A new bill was just introduced by Representative Loudermilk (R-GA), which would amend the Securities and Exchange Act of 1934 to reduce or eliminate regulation overreach into business models of exchanges that do not involve either reporting or effecting a transaction on the exchange. This may have been prompted by the flurry of lawsuits following the publication of Michael Lewis’ Flash Boys. One such lawsuit was thrown out when the judge claimed the exchanges had immunity under quasi-government powers.
Since the filing of the combined lawsuits, the Securities and Exchange Committee (SEC) commented by saying that they had no authority to adjudicate the lawsuit, and that “immunity only applied when stock exchanges acted as a regulator, and not as an operator of a market”. This means that the SEC is stating that exchanges are NOT entitled to absolute immunity arising from commercial activities such as enriched data feeds or selling collocation. This could be weighing on the minds of the executives of the exchanges, prompting the proposal of HR3555. The bill must pass the House and Senate before becoming law and will most likely be reviewed by committee before it’s sent to the House. If passed, Loudermilk’s bill appears to give protection from investor lawsuits stemming from unfair advantages granted to HFT firms. The implied intent is to skirt the SEC’s role of protecting investors by finding a way around them in Congress. Just by adding one paragraph to the original Securities Exchange Act of 1934, the SEC could be prevented from acting as a regulator of stock exchanges for any issue surrounding the selling of speed. Potential Conflict? If HR3555 removes the non-execution portions of their business from regulation, wouldn’t that also remove those from their immunity? That would take it out from under SEC regulation, but it seems that it would also take it out from under the immunity umbrella afforded to “quasi-government” stock exchange activities. If they carve out those activities from those regulated under the SEC Act of 1934, how could they then claim immunity for the removed activities? They would have it both ways – not included under the Exchange umbrella for regulatory purposes, but included when courts look at immunity granted to Exchanges. We will be watching the progress on HR3555 as it moves through the legislative process. Great Point Capital has been serving the trading community since 2001, with 100+ prop traders actively trading the firm’s capital. Headquartered in Chicago with offices in Austin, TX, we specialize in equities and equity options. Contact us today to learn how we can successfully trade together with high performance results. We are one of the few firms able to offer access to Takion Software Platform, enhancing your online equity trading experience.
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Representative Loudermilk (R-GA) just introduced a new bill which would amend the Securities and Exchange Act of 1934 to eliminate or reduce regulation overreach into business practices of exchanges that do not involve either effecting or reporting a transaction on the exchange. As Representative Loudermilk put it in the following statement when introducing the bill, “Regulatory agencies have a tendency to expand their reach into areas they should not be regulating and engage in mission creep, which can stifle innovation”.
If the innovation referred to is the exchanges seizing the opportunity to create new revenue flows by selling speed, rather than effecting and recording transactions, then perhaps we need regulation overreach. The current unprecedented structure of exchanges and dark pools is drastically different than a decade ago. It seems that HR3555 would put safeguards in place to prevent agency over-regulation, or in other words would allow regulators to turn a blind eye to the new market structure by not addressing these issues. This is an issue that Day Traders everywhere have been dealing with for at least the last decade. HR3555, titled The Exchange Regulatory Improvement Act, aims to further define the term “facility” regarding regulatory purposes of an exchange, adding that the term does not refer to business activities with a purpose that is not intended to either report or effect a transaction on the exchange. What this means in simple terms is that this bill attempts to provide an exempt status, or altogether immunity, for an exchange’s business activities outside the core functions of effecting and reporting trades. Exchange Activities Receiving Immunity We need to understand the activities in question To understand the effect that passing HR3555 would have. Exchanges today make money in ways other than facilitating trades. The most recognized activities include colocation of servers, enhanced proprietary data feeds, and complex order types all designed to give an unfair advantage to high frequency traders (HFT). HFT firms currently make up at least 50% of all trading activity in US Markets. For more information on how stock exchanges earn revenue with business activities other than recording or effecting trades, check out this post on How Rising Costs of Stock Exchange Data Fees Affect Online Equity Trading. Great Point Capital has been serving the trading community since 2001, with 100+ prop traders actively trading the firm’s capital. Headquartered in Chicago with offices in Austin, TX, we specialize in equities and equity options. Contact us today to learn how we can successfully trade together with high performance results. We are one of the few firms able to offer access to Takion Software Platform, enhancing your online equity trading experience. Third party firms that are paying for orders under a Payment for Order Flow (POF) agreement do not enter into those arrangements to lose money, they are making money as well as the broker they are paying. Reg NMS says that your broker needs to provide you with the best execution available at the time. So how can two firms, your broker and the third-party firm paying for POF, manage to profit from your order, while still giving you to best possible price?
