High Frequency Trading
- Enhancing profitability: from equities to FX to cross-asset trading
- High frequency trading in the world: from the U.S. and Europe to China and Brazil
- Adding ammunition to the high frequency trader toolkit, FPGA, GPUs and enhanced technologies
- Turning the tables on high frequency trading: the transparency challenge for the buy-side
Mr. Perez has been interviewed on CNBC Cash Flow, CNBC Squawk Box, BNN Business Day, CCTV China, Bankier.pl, TheStreet.com, Leaderonomics, GPW Media, Channel NewsAsia Business Tonight and Cents & Sensibilities. In addition, Mr. Perez has been featured on Caixin, Futures Daily, Xinhua, CBN Newswire, Chinese Financial News, ifeng.com, International Finance News, hexun.com, Finance.QQ.com, Finance.Sina.com, The Korea Times, The Korea Herald, The Star, BMF 89.9, iMoney Hong Kong, CNBC, Bloomberg Hedge Fund Brief, The Wall Street Journal, The New York Times, Dallas Morning News, Valor Econômico, FIXGlobal Trading, TODAY Online, Oriental Daily News and Business Times.
Read More
Read Full Post |
Make a Comment ( None so far )