Tuesday, 15 July 2014

Mellanox UDP latency = 1.1 microsecond

Mellanox's VMA release notes for VMA version 6.6.4 have updated Netperf UDP RR benchmarks. The table below is  for one of their Ethernet cards.  1.1 microsecond is a good result for a well priced and well supported card with a comprehensive feature set.

Not quite Dolphin PCIe territory where they claim 0.74 microseconds but Dolphin's socket implementation on top of PCIe (not Ethernet), if you chose to use it, would make the solution a little worse than Mellanox according to their Dolphin's supersocket reporting (1.26 microseconds).

Has anyone some public SolarFlare or Chelsio numbers? I'd love to compare.

Happy trading,

--Matt.




Monday, 14 July 2014

Zomojo / Exablaze developments - firing staff

Some interesting, to me at least, news about Zomojo / Exablaze the last couple of weeks.

I hear a bunch of staff have just been fired and are interviewing around town. In fact, I've been told by more than two sources now that Phil Manuel, the SA, is the only full time staff member left at Zomojo with some of the older crew working two days a week with the rest terminated. One of the guys I hired back in 2009 has a one month old baby and a two year old and is now looking for work. Harsh. He is a good guy. Zomojo is evil but there are some good, perhaps deceived, people involved I have considerable sympathy for. Good-luck to them and their families.

I guess it is not surprising to hear how Exablaze are now having yield problems with manufacture as quality problems might be more commonplace with a device you didn't conceive of that requires modifications (the management board was end of lifed, for example). Quality control, tsk, tsk. I can't imagine you'd be feeling comfortable if you were an Exablaze customer.

The two day a week part-time slavery for some staff is interesting. I wonder if it so they can avoid the long service leave entitlements most of them are due? Perhaps it is just a hook to entrap them and keep them from plying their craft elsewhere?

I understand Zomojo capitulated / settled with a trading firm they were suing last year in the first half of 2013. As far as I can tell from the court files, that firm, a completely innocent party, still hasn't been paid their due costs of some hundreds of thousands of dollars for their loss as agreed. That has been drifting out for over a year now. There is another court question this Thursday regarding paying for an IT firm Zomojo had work done last year as part of their legal case against me and that firm has not been paid for over a year now for work done. PPB Advisory should have been aware that if they were going to lie with dogs they may get fleas.

Makes you wonder if Zomojo is solvent?

Then, just now, this article turns up in Korea: FUTURES AND ZOMOJO?! (A better English translation is now below at [2]) I think they may have the wrong broker but the gist of the story may be true enough. The broker mentioned is a solid broker and it would be a shame if they are suffering from an unwarranted Zomojo contagion.

Zomojo lie in court. Zomojo mislead their customers. Greg Robinson was terminated by ITG. Robinson's Bellwether Share Fund investment and directorship didn't turn out too well. Now he has driven Zomojo off the side of the road. He is indeed a man with a black thumb for the corporate garden. If you hear his footsteps behind, you may be justified in quickening your pace.

I do feel a bit sorry for Robinson as one day his family will wake up and realise he is just a pseudo-intellectual fraud.  He is good to have a beer with, pleasant to talk to, have a round of golf with, but deeply flawed nonetheless. A person of no substance. Taking my wife's super from a decades of teaching. Vilifying my father unjustly after went to great lengths to assist them. Robinson is trying to bankrupt the good citizen in his twilight years. Causing my family enough hardship and stress to put one of my daughters in hospital. Nasty. I guess I'm a little biased, so make up your own mind. Caveat emptor.

The second director, Dean Boyle, was just a lap dog sniffing Robinson's butt. However, it is Ian Heddle who is the true despot in that place.  It is not really worth any energy or thought wasted as whereas Robinson is more akin to a knife carrying sneaky fart, Heddle is just a plain sh.... Obvious on sight.

I still hear ex-Zomojo people refer to Heddle as Bubble. I thought the nickname was just because of his bulbous head which is out of proportion with his already large frame. Being above the fray (can't you tell) I never questioned the origin of the nickname. After about a year, I found out they called him that because he was like the boy in the bubble (with apologies to David a heroic lad). Heddle came in to work, never did anything, never interacted and left before anyone else. He lived in his own little bubble. He'd vilify staff and not talk to people for weeks on end, including myself. This is why I left. It was a soundly unpleasant place to work and it got to the point where you just didn't want to turn up to work. Leaving was both the hardest and the easiest decision.

