Trading Tech Talk

Trading Tech Talk 13: Algo Hardware and High Speed Networks

CTO Interview: Today's guest is James Spooner, VP of Trading Platforms at Maxeler Technologies. In this segment, he discusses:

• An overview of his background in the financial market, as well an overview of what he does at Maxeler Technologies.
• If he has seen an increased demand for your products in the wake of Dodd/Frank?
• How Maxeler Technologies will custom design hardware to meet the specifications of a customer's algorithm
• His take on the recent criticisms regarding potential abuses of those networks raised by Michael Lewis and other authors?
• What he thinks of the introduction of artificial delays in HFT networks in an attempt to stifle abuses?
• If he thinks we are seeing growing concerns over a lack of synchronization in the financial markets, is this a concern for Maxeler as well?
• What new products or developments can we expect from Maxeler in the coming months?

Hot Topics in Tech: Clients are fleeing Barclays "dark pool" in the wake of a US lawsuit alleging the bank misled them about high frequency activity in its private trading venue. Is there too much noise in social media and financial analytics? T+2 may lead to more failed trades.

The Inbox: Listener questions and comments

• Question from Athlas: Seems like the front of the focus on HFT gaming in on the equity markets. I know you have discussed the penetration, or lack thereof, of this type of gaming into derivatives on earlier podcasts. My question is, why do you think this sort of gaming has not penetrated significantly into options and futures? Does the complexity of these instruments vs single price instruments, like stocks, make them less susceptible to latency issues and flickering quotes? Or is there something else at work here?
• Question from Rance Barber: I am a long-time listener to all of the Options Insider Radio shows and often hear Mark quote trading volume statistics. Have you identified any aggregate, reliable source for stock market trading volume data? I am looking for the data by month (2003-present) and it needs to include both traditional public exchanges as well as dark pool trading volume information. Any advice you can provide as to where I could find this data would be much appreciated. Thanks, Rance.
• Question from Guled - Hi! Which options software has the capability to automate the unusual options volume? E.g. with filters such as, on bid/ask, above/below open interest. Have found two professional grade LiveVol and Trade Alert, but do not know if they automate the process? Would be grateful for any help, many thanks in advance Thanks, Guled.

Trading Tech Talk 12: The Markets Are Out of Sync

Hot Topics in Tech: Regulators challenged by clock synchronization. Flash Boys continues to spur debate and some change, though the government will ultimately have to address the stock market's structure. Thomas Peterffy, one of the founding fathers of high-frequency trading, has offered the SEC a plan to keep HFTs from taking advantage of investors. Warren Buffett, business partner Charlie Munger, and Bill Gates slammed HFT on CNBC. They are no fans of high-frequency trading. Both brokers and investors are testing new ways to cope with the sheer volume of data the stock market produces. Goldman Sachs fined in dark pool debacle. It's not just the U.S. - Bombay Stock Exchange halted by network glitch.