Maker Taker One instance where two firms can profit from your order is when they are getting paid for the liquidity you provide. If your order is not marketable immediately, they send it to the venue that will pay the most for adding liquidity. For example, providing liquidity on ARCA for a 1000-share order results in a rebate of about $3.00 that goes to the POF firm who paid your broker for the order. HFT The other instance is that the POF firm used your order as part of a profitable trading strategy. For instance, in heavily traded stocks, a good amount of trading is done at the midpoint of the NBBO (National Best Bid and Offer). If the market is 30.24x30.25, and you send your order to buy 1000 shares at 30.25, the POF firm sells you the stock at 30.25 (usually 30.24999, which allows them to jump in front of everyone at 30.25), then they sweep through the dark pools and midpoints on exchanges and buy the stock at 30.245. This nets a profit of about .005/share, or $5.00, on your order. The POF firm may also be aware that the market is just about ready to turn and go to 30.23x30.24. They know this through their sophisticated predictive algorithms based on trades and changes in quote sizes, combined with the direct market feeds that are faster than the feeds creating the NBBO. The faster direct feeds might show the market is already at 30.23x30.24, but the NBBO won’t show that for few milliseconds. This makes it easier – they can give you the “best execution” available on the current official source, the NBBO, at 30.25, then turn around and immediately buy the stock back at 30.24, which became the true offer in the market. It is vitally important for traders to have control of their orders. The amounts made from these orders is negligible for the retail customer that is only trading a couple times per month, but to the HFT firm doing this across thousands of accounts every day it adds up to millions of dollars. Contact Great Point Capital today to take control of your orders and seize additional profits per trade. We have the knowledge of the market, the experience and resources to assist you in routing your orders so that it is most profitable to you. If you need a broker with capital, and access to orders including those in dark pools, contact us today to see how we can work together to realize your true trading potential. Learn more about Great Point Capital today. Our 100+ prop traders actively trade the firm’s capital, increasing their leverage and returns. We are one of the select few firms able to offer access to Takion Software Platform, enhancing your trading performance. To take control of your orders and to capture additional profits, contact Great Point Capital today. Great Point Capital has discussed Payment for Order Flow (POF) and how High Frequency Trading (HFT) firms profit on your trades. We’ve shared how Maker-Taker affects the way that market participants execute trades. Now we would like to show you what you can do to improve your trading returns within this complex and often predatory environment.
Order Routing Options Limited with Traditional Broker If you are currently trading through a traditional retail broker, you probably have a limited number of ways for routing your order, if any. Routing your order is typically limited to a “smart” route, or perhaps a preference for NSDQ or ARCA. Some of the more advanced firms might let you choose IEX. These limited choices will not help much, as you do not see the pricing difference between the selections, and you cannot change them easily if something changes in the market. Traders use “smart” routes, which are simply computerized algorithms that aid traders in buying or selling stock, with the main goal of making the search for liquidity easier. Smart routes are not a trading system, but are instead a set of instructions that are based on certain conditions set by the trader, and are customized by the trader or pre-set by the broker or software. Thus, they are limited by the broker, or the software. In addition to limitation on orders, a trader’s ability to post bids and offers through ECNs is also limited to which venues your broker has subscriptions to use. Most retail brokers have agreements in place with third party firms where they get paid for sending orders to them for execution. This is the obviously the “smart” route if it is one of your choices. In the past, brokers had networks of people who would work together to execute your order. Your commission paid for that network and the cost to execute your order. Today, executing your order is no longer an expense for your broker, but has become a profit center. Who Profits on Your Order? The third-party firms that are paying for orders under a Payment for Order Flow arrangement obviously aren’t losing money on the transactions either, they are making money as well as the broker. Reg NMS states that your broker has to to provide you with the best execution available at the time. So how is it that two firms manage to profit from your order, while still giving you to best possible price? To take control of your orders and recognize additional profits per trade, contact Great Point Capital today. We have the experience, and the resources to help you route your orders so that it is most beneficial to you. Great Point Capital has been serving the trading community for almost two decades. Our 100+ prop traders actively trade the firm’s capital, specializing in equities and equity options. We are one of the very few firms able to offer access to Takion Software Platform, enhancing your trading performance. For control of your orders and to capture additional profits, contact Great Point Capital today. US Market History