I think the funniest story I've heard about that horrid time is the game some of the staff used to play, "Guess what Bubble is doing today." Each day they'd have a sweep on what he would be doing at exactly 11am, as he didn't do a great deal at all. It got a bit monotonous as each day it turned out to be browsing the web. Every day. All day even. Not just 11am. Worse. The guys couldn't break it down much further as it turned out to be almost always cartoons. Not the graphic novel, mature, artistic kind. The simple kiddie stuff in the main. The game was retired as it turned out to be a closed ended problem and of no scientific merit or wagerable outcome.

I can't imagine why Zomojo no longer makes money and have reduced to a skeleton staff . Can you?

Happy trading,


--Matt.



_______________________

[1]
PS:  I still own a third of Zomojo Trading Pty Ltd. No annual reports. No information at all. It is the vehicle through which all the revenue comes in, or at least it used to be that way. They seem to be violating a bunch of ASIC and ATO rules. Not sure what to do with the holding as I certainly can't afford legal advice any longer.  If you have any creative ideas, let me know ;-)

[2]
“Hyundai futures providing unfair advantages via FEP?” HF states ”this is a false claim” Claims of Hyundai Future providing its foreign clients with methods of unfair advantages of FEP and lease line, giving them an advantage and harming normal investors, have been circling the market. But Hyundai Future has stated that this was a false claim.

“A” securities firm director “B” stated, “Hyundai Futures has provided a FEP with direct connection to KRX’s order system to Zomojo for a monthly fee of KRW 200 million”. The director also said “Zomojo directly manages the servers and even install their own programs and place unfair trades”

Zomojo is known to be an algorithm trading firm using their programs. FSS regulation states that firms including Hyundai Future are prohibited to provide clients like Zomojo with special services, information or equipment.

It is also prohibited for the clients to install their own programs as Director “B” has stated. This gives the special clients the advantage by having higher speeds than KRX’s standard compared to normal investors.

On the other hand, Hyundai Futures stated that they have never provided Zomojo with the servers or even opened an account with them. HF representative said, “we are aware that Zomojo is a specialist in the FEP field, and we have met with them, but it was because Zomojo proposed to sell their software to us.”

“We have declined Zomojo’s offer, and the claims that HF is using Zomojo’s software is false.” It has been identified that Zomojo has reached out to other firms as well as HF. Therefore, it is a possibility that other firms also provide services in an unfair manner such as HF.

Person in the brokerage industry stated, ”it is tough to identify if the securities or futures firm is utilizing these programs in the servers without visiting the sites.” “foreign algorithm trading accounts in Korea has reached over 1200 accounts since March”

A KRX personnel said, “only way to identify these illegal algorithm trading is to inspect their IDC directly”, “but even if we charge the firms with suspicion, the firm will simply decline to provide information stating it is their confidential business information.”

FSS personnel said “we have sent guidelines as this has been a problem before”, “instead of criminal charges, it would be easier for the government to address disciplinary actions through administrative measures”

Tae Woong Ryu Reporter (Aju News)

Sunday, 15 June 2014

Nice Terasic PCIe 3.0 FPGA board

I do like the look of this board, the Terasic TR5-Lite even if it is not quite as sexy as a Triumph TR5 from my birth year. Any feedback on the actual use of one of these would be most welcome.

Stratix V, half height, half length with a firewire (1394) shaped 422 connector for timing input. Direct connectivity to the dual SPF+s. 36MB QDRII+, 2GB DRAM and PCIe 3.0 capable from the x8 edge connector makes it look good for HFT.

It uses a Altera Stratix® V GX FPGA (5SGXEA7N2F45C2) so you get 622k logic elements. Dunno what it is, but the board just looks nice and elegant. It only seems to have 4 user controllable LEDs  and five status LEDs, so Mike Dini wouldn't approve[1].

Whilst an Arria V or Kintex-7 solution would be better value for 10G, Terasic seems to have put together almost the perfect minimal FPGA HFT package here. I'm still thinking a Zynq-7100 based board with its useful ARM is a better idea overall though.

--Matt.



Friday, 6 June 2014

Finra ATS stats

Finra has made a stab at releasing ATS / dark pool stats.