The Inbox: Listener Questions & Comments

• Question from Hawkeye -Just wanted to share an observation. You guys have been saying that the HFT latency issues have not hit the options market, but I have been seeing otherwise. A couple weeks ago, I was trying to add some back month Oct slightly OTM VXX puts (-30 delta - they were not THAT far OTM) to add some contango protection to a spread position. The bid asked spread was about .40 cents wide so I split it with my limit order thinking I would have a reasonable chance of getting filled as the market moved around. (I use Tradestation, a direct access broker.). It showed that Tradestation auto-routed my order to the NASDAQ. It sat for a while without being filled, I happened to look at the market depth screen and sure enough, a bunch of other bids from other exchanges were showing with timestamps slightly ahead of my order. I cancelled and all the other bids backed down to where they were before I placed my order. I entered it again, same thing. I cancelled again, they moved back. Then I reentered the same bid, this time I specified it route to BOX, which was the one that went first in the queue the other times. Sure enough, I was first in the queue this time. This is where the retail guy gets screwed. The market makers do not seem to want to make a real market, but they are more than willing to block me from getting filled if someone else were to come in with a bid at my price. The other way we seem to get screwed over when I correctly pick a position and the underlying goes significantly my way, but the market makers decide that they only want to move one side of the spread. I end up looking to get out but the market is bid something stupid like bid 0.75, at 1.50 whereas when I got in when it was bid 0.52 at 0.58. I only trade penny pilot symbols with good option volume. I never buy in front of an implied volatility crush. Yet, this sort of action seems to happen way more often than it should. I just want the damn market makers to make an honest market. They want to be market makers but don't want to make markets. Thoughts? Love the shows. Hawkeye
• Question from Elsa74 - Hello tech stars. Like the new direction for the network with this program. It's about time someone tackled trading tech on a show and Options Insider Radio Network is a great place to do it. Great guests so far, particularly Blair Hull. That guy has a lot of insight into the markets. I am looking forward to the next guests on the program. Now for my question. It might sound strange but I would like to know if the hosts think trading tech may have gotten too good. The options market is a good example. The recent mergers of brokers like Options House and Trade Monster was driven in many ways by the fact that they need to spend millions to keep their platforms cutting edge and they simply cannot afford it. They need economies of scale to be viable and continue to offer that level of functionality to the consumer. Do you think options customers are hurting ourselves by demanding too much from our brokers and therefore driving them out of the business - depriving ourselves of choice at the end of the day? I personally would much rather have a dozen brokers to choose from with different platforms rather than two or three monoliths controlling the entire business. Thanks again for this insightful program. Any chance we’re going to see a weekly TTT going forward?
• Question from Indigo: You have said on the program several times that dark pools do not exist in the options market. Why is that? Is there some technical limitation preventing dark pools from launching in the options market vs. the equities market?

Trading Tech Talk 11: The Stealth Options Exchange

CTO Interview Segment: Today's guest is Joe Corona, Director of Strategic Planning and Product Strategy at LiquidPoint, LLC.

He discusses:

• An overview of his background in the derivatives markets
• An overview of LiquidPoint, which is part of ConvergEx Group
• Who is the typical end user?
• Is it true that LiquidPoint would be the equivalent of the #7 options exchange if you aggregated all of the flow?
• What are the main LiquidPoint algo types and what area of the derivatives market are they aimed at?
• How does LiquidPoint's algo address the many issues associated with executing multi-leg spreads across exchanges?
• Will their spread algo go the extra step and take delta risk on behalf of the client to execute an order?
• Does he feel that we have reached the point of diminishing returns and increasing risk whenever a new venue is added to the marketplace?
• His response to the post-Flashboys hysteria - particularly on the subject of dark pools?
• What was the impetus behind the recent software merger with Actant? What was the impetus behind your merger with LiveVol?

The Inbox: Listener questions and comments

• Question from Neal Finn - You discussed the tech problems with Mini options on a recent episode. NASDAQ released a notice two weeks ago saying they will no longer add new series to the existing Minis. Do you expect other exchanges to follow suit? Is this the end of Mini options?
• Question from StandingO - The options insider complies a significant amount of unusual activity on a daily basis. I find some of the more obviously illegal trades disturbing, such as the recent well-timed trades in DG ahead of the Carl Icahn announcement. What sort of technology does the SEC and CFTC use to track these trades and trace them back to their source? Or am I living in a dreamworld and do these guys typically get away with it?

Trading Tech Talk 10: The Anti-Pit Proposal

Hot Topics in Tech: Vesel Interactive - taking a look inside the black box. Industry group believes CME Group should suspend open-outcry trading if Globex crashes and reopen for after-hours session. Can we trust the SECs MIDAS touch? SEC supports plan to move more stock trading onto exchanges, away from private trading venues operated by banks and other firms.

The Lightning Round: Minis: the beginning of the end? Dark pools: the same? Flash Boys: Food for thought or hyperbolic source of disinformation?

