Tuesday, July 30, 2019

Speed bumps for high frequency trading

From the WSJ:

More Exchanges Add ‘Speed Bumps,’ Defying High-Frequency Traders
Over a dozen financial markets plan mechanisms that impose a split-second delay before executing trades  by By Alexander Osipovich.

"By 2020, more than a dozen markets in stocks, futures and currencies from Toronto to New York to Moscow will slow down trading via speed bumps or similar features, if all the current planned launches are carried out. Five years ago, only a few markets had speed bumps.
...
"Among the exchanges set to debut their first speed bumps are the London Metal Exchange, which plans to add an eight-millisecond delay to gold and silver futures later this year. Chicago-based Cboe Global Markets hopes to add a speed bump on its EDGA stock exchange in 2020, if it wins regulatory approval.

"LME, Cboe and other markets adopting speed bumps say they want to neutralize “latency arbitrage,” a strategy in which a fast trader takes advantage of a moving price before other players can react.
...
"Cboe’s proposal would force the HFT firm to wait four milliseconds before buying the Ford shares. But the same delay wouldn’t apply if the investor sent Cboe an electronic message canceling his or her $10.00 sell order. That gives the investor a brief window of time to avoid being picked off by the faster trade.

"Most of the latest speed-bump plans have a similar, “asymmetrical” design, meaning they don’t apply equally to all trades. Such speed bumps are typically meant to favor players who publicly quote prices on an exchange, rather than those who attempt to buy or sell using those prices."


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