It makes for some interesting reading. I've put the stats into a table below as I've found the Finra web site has been a bit up and down. Is that ITG and IEX running neck and neck with 100M shares a piece?
Finra ATS / Dark Pool Stats - Source: Finra
(Note the % are bunk, though indicative, as the dates are different)

Name Shares
Trades
Shares/Trade Date
CROS CREDIT SUISSE SECURITIES (USA) LLC 376,207,777 12.1% 2,189,977 13.5% 171.8 06/05/2014
LATS BARCLAYS CAPITAL INC. 307,354,920 9.9% 1,701,372 10.5% 180.7 06/05/2014
UBSA UBS SECURITIES LLC 282,217,511 9.0% 2,307,746 14.2% 122.3 06/05/2014
MLIX MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED 215,734,880 6.9% 1,099,830 6.8% 196.2 06/05/2014
MSPL MORGAN STANLEY & CO. LLC 207,196,400 6.6% 780,930 4.8% 265.3 06/05/2014
DBAX DEUTSCHE BANK SECURITIES INC. 189,134,200 6.1% 1,117,870 6.9% 169.2 06/05/2014
SGMA GOLDMAN SACHS EXECUTION & CLEARING, L.P. 182,887,381 5.9% 1,094,422 6.7% 167.1 06/05/2014
FLOW LAVAFLOW, INC. 154,595,446 5.0% 862,489 5.3% 179.2 06/05/2014
KCGM KCG AMERICAS LLC 135,074,012 4.3% 979,475 6.0% 137.9 06/05/2014
JPMX J.P. MORGAN SECURITIES LLC 113,052,036 3.6% 422,060 2.6% 267.9 06/05/2014
ITGP ITG INC. 106,841,795 3.4% 415,319 2.6% 257.3 06/05/2014
IEXG IEX SERVICES LLC 101,722,565 3.3% 304,784 1.9% 333.8 06/05/2014
BIDS BIDS TRADING L.P. 96,849,500 3.1% 221,827 1.4% 436.6 06/05/2014
KCGB KCG AMERICAS LLC 65,498,506 2.1% 574,660 3.5% 114.0 06/05/2014
ICBX INSTINET, LLC 64,843,400 2.1% 269,894 1.7% 240.3 06/05/2014
EBXL LEVEL ATS 60,250,900 1.9% 378,885 2.3% 159.0 06/05/2014
CXCX CITIGROUP GLOBAL MARKETS INC. 57,960,326 1.9% 300,479 1.9% 192.9 06/05/2014
DLTA DEALERWEB INC. 55,129,108 1.8% 103 0.0% 535,234.1 06/02/2014
XSTM NATIONAL FINANCIAL SERVICES LLC 42,356,635 1.4% 113,495 0.7% 373.2 06/05/2014
LTPL CREDIT SUISSE SECURITIES (USA) LLC 34,167,610 1.1% 287,279 1.8% 118.9 06/05/2014
IATS INTERACTIVE BROKERS LLC 33,835,637 1.1% 97,090 0.6% 348.5 06/05/2014
LQNT LIQUIDNET, INC. 33,593,400 1.1% 811 0.0% 41,422.2 06/02/2014
APOG CITADEL SECURITIES LLC 30,638,504 1.0% 180,977 1.1% 169.3 06/05/2014
NYFX CONVERGEX EXECUTION SOLUTIONS LLC 26,367,524 0.8% 60,292 0.4% 437.3 06/05/2014
MSTX MORGAN STANLEY & CO. LLC 23,245,500 0.7% 141,446 0.9% 164.3 06/05/2014
PULX STATE STREET GLOBAL MARKETS, LLC 19,573,064 0.6% 1,743 0.0% 11,229.5 06/02/2014
VRTX CONVERGEX EXECUTION SOLUTIONS LLC 14,949,562 0.5% 69,232 0.4% 215.9 06/05/2014
PDQM PDQ ATS, INC. 14,866,289 0.5% 79,138 0.5% 187.9 06/05/2014
LQFI CITIGROUP GLOBAL MARKETS INC. 13,779,198 0.4% 242 0.0% 56,938.8 06/02/2014
INCA INSTINET, LLC 13,059,700 0.4% 16,985 0.1% 768.9 06/05/2014
WELX WELLS FARGO SECURITIES, LLC 11,996,652 0.4% 68,802 0.4% 174.4 06/05/2014
LQNA LIQUIDNET, INC. 9,010,800 0.3% 3,586 0.0% 2,512.8 06/02/2014
BOOK BLOOMBERG TRADEBOOK LLC 8,655,811 0.3% 39,562 0.2% 218.8 06/05/2014
MLVX MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED 5,508,700 0.2% 13,224 0.1% 416.6 06/05/2014
AQUA AQUA SECURITIES L.P. 5,072,599 0.2% 305 0.0% 16,631.5 06/02/2014
LEHM BARCLAYS CAPITAL INC. 2,913,308 0.1% 20 0.0% 145,665.4 06/03/2014
RCSL RIVER CROSS SECURITES, LLLP 1,330,693 0.0% 7,266 0.0% 183.1 06/05/2014
MSRP MORGAN STANLEY & CO. LLC 1,115,700 0.0% 2,112 0.0% 528.3 06/02/2014
FNBR FOLIOFN INVESTMENTS, INC. 379,218 0.0% 11,191 0.1% 33.9 06/05/2014
WDNX WEEDEN & CO.L.P. 308,590 0.0% 514 0.0% 600.4 06/02/2014
CURX CURIAN CLEARING, LLC 184,094 0.0% 3,787 0.0% 48.6 06/02/2014
JEFX JEFFERIES EXECUTION SERVICES, INC. 6,700 0.0% 56 0.0% 119.6 06/02/2014