The Inbox: Listener questions, comments, and feedback

• Question from Innovert - Lots of talk about the Options House/Trade Monster merger today. Many reasons being tossed around. Do you think Tech was a big driver? In particular the cost of developing and maintaining a cutting-edge options platform? Is the simply beyond the reach of smaller firms these days? Have we as options traders come to expect too many bells and whistles?
• Question from Derrin Jacoby - I have heard some talk about HTML5 on recent episodes. Can the hosts explain a little more about the benefits of this technology vs. earlier iterations of html? We did not see much in the way of Fin Tech web functionality with old versions of HTML. Everything sophisticated seemed locked to the proprietary client spectrum. Do you feel HTML5 has enough muscle to finally change that? Are we entering the brave new world of thin client functionality in the Fin Tech marketplace?
• Question from Big Data - Flash Boys focuses a lot of detriments of colocation at exchanges. The book interprets that this offers unfair advantage to firms willing to pay for access. Whether you agree with this conclusion or not, do you feel we are entering a period of increased regulation and potential backlash against colocation? I would imagine this is a substantial revenue source that the exchanges will not part with without a fight. And what about the large data center like Equinix? They seem to be ground zero for this debate? Do you think we will see increasing regulatory crackdown on this private data center side of the business?

Trading Tech Talk 9: Diving into the Dark Pools

Hot Topics in Tech: Exchange leaders take on dark pools. CBOE's Ed Tilly says less dark trades would benefit the market. Meanwhile, CME's Terry Duffy think regulators should look in dark pools. NYSE will pare down the number of customer orders. O'Malia says high-speed trading outpaces CFTC oversight. Goldman under investigation for high-speed trading. UBS launches new trading algo platform. Hedge funds pump liquidity into options markets.

The Inbox: Listener Questions and Comments

Question from Charles Beldon, Wichita, KA - I enjoyed your earlier program about cyber security at the exchanges. DO you feel this is a recent phenomenon resulting from the changing geopolitical climate? Or has this been the case for the past decade, and exchanges and brokerage firms are just owing up to it now?

Comment from Mr. Tor -Any chance of an exchange CTO roundtable on the show? Would be great to get the lay of the land, so to speak, from an exchange respective. Maybe brokers and prop firms as well? Thanks.

Trading Tech Talk 8: the Modern Markets Initiative

CTO Interview: Today we have Peter Nabicht, Former CTO at Allston.

He discusses:

An overview of the Modern Markets Initiative

• Research at MMI
• Some of the key takeaways/problems he found in Flash Boys
• The key tenet of the book that the markets are rigged against the little guy, and that HFT is the culprit
• His view on a minimum order lifespan and/or a charge for canceling orders, which Blair Hull advocated
• His view on dark pools, the other focus of Flash Boys

The Inbox: More Flash Boys, mini options

Question from Brendan Karl, Binghamton, NY - Great rundown of Flash Boys in your last episode guys. I'm sure you could probably fill many episodes with your problems with that book. But I'm curious what, if anything, you guys actually agreed with from the book? Thanks for putting this show on the air. Whether you agree with Flash Boys or not the book certainly shows that there needs to be more discussion on this topic. You guys are fighting the good fight.

Question from The Dark Horse - I've been hearing a lot about the failure (or potential failure) of the mini options lately. A lot of people seem to be pointing the finger at the symbology being such an implementation headache that the brokers and traders didn't want to touch them. What's your take?

Trading Tech Talk: The Great Flash Boys Debate

Hot Topics in Tech: It’s all HFT, all the time: The recent 60 Minutes interview with Michael Lewis along with his new book Flash Boys has reignited the conversation. My biggest problem with this book is that the material is so dated. It sounds like an OIC panel from 2006. Is HFT hurting the little guy? Is HFT impacting liquidity providers? Has the definition of front running changed? Charles Schwab calls HFT a "growing cancer."

The Inbox: Listener Questions

• Question from Charles Vitner - How is the process described in the new book Flash Boys by Michael Lewis not front running? If you do it five minutes or five milliseconds before the order is that not the same thing?
• Question from Anthony Neuberger - Can you please explain colocation and the benefits it offers? Why would a firm pay for this privilege?

