[HFT arms race] -- Putting the hammer to high-frequency traders
"The HFT strategy of placing and then cancelling orders to gain an information advantage “just created an un-level playing field,” said Greg Mills, head of RBC’s global equity division. “We sought to build a product to try to solve” the unfair advantage.
The result, Thor, is a new twist on a stock-market technology called a smart order router. In these days of multiple stock markets in every country, brokers such as RBC use smart order routers to blast out orders to all of the trading venues. Want to buy 10,000 shares of XYZ Co. at $10? The router scours the Toronto Stock Exchange, Alpha, Pure and other Canadian markets to find any shares that are on offer at that price. One common type of router, the spray router, then sends out orders for stock on offer on different markets simultaneously.
However, those orders don’t all get to markets at the same time. Some have longer distances to travel. Others travel down slower wires. As a result, the orders arrive in each market at a different time. The differences are only thousandths of a second, but the technology used by high-frequency traders is so fast that their computers can see orders hitting one market and jump ahead to adjust bids and offers on other markets, in order to buy or sell at a better price.
“As a trader, there’s a frustration around feeling like you’re being gamed,” and that led to the research that resulted in the Thor system, said Brad Katsuyama, RBC’s head of global electronic sales and trading and one of the developers.
The Thor system counteracts that gaming by staggering the orders it sends out to ensure they arrive at every market as close to simultaneously as possible. That gives the HFTs no chance to react."
theglobeandmail.com
Jim |
