I heard somewhere a strategy whereby a big trading outfit would place there offices, and thus their servers/computers in NY as opposed to elsewhere in the US or the globe, for the purposes of getting that last nanosecond of time that would have been used to transmit bits over more miles, or more satellite hops, or more repeater hops, or fiber over copper.
Might a delay (ie, 5 secs) merely shift the problem by 5 seconds, but not fix it?
Sounds like a good problem for an operations research project, queuing theory, or something of that nature.
Perhaps the trading requests can be realtime, but the price knowledge be delayed 5 seconds. Then, the computers-as-instantaneous-traders would not have the advantage they now have. But, even that, they would still have enormous advantage over human traders.
There’s a very important difference between “delay” and “validity”. They put up these bogus bids and asks with no intention whatsoever of having the “order” filled, but to fake each other out regarding their intention, to move the market. Requiring those bogus bids and asks to become real, something that would actually result in a trade (that they don’t really want), would break the crooked back of HFT.
Ah here we go
Firms have made the news and been sanctioned by FINRA for spoofing. They spoof by placing small limit orders at prices that improve the national best bid and offer (NBBO) for a security, allowing the trader to take advantage of the improved prices by executing larger orders at another firm with execution guarantees at the NBBO. Once the larger order is executed at the artificially inflated price, the trader cancels the initial limit orders.
In one example, spoofing artificially impacted the price of a NASDAQ Stock Market security. The trader attempted to conceal his improper trading activity through the use of one of his 11 undisclosed outside brokerage accounts; he was fined $175,000 and is required to pay restitution of $171,740 for engaging in manipulative trading activity.
http://www.niceactimize.com/blog/index.php/2013/05/market-manipulation-high-frequency-trading/
Multiply that by infinity, and you have today’s “market”.
Not just “in NY”, they have dark fiber feeds directly into the trading systems; i.e., no hops.