Dark Pools & High-Frequency Trading: Keith Ross, PDQ CEO Interview

Masters in Business interview of Keith Ross, Chief Executive Officer of PDQ Enterprises -- pdqats.com-- dark pool operator, and former CEO of high-frequency algorithmic trading company Getco.

Interviewer is Barry Ritholtz (ritholtz.com) who wrote:

In our conversation, we discuss what High Frequency and Algorithmic trading are, the changes in Market Structure over the past 30 years, and what the proper role of the Exchanges should be. It gets a bit wonky once the conversation whether HFTs are superior to Specialists, the plusses and minuses of Fragmentation. We also head a little deeper into the weeds on issues of Co-location, Packet-sniffing, Spoofing, Quote-stuffing and Walking away. I would be remiss if I didn’t bring up front running as well.

PDQ Enterprises is based outside Chicago in Glenview, Illinois, with offices in New York City and Westport, Connecticut. PDQ Enterprises pioneers new and efficient ways to participate in today’s complex electronic markets. A dark pool and ATS (Alternative Trading System) firm specializing in unique inverse auctions for institutional trading. Previously, Ross ran Getco, one of the largest HFT forms (Getco was sold to Knight Trading last year for $1.4B). See also: Alternative Trading System (ATS) Definition | Investopedia.

Tweets by @PDQ_ATS

About PDQ:

    (Video published Dec 17, 2014)

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DISCLAIMER

Ex Machina Wall Street, Bots Have Taken Over the Markets

A world prone to "computer stampedes"--

If you're first out the door, that's not called panicking. - Margin Call (2011)

Rise of the bots - Fortune: "In short, algorithms are taking over our lives. An algorithm is simply a piece of software code that operates like a decision tree, considering multiple variables and then spitting out a decision or recommendation. (A bot is typically a collection of algorithms.) Without taking a step back, as Christopher Steiner does in Automate This: How Algorithms Came to Rule Our World, it’s hard to appreciate how fast and far algorithms have come in recent years, and what the consequences are for modern culture. Steiner, a former Forbes writer, set out three years ago to explain how trading algorithms (which, in their simplest form, make buy/sell decisions based on various data inputs) had overtaken Wall Street. By that time, wildly complex trading bots had transformed financial markets..."

High-speed trading, also known as High-frequency trading (HFT) in action:

Citadel Group, a high-frequency trading firm located in Chicago, trades more stocks each day than the New York Stock Exchange. (CNN, July 2013). Domain name: citadel.com

"While it may take weeks before regulators understand why the plunges occurred, one reason for the swing is that automated computer programs have changed how markets function… Orders are being executed at lightning speeds in huge volumes. But there is another, often overlooked implication: these machines are being programmed to link numerous market segments together into trading strategies. So when computer programs cannot buy or sell assets in one segment of the market, they will rush into another, hunting for liquidity. Since their algorithms are often similar (or created by computer scientists with the same training) this pattern tends to create a “herding” effect. If a circuit breaks in one market segment, it can ripple across the system faster than the human mind can process. This is a world prone to computer stampedes." - FT.com, Aug 27, 2015 (emphasis added)

"... if you think it was human beings executing sales of Starbucks (SBUX) down 22% on Monday’s open [24 Aug 2015], you’re dreaming. And if you believe that it was thinking, sentient people blowing out of Vanguard’s Dividend Appreciation ETF (VIG) at a one-day loss of 26% at 9:30 am..." - Josh Brown

Just remember:

"... despite its obvious attributes “Black Box” trading [is] very tricky. The algorithms may work for a while [even a very long while] and then, inexplicably, they’ll just completely “BLOW-UP”... The real challenge ... [is] to “sniff out” the degrading model prior to its inevitable “BLOW-UP” .... “because, you know, eventually they ALL blow-up“… as most did in August 2007..." - Black Box Trading: Why They All “Blow-Up” | GlobalSlant

XKCD

Caveat Emptor!

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DISCLAIMER

Brad Katsuyama, IEX Trading, Disrupting Stock Markets, HFT (videos)

Wall Street Week | Episode 13 | Brad Katsuyama, Steven Einhorn - This July 19th episode of Wall Street Week features Brad Katsuyama, co-founder and CEO of IEX Trading and subject of Michael Lewis' best-selling book "Flash Boys," and Steven Einhorn, Vice Chairman of Omega Advisors. Topics include high-frequency trading (HFT), market structure, and economic and investment outlook. Einhorn believes this bull market has at least 2 more years to run. According to Einhorn, historically, equity (stock) markets continue to increase for 30 months following the first interest rate increase by the Fed (some believe the Fed will begin increasing rates later this year) and Einhorn says this economic expansion could continue for several more years based on factors he follows. See also the IEX video below.

Domain names of companies referenced:

• iextrading.com
• omega-advisors.com
• wallstreetweek.com

Topics: HFT, high-frequency trading, algorithmic trading, markets, spoofing, economy, investing, cycles of rules(regs)-loopholes-scandals, transparency of information, complexity favors insiders, arbitrage, dark pools, the public interest


IEX Intro

See also: Flash Boys: Changing Wall Street from Ellevate on Vimeo -  fireside chat with with Sallie Krawcheck and Brad Katsuyama features discussions about IEX, electronic trading, changing Wall Street, and making a difference while still making money.


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