Many events have occurred in modern history that have created what many feel is a need for a Trade-At Rule. Common practices such as Payment for Order Flow (POF) are causing Exchanges, Regulators and Traders to analyze the current structure of the market and to consider implementing a Trade-At Rule. Payment for Order Flow is the agreement that exists when a third-party pays a broker to send their orders to them, rather than to the open market. This is a cunning strategy we are all well aware of, but yet there seems to be quiet acceptance. This type of payment incentive developed over time with the introduction of Alternative Trading Systems (ATS) and rapid improvements in computerized algorithmic trading. This type of payment structure leaves traders fighting for market share. Change in Markets due to Advancements in Technology The combination of ATSs and other off exchange venues along with computerized algorithmic software have had a huge impact on US Markets and how securities are traded today. Daytraders today dream of a level playing field and efficiency in the market. The Stock Exchange of today is not occupied by clamorous traders shouting on the floor while waving papers in the air. This market today is an age of computer algorithms scanning all available exchanges to buy and sell desired shares in fractions of a second. Many of the trades occurring are on an off-exchange venue such as an ATS, an ECN (Electronic Communication Network), or a Dark Pool, where they can act like an exchange but adhere to their own rule set. These off-exchange venues often offer price improvement, fast execution, and decreased trading costs for investors, making them a desirable way to go. This is where a conflict of interest could develops to the firms processing these orders. Brokers can either route their orders to an off-exchange venue offering the best price with the least costs, or they can send their orders to the venue that pays them the best rebates. The introduction of various ECN’s, ATS and Dark Pools has contributed to the development of a fragmented market that now consists of thirteen US Stock Exchanges, over forty dark pools and several ECN’s to choose from. With so many choices, it is no wonder that people are talking about liquidity, paying for it, and wondering how to keep it flowing within regulations, and in an ethical manner. While traders are fighting for market share, and wondering where to find liquidity in the market, most traders are also wondering if it’s time for new regulations, or are they long overdue? Headquartered in Chicago, Great Point Capital, LLC, is a member of FINRA and has been serving the trading community since 2001. Our mission is to be the leader in the equity day trading community by giving the best traders the tools and support to make the most of their trading careers. Contact Great Point Capital, LLC today, in either our Chicago Office, or our Austin Office, to learn more about how we can successfully trade together with high performance results. Before the Securities and Exchange Commission, (SEC), approval earlier in 2016, IEX founders Brad Katsuyama and Ronan Ryan faced some strong opposition from several incumbent exchanges that started a campaign against awarding approval to make IEX the thirteenth stock exchange in the United States. Both the NYSE and NASDAQ wrote detailed letters to the SEC, asking for them to not approve the license for IEX, claiming that it is against regulations and questioning the circumstances for the time delay.
The unique “speed bump” created by installing a 38-mile fiber optic data cable while disallowing HFT’s from installing cables adjacent to their server, creates a level playing field for all. Other trading venues allow HFTs to front run orders by using predatory algorithms while connected to their servers to gain a speed advantage in the marketplace. Even a fraction of a second is all it takes for a trader to lose their shares on order to a front-running HFT. While the concept of fair trading is an easy one to agree with, firms that are making millions in profits unbeknownst to the investor may not be so thrilled about fair and equitable. IEX is Gaining Respect and Growing in Size In June of 2016 the SEC agreed with IEX and granted approval in spite of the opposition. IEX has swiftly gained the attention and the approval of some of the biggest players on Wall Street. When considering the billions of dollars that flow through all US Stock Exchanges on any given day, it seems very unfair that only a select few are in an advantageous position to skim thousands in profits from the trades originated elsewhere, just because they have installed the finest and best cables. As traders, investors, regulators and the general public gain awareness, IEX gains respect. Enjoying an unprecedented growth rate for a new start up stock exchange, IEX is breaking new ground and with great relief to day traders everywhere. Great Point Capital, LLC offers buying power, access to Takion software platform with excellent IT support, and the benefits of working with an experienced team. We are pleased to currently trade approximately 10% of our volume on IEX, the Investors Exchange. If you are an experienced trader deciding to tackle the market from a home office, there are many technical considerations to successfully trade from home. While the basic required setup is simple; a reliable internet connection, a computer, and the software platform of your choice. If you decide to work from home, the investment into your IT Equipment will be your responsibility, although when trading with a reputable trading