Total 3,119,466,151 100.0% 16,221,277 100.0% 192.3



Friday, 2 May 2014

100G Ethernet FPGA NIC - PCIe 3 with 16 lanes + GPS

I hadn't heard of these guys: Inveatech. Shame on me as the spec's look neat. Though I'm not quite sure why they're reselling the Stanford NetFPGA-10G cards. Those NetFPGA-10G cards are not my favourites due to their power and clock specifics as well as their PHY latencies. But I digress, here is a picture of their cool 100G NIC:

Inveatech 100G card: - 1 x 100G or 10 x 10G
They are not publicising how much QDR and DDR3 the 100G NIC carries. A Xilinx blog tells us which FPGA they're using, 
"the INVEA-TECH COMBO 100G HANIC accepts one 100Gbps CFP2 optical Ethernet transceiver module and the on-board Virtex-7 H580T 3D FPGA receives the Ethernet streams using four of its GTZ 28.05Gbps SerDes transceivers operating at 25Gbps to communicate with CFP2 cage"
That's an expensive FPGA, so the cards will not be cheap.  Their 80G card with 2 x 40G QSFPs uses a Virtex-7 H690T for what it's worth. Interestingly, the 100G card must have an active module to pull out 10 x 10G lanes from the 4 x 25G lanes if the vendor and Xilinx descriptions are both right.

They also claim to have some interesting trade acceleration IP bits and pieces. I'd be interested in hearing from anyone who has had any experience of these tasty looking Czech morsels?

If you're thinking of just playing then you're probably better off getting one of the Xilinx dev boards. It is hard to go past their $5k 4 x 10G Virtex-7 board which includes node locked tools.  

The distributor High-tech Gobal has a couple of neat morsels for the price or space constrained:
100G will bring more heartache. *Sigh*, so many 100G module form factors to choose from. There are six main ones. "Standards" are always just dandy when they provide so much choice. I'm just hoping that when we do 100G we can stick to QSFP28 modules instead of CPAK, CXP, CFP2 or CFP4 modules, though the density of the HD modules are tempting even if we'll have to buy new cabling.

--Matt.

Tuesday, 8 April 2014

Flash Boys' sinister ending: who owns the new evil microwave tower?

At the conclusion of Flash Boys, Lewis holds out a challenge to find who owns the tower with the mysterious FCC license plate number 1215095.

"The application to use the tower to send a microwave signal had been filed in July 2012, and it had been filed by ... well, it isn't possible to keep any of this secret anymore. A day's journey in cyberspace would lead anyone who wished to know it into another incredible but true Wall Street story, of hypocrisy and secrecy and the endless quest by human beings to gain a certain edge in an uncertain world." 
 Part of the last paragraph of Flash Boys

This final piece of the narrative paints this particular microwave New New Thing as the next, somewhat sinister, step in the evolution of speed. Spread Networks was one piece of secretive infrastructure used to help rig the markets. Now it is the turn of evil microwave. Who owns this new form of evil to help the HFT pirates continue to rig the financial markets?

The internet has reacted! A bit of frenzied internet sleuthing has subsequently taken place over a number of blogs, tweets and web sites. A number of parties have reached the same conclusion.

Tradeworx! Mr Narang confirmed it to the WSJ. They're the new bandits!

Sigh... I don't think so. Read on.

I found the ending of Flash Boys one of the saddest bits of the Lewis book. I feel it was sad for journalism, unless you support deceptive journalism.

