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the environment Goldman created for its employees did not encourage good programming, because good programming required collaboration.
Thus the only Goldman Sachs employee arrested by the FBI in the aftermath of a financial crisis Goldman had done so much to fuel was the employee Goldman asked the FBI to arrest.
“Why are you doing this? Why are you attacking a system that has made you rich and will make you even richer if you just go along with it?”
“We are long-term greedy.
more than two-thirds of Nasdaq’s revenues derived, one way or another, from high-frequency trading firms.
Creating a new stock exchange is a bit like creating a casino: Its creator needs to ensure that the casino cannot in some way be exploitable by the patrons.
They’re obsessed with titles and other things that don’t matter.
All of the Soviet Union for seventy years were people who are skilled at working around the system.”
“electronic front-running”—seeing an investor trying to do something in one place and racing him to the next.
“rebate arbitrage”—using the new complexity to game the seizing of whatever kickbacks the exchange offered
“slow market arbitrage.” This occurred when a high-frequency trader was able to see the price of a stock change on one exchange, and pick off orders sitting on other exchanges,
Creating fairness was remarkably simple. They would not sell to any one trader or investor the right to put his computers next to the exchange, or special access to data from the exchange.
They’d allow just three order types: market, limit, and Mid-Point Peg, which meant that the investor’s order rested in between the current bid and offer of any stock.
All of them tended to send the orders first to their own dark pools before routing them out to the wider market.
If the orders couldn’t be exploited on this new exchange—if the information they contained was worthless—who would pay for the right to execute them?
But I did think market efficiency was something important for the economy.”
Then he began to hear things—that some of the HFT guys might be shady, that stock exchanges had glitches built into them that HFT could use to exploit ordinary investors.
The post showed, in fine detail, how data about investors’ orders provided to high-frequency traders by two of the public exchanges, BATS and Nasdaq, helped HFT discern investors’ trading intentions. Most investors, Arnuk and Saluzzi wrote, “have no idea that the private trade information they are entrusting to the market centers is being made public by the exchanges.
The report investors typically received from their brokers—the Transaction Cost Analysis, or TCA—was useless, so sloppily and inconsistently compiled as to be beyond analysis.
Arnuk and Saluzzi,
Broken Markets.
‘How can you get rid of a guy who makes a mistake, stops it, and fixes it?’ ”
One of his favorite books was actually called Complexity, by M. Mitchell Waldrop. His favorite paper to pass out was “How Complex Systems Fail,” an eighteen-bullet-point summary by Richard I. Cook,
For the first time in history, investors’ desire to trade had not risen with market prices.
“A Short Story on Human Error.”
“Every single morning, the system is stateless,”
The HFT guys used 100-share lots as bait on the exchanges, to tease information out of the market while taking as little risk as possible.
A bank that controlled less than 10 percent of all U.S. stock market orders was somehow able to satisfy more than half of its customers’ orders without ever leaving its own dark pool.
“It’s an entire industry that overglorifies data, because data is so easy to game, and the true data is so hard to obtain,”
It was astonishing, when you stopped to think about it, how aggressively capitalism protected its financial middleman, even when he was totally unnecessary.
It was like a broken slot machine in the casino that pays off every time. It would keep paying off until someone said something about it; but no one who played the slot machine had any interest in pointing out that it was broken.
“A guy got put in jail for taking something no one understood,”
Using a subversion repository to store code and deleting one’s bash history were common practices. The latter made a great deal of sense if you typed your passwords into command lines.
“They hate bikers,” explained one of the women adventurers mildly. “They try to see how close they can get.”
Once very smart people are paid huge sums of money to exploit the flaws in the financial system, they have the spectacularly destructive incentive to screw the system up further, or to remain silent as they watch it being screwed up by others.
“It’s just a matter of whether the patient wants to be treated.”
That’s why it was so important for high-frequency traders to move information faster than everyone else from the futures exchange in Chicago to the stock markets in New Jersey: to flee the market before others.