firm you will likely have access to their algorithmic software. Your computer purchase must be kept separate from personal use, do not allow family members or children to use for entertainment purposes. A computer that is used often for streaming or downloading music can get bogged down with malware and pop-ups. This could pose a huge risk for any client’s sensitive data, or you could risk missing an important trade if your computer slows you down. Hardware Requirements Most new laptops today come with a multi-core 64-bit processor, but you had better check the specifications to be sure. A 64-bit processor is faster and more efficient than a 32-bit processor, but just as important – a 64-bit computer can run software that is made for either 32 or 64 bit, but a 32-bit processor can only run 32-bit software. This is an important distinction when evaluating your computer specifications. Many of the algorithmic trading software platforms now utilize the 64-bit technology, so be sure to check your software manufacturer’s requirements in hardware. Adequate RAM is a necessity, as this Random Access Memory allows your computer to work more efficiently, thus quicker. RAM is not costly to purchase, therefore upgrading to either 8GB or 16GB is not too expensive. With the more powerful software programs out there today, you’ll need adequate RAM to keep up. Once you obtain the hardware you need, do not forget about a proper backup system. Online backup storage is available in several forms, usually from your antivirus software provider. Having an antivirus program is a given! It almost goes without saying, but of course anti-virus and malware protection is of the utmost importance! You’ll want a secure internet connection as well, with a password protected modem. Obviously reliable high-speed internet is mandatory, and is much more readily available in most areas than even a few years ago. Even with a reliable connection, however, you could risk an outage in any residential area. This is where the backup of a trader’s office could come in handy. Having multiple monitors would be a personal preference, many day traders to have more than one screen. The advantage of multiple screens is the ability to view real time monitoring of several markets at once. A good video graphics card is necessary to maintain multiple monitors, and even for good visuals on a single monitor. Once you have your home office setup with the proper equipment, it’s time to get busy, stay focused, and stay connected! Don’t let the distractions of a home office get in your way. Great Point Capital Has Much to Offer to the Experienced Home Day Trader Great Point Capital, LLC, with offices in both Chicago, IL and Austin, TX, provides benefits to both the in house office trader, and the experienced home day trader. You’ll have access to our Takion Software Platform, and connection to our own proprietary Instant Messaging software, where you can collaborate with some of the most experienced traders in the industry. Great Point Capital, LLC, offers all of the same benefits to our remotely located traders as we do for those working in-house. You’ll be trading with bigger buying power, enjoying aggressive payout structures, and join a team of the best traders in the business. With our two national locations, we are positioned to trade with you on site from either one of our modern offices or remotely from any location. Contact Great Point Capital, LLC today, in either our Chicago Office, or our Austin Office, to learn more about how we can successfully trade together with high performance results. IEX, The New Stock Exchange
IEX was given the final approving nod by the Securities and Exchange Commission, (SEC) earlier in 2016 to become the most recent and thirteenth stock exchange of the United States, and is the first of stock exchanges to offer transparency for high frequency traders (HFT’s) and day traders alike. Day traders have typically been at the mercy of high frequency traders, whose trading volume comprises approximately 50% of all of the market trades combined. IEX does away with the practice front-running orders by HFT’s, a common practice for many high frequency trading firms. Front-running refers to the practice of HFT firms installing direct data cables to exchanges, allowing them to see other purchasers’ orders seconds prior to the Securities Information Processor, (SIP), completing the trade. This has been a big frustration for day traders trying to place buy and sell orders, when they find that the current available shares are immediately unavailable within seconds of placing the order. Motivation for a Change In the New York Times bestseller, “Flash Boys”, author Michael Lewis raised awareness to the predatory practices of some HFT’s by exposing these and other questionable trading practices. Traders have been frustrated from competing with HFTs in an unbalanced, and marginalized environment. IEX founders, Brad Katsuyama and Ronan Ryan decided to do something about it. The main goal of IEX is to protect all investors. Founders Brad and Ronan uphold their ethical values by enforcing the regulations of NBBO, to offer the best available price when buying and selling securities. Brad and Ronan found a way to counteract the attack brought on many predatory algorithms; install a 38- mile cable, and do not allow HFT’s to co-locate equipment adjacent to their servers. While this seems like a simple solution, IEX is the first to unveil this groundbreaking technology which establishes a fair and equitable trading environment. In an interview by Trading Venues from November of 2016, Ronan Ryan states that “we have always said that we