Hacker News Reader

Comment by willis936 | Hacker News Reader

What would that look like? If you rate limit stock exchanges to something like 1 update per minute then there will likely be the same amount of networking and computation going on to speculate on the next update and calculate optimal plays. It just moves it to behind closed doors where it is harder to know if shenanigans are going on.

It would take a heavier hand to push against this problem. I'm all for it, I'm just not clever enough or knowledgeable enough to know what would be a good regulation that would fly in congress.

View on HN

A few congress people put forth a bill that would add a 0.1% tax on trades. This would be a rounding error for most traders, but a significant value for HFT.

https://www.brookings.edu/opinions/congress-wants-to-tax-sto...

I wonder what happened to it.

Raising the financial transaction tax to 0.1%, 1$ per $1000 would eliminate the vast majority of unproductive and rent seeking HFT without negatively effecting liquidity. The US already has an FTT to fund the SEC, implementation should be straightforward. Currently the rate is very low, about 0.002%. Raising the rate would be minimally impactful for longer term investors and generate on the order of $50b a year for the government.

Hong Kong has an FTT of 0.13% currently, it was 0.1% from 1993-2021 so you can compare HFT impacts on these markets. Or compare dozens of other countries with similar rates, Switzerland, Taiwan, France, Italy, Japan.

do you have a link, love to learn how it worked out in other places

https://www.bnymellon.com/content/dam/bnymellon/documents/pd... has a good review of several countries laws

What's rent-seeking HFT?

I'm not that person, but presumably it's that someone has purchased real estate in a geographically relevant location and constructed property on it/between it and the exchange which gives them an insurmountable latency advantage in HFT, and they are characterising the raking in of cash from that latency advantage as rent seeking.

Rent-seeking is an "economic activity to gain wealth without any reciprocal contribution of productivity". Or put another way it means societies resources are put towards wealth transfer instead of productivity/wealth creation.

Thank you; understood. I've just looked at the Wikipedia definition[0] as well, which is a little different, but I get the point you're making.

I haven't thought about this enough, but one thing I'd note is that HFT is risk-taking, and taking a risk generally has the possibility of profit or loss.

A second thing would be that the phrase "society's resources" is a bit dangerous, as it might let us think that the money they're using is somehow everyone's money. When in fact they're spending their money on this, hoping to make a profit.

[0] https://en.wikipedia.org/wiki/Rent-seeking

"Excess rent" is economics jargon for something akin to "selling something for more than its fair value". The idea with "rent-seeking" is therefore that of seeking opportunities to take advantage of or even create market distortions that work in your favor, allowing you to capture a greater share of surplus value than you would otherwise obtain in a theoretically-fair market.

How do HFT firms create market distortions that work in their favour?

I'm not making the assertion, I am just trying to clarify the terminology.

>A second thing would be that the phrase "society's resources" is a bit dangerous, as it might let us think that the money they're using is somehow everyone's money. When in fact they're spending their money on this, hoping to make a profit.

From the perspective of the whole economy it is everyone's money. Rent seeking behavior is a dead weight loss due to market inefficiency. Through tax policy the incentives can change and largely remove this inefficiency.

Is the $50b/year figure estimated after assuming the 'unproductive and rent seeking' HFT volume is eliminated?

Yes, that estimate is with the greatly reduced HFT volume. And it may not be 100% accurate, HFT and trading in general could move to another market without these taxes and/or switch to a type of derivative with a lower/no tax. Like the UK, for swaps. But these other markets are smaller and not really a replacement. And these other markets may pass similar taxes in the future.

If you buy a stock, you must keep (hold) it for eg. 30 days (or 7, or 60, or whatever).

Compute all you want, whenever you want, but instead of millisecond timings, optimize stuff for at least some time.

Maybe even a tax on stock profits, which is really high and falls after some time of ownership of such stock (we have this in slovenia, but it's not really high in the first place, and time brackets go less than 5 years (25%), 5-10 years (15%), 10-15 years (10%) , 15-20 years (5%), and zero tax after that.

There already is a penalty for not holding and a tax on wash trading (selling and rebuying within 30 days.)

Then it probably wouldn't be hard to have increasing penalties for shorter durations, very especially sub-minute durations.

Even if you said you have to hold it for 3 hours that would cut against the worst of the HFTs

Adding this sort of friction would increase spreads. Market makers are a net positive for markets (who buys/sells when no one else wants to?), and I don't see any downside to allowing them to manage risk and trade quickly. I think the way to increase fairness is to change the way orders are matched.

Another way would be to allow higher price granularity to allow more competition on price rather than speed.

> What would that look like?

One attempt is the exchange IEX [0] which introduced a ~350 microsecond delay to everything simply by running incoming order data through a ~60km loop of fiber-optic cable.

Perhaps not the most, er, featureful solution, but it's very easy to audit and argue that there are no biases or backdoors.

[0] https://en.wikipedia.org/wiki/IEX

If everybody is exactly 350us slower, then it’s still the same game.

Iex also offers a variety of (dark) order types that can pull back without the 350us delay if iex believes the incoming flow will be toxic

> If everybody is exactly 350us slower, then it’s still the same game.

IANATrader, but I don't think that's entirely true. Yes, it won't stop Carol from getting information from somewhere and then running in front of Alice to the same exchange. [0]

However even fixed-delays [1] can still create uncertainty about what price your order may actually execute at when it hits the server, which is something HFTs rely on more heavily than other traders, since their strategy depends on high-certainty that they will have a small positive margin on every trade.

[0] I find it geeky-amusing to write (i.e. IEX) or (ex: IEX) because it feels like the start of a mental tounge-twister.

[1] Can't edit my original post anymore, but apparently there's another 350μs on the outbound path too.

> However even fixed-delays [1] can still create uncertainty about what price your order may actually execute at when it hits the server, which is something HFTs rely on more heavily than other traders, since their strategy depends on high-certainty that they will have a small positive margin on every trade

This is also true on every single other exchange, albeit to a smaller degree. You have a larger queue of possible things that may have happened, but this issue exists everywhere. No exchange has instant entry.

On a very short timescale things are very jumpy - nothing happens for a while, and then everything happens all at once. The queuing problem tends to be more of “did another hft beat me to the same event”, not general random other events, so queues like IEXs tend to be emptyish anyways.

What about a flat "Tobin tax" charged on each transaction so that it becomes very expensive to do lots of small trades quickly and encourages doing bigger trades at lower frequency?

https://en.m.wikipedia.org/wiki/Tobin_tax

The best solution I've seen is to do batch auctions every millisecond or so, and randomize matches within that window (for market orders or limit orders at the same price). You could use a longer window to include slower players in the market.

Limit trades to once per hour, then, and require a human to enter them.

Small cost per trade (tax/fee)

Minimum time between buying and selling the same ticker

Mandatory network 'speed bump' of a few ms between the exchange and any trading parties

Reply on news.ycombinator.com