Trading Tech Talk 6: Interview with Blair Hull

CTO Interview: Our guest on this episode is Blair Hull, Founder of Hull Trading, Founder of Ketchum Trading, and 2014 Sullivan Award recipient.

He discusses:

• The 1987 crash
• If trading technology leveled the playing field
• The impact of multiple market centers on trading tech failures
• If HFT is a detrimental force in the financial markets

Hot Topics in Tech: Exchanges are extremely concerned over cyber security. NY Attorney General Erick Schneiderman is looking at the "unfair advantages" high frequency traders have over regular investors. Futures traders embrace algorithms. European asset manager are moving to in-house electronic execution expertise. NASDAQ OMX ramps up technology sales to Asian exchanges.

The Inbox: In which the listeners dictate the conversation.

Question from Hawkeye - I want to know if HFT firms are allowed to jump to the front of the queue? If so, how is that justified? Also, if so, why should they not get in back like everybody else? Please give me the justification for this practice. On a similar vein, I know that some platforms allow you to hide the number of actual shares/contracts you have bid/offered, and instead you can show a smaller number so that you do not tip your hand. Do those remaining orders have to get in the back of the queue? Or are they also given favorable treatment? Why should they be allowed to lie? Thanks

Looking Ahead: TT is releasing a web-based HTML 5 version of XTrader.

Trading Tech Talk 5: 2014 Trading Technology 40

CTO Interview: Our guest today is Jeffrey Kutler, Editor-in-Chief of Risk Professional, the publication of the Global Association of the Risk Professionals (GARP). Jeff is the author of Institutional Investors "2014 Trading Technology 40."

He discusses:

• The criteria went into compiling the "Trading Tech 40"
• Is the race to zero over or is this just a brief hiatus?
• Did the growing impact of HFT on the marketplace factor into the Trading Tech 40?
• How did the many high-profile financial technology failures of 2013 factor into the 2014 list?
• How did the creation of a host of new SEF firms impact the list?

Notable names on the list:

• #1: ICE
• #2: CME
• #8: BATS

The Inbox: In which the listeners dictate the conversation.

• Question from Adam Boies, Ontario -Question for TTT - I would like to ask the TTT panel their opinion on the proliferation of private exchanges and marketplaces. These essentially create liquidity and access to capital for privately-held firms without the need for an IPO. What sort of tech hurdles are posed by a private marketplace vs. a traditional exchange? Will this new trend render the traditional IPO irrelevant? I enjoy your fine program and look forward to each new episode.
• Question from Alessandro Nici - From Google Glasses to Fitbit, the technology world is obsessed with wearables. Most of the focus in on the consumer tech space, but I am more interested in the potential in the financial space. Do you expect wearables to become a factor in the financial space in the near future? For example - trading via Google Glasses or perhaps managing your firms IT infrastructure at a glance from your Smartwatch? Is this perhaps an area where the retail sector might lead the institutional sector in adoption and implementation of a new technology? I for one look forward to the day when I can buy a few contracts with a simple nod of my head or the blink of an eye.
• Comment from Mr. Charles - Looks like TTT hit the nail on the head. From the Mt. Gox fiasco to other recent disasters, looks like Bitcoin is on the way out.

Trading Tech Talk 4: Cheaters Among Us?

Hot Topics in Tech: SEC launching new tech to spot insider trading. The Atlantic says high-frequency trading is "cheating." Is a transaction tax really necessary?

The Inbox:

Question from Nik Thomas, Sarasota, FL -Thank you for launching this show. It's about time someone really dove into the tech that is underlying all of the products that we love to trade. I know you touched on it briefly on the first episode, but can you devote some time to the growing plague of HFT on the derivatives market - impact on liquidity, impact on technology, impact on orders, etc.? Thanks and looking forward to the next episode.

Question from Athos04 -Would love a show on order routing tech - How does my trade get from my computer (or brokers server) to exchange - what impacts the trip?

Lightning Round:

Is Bitcion a viable alternative currency or a dangerous money-laundering fad? Laser data transfer, is it the new microwave or fiber? Paying for access to surveys, should it be illegal?