are not anti-HFT but we are against the creation of advantages for some to the detriment of others.” Brad Katsuyama states In the same interview that “For us it’s about educating the end investor and rallying them together in a fair and totally transparent way that is aligned with their interests, so that they want to trade on IEX”. The Investors Exchange and their novel approach to trading is changing the way that traders buy and sell, while alleviating a lot of headaches. Great Point Capital, LLC offers buying power, access to Takion software platform with excellent IT support, and the benefits of working with an experienced team. We are pleased to currently trade approximately 10% of our volume on IEX, the Investors Exchange. Many Day Traders choose to work from their own home, rather than in the office of a trading firm, after reviewing the pros and cons. This may be possible once a trader has had enough experience, with a positive proven track record. Some family circumstances might be dictating the choice, but whatever the reason, there are advantages and benefits to both arrangements. If you know what they are up front, you can prepare and set yourself up for success. The greatest advantage of working from home is flexibility. Flexibility to be available to care for family, sick loved ones, or maybe you are pursuing your own dreams in between some down time. Just recognize flexibility for what it is, the availability to be there for family when you need to, but it is also an opportunity to slip into comfortable habits that could cause you to miss out on important market activity. Flexibility must be managed so that distractions do not cut into your working time. Working from home requires discipline, and especially in the field of Day Trading. Home traders must be paying attention and ready to go when the market gets into the swing of first morning trades. The market moves pretty fast, some days more than others, and you are likely to miss something important if you walk away at an inopportune time. This is where being surrounded by colleagues watching the market with you is beneficial. When in the office and surrounded by experienced traders, you get multiple views of the market which allows you to share opinions with other traders, collaborate and gain confidence in your trades. What all of this boils down to is that the home Day Trader must possess certain personal characteristics of a strong work ethic and self-motivation in order to trade from home with high performance results. Focus on your task at hand is imperative for successful trading, multi-tasking personal tasks while trading is not recommended. For the experienced Day Trader, working from home is achievable when self-motivation and discipline are applied to a focused, proven strategy. Success is much more achievable with the backing of a reputable trading firm, such as Great Point Capital. Great Point Capital, LLC, offers all of the same benefits to our remotely located traders as we do for those working in-house. You’ll be trading with bigger buying power, enjoying aggressive payout structures, and join a team of the best traders in the business. With our two national locations, we are positioned to trade with you on site from either one of our modern offices or remotely from any location. Contact Great Point Capital, LLC today, in either our Chicago Office, or our Austin Office, to learn more about how we can successfully trade together with high performance results. The Securities and Exchange Commission gave the approval earlier this year, in June, 2016, for IEX to be approved as the thirteenth stock exchange in the United States. IEX began trading as an (ATS), an Alternative Trading System in October, 2013, and employs the same time delay technology as an exchange, that it practiced as a dark pool. IEX offers a transparent market environment to Day Traders, who have historically been at the mercy of HFT’s front-running their orders.
Several HFT firms operating with surreptitious algorithms have the advantage of seeing orders from other traders seconds or even micro-seconds prior to the SIP (Securities Information Processor) being able to process them. They accomplish this by installing and utilizing high-speed fiber optic cables directly linked to certain stock exchanges. This gives those HFT’s the ability to snatch up other buyers’ orders just in time to re-sell to the original buyer at even a very slightly higher price, thus altering the NBBO (National Best Bid and Offer). The founders of IEX, The Investors Exchange, Brad Katsuyama, and Ronan Ryan, developed a system to counteract this all to common practice by installing a 38-mile fiber optic cable for processing their orders. This creates a 350-microsecond delay in the arrival and departure of orders, which may seem miniscule, it is just enough time to allow traders to complete their orders without fear of a predatory algorithm from an HFT blocking the confirmation. They also do not allow trading firms to co-locate equipment adjacent to their servers, creating a level playing field for all. This “speed bump” gives day traders, and even other HFT’s , the peace of mind in knowing they are not falling prey to the exploitive software that is all to prevalent in other exchanges. Most day traders agree, they can breathe a little easier making trades on IEX. Great Point Capital, LLC offers buying power, access to Takion software platform with excellent IT support, and the benefits of working with an experienced team. We are pleased to currently trade approximately 10% of our volume on IEX, the Investors Exchange. |
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