Mr Lewis goes to great pains to weave a narrative around Spread Networks. I think you'd have to agree it is a key part of the plot. He then throws out the New New Thing of microwave at the conclusion of the book with clear sinister overtones. You could almost hears the Jaws theme in the background. Good people have been hunting down who could it be doing this New New Thing of evil that was the evolution of speed after Spread Networks? A participatory cliff hanger to ferret out the perpetrators was a neat literary device.

Surely it would have been responsible journalism for Lewis, especially when writing on the scale of a book, a Lewis book nonetheless, to “google” the topic so he could have found out that his narrative was wrong and RF microwaves had been used on the Illinois – New Jersey link since 2009, BEFORE spread networks went live.

It took me less than thirty seconds to get a reference to a credible microwave 2009 story. Here's an article I've tweeted previously from the Chicago Tribune from 2012.
"He [Benti] said the microwave network starts at 350 E. Cermak, ends at another telecom hotel at 165 Halsey St. in Newark, N.J., and went live in the fourth quarter of 2009."
Did he ask Spread Networks? Lewis can remember hand movements and idle moments from conversations of meetings with enough clarity to include much minutiae in the book. Maybe Spread Networks didn't know about microwave when Lewis talked to them?

From page two of the Chicago Tribune article,
"Spread Networks CEO David Barksdale dismissed such criticism. Yes, data travels faster through the air than through fiber-optic lines, but severe weather events can disrupt microwave signals, and those signals can't carry as much data at one time as fiber can."
I think they knew.

Is it shoddy journalism from Mr Lewis? Perhaps he didn't want these particular facts to get in the way of his significant plot device. Now, if Lewis had included the microwave links from 2009 in the story, it wouldn't have necessarily changed his message. He should have been more aware and not so inaccurate. If Lewis can't get the basics of his main Flash Boys narrative right, you need to take everything else with a pinch of salt.

Also, why is Tradeworx copping flak for this? This fact of Tradeworx owning microwave was been public for sometime. Wired ran a high profile story in 2012 that even had a big coloured box with the Tradeworx name on it. There was even a price tag! Hardly a complete secret.

From the wired article with Tradeworx hidden in plain sight
In the words of the great Lleyton Hewitt, “Come on!”

There is no news here, just scuttlebutt and harmful innuendo. Lewis is implying Tradeworx is rigging the market. They are not. They're just collateral damage in Lewis' missteps.

How can we trust the story telling if the main plot device is so twisted out of shape?

Ought Lewis have known more about microwave?

Jim Barksdale is the investment force behind Spread Networks. Is he also an investor in IEX? Can't be sure, but his fellow ex-Netscape CEO Jim Clark is on the IEX board. Obviously these guys are acquaintances of Lewis from the New New Thing days. A Barksdale, David, remains CEO of Spread. Lewis could have asked them. Any of them. Based on the Chicago Tribune story, they ought to have known.

Lewis didn't even need his contacts here. He could have clicked "search."

Incompetent or deceptive?

You decide.

--Matt.




_______
An example of the disclosed use of Spread Networks fibre:

KNIGHT HOLDCO, INC. S-4

Getco use of Spread from their S-4:
 
"Colocation and data line expenses increased $18.9 million (52.0%) to $55.2 million in 2010 from $36.3 million in 2009 primarily due to the introduction of Spread Networks, which is a fiber optic line that transmits exchange and market data between Chicago and New York, and the build out of GETCO’s Asia-Pacific colocations and data lines."

Monday, 7 April 2014

HFT - two choices: making money every day or oblivion

If an HFT makes money every day the system must be rigged!

It's not rigged.  It's just math!

I see since Flash Boys came out, HFTs have been copping flak for making money consistently.

Virtu had one down day in 1200 or so days. It must be rigged.

Well, the simple fact is that if you don't make money every day, then you're doing it wrong!

You do, or you die. It's that simple.

HFT implies that you do a lot of trades. If you do a lot of trades with a smidge of favourability, you should always be winning. It's just simple mathematics. The law of big numbers. A systematic screw-up for a day may cause an odd loss but that is a different risk category. You seriously wouldn't be doing a zillion trades of anything without an overall positive expectation. The law of big numbers also works against you. If you're on the wrong side of the fragile line you're practically guaranteed to lose.

This is not to say that you have a "cooked" system where every trade is a winner.

Let's look at some numbers:

Say you have a trade that makes you $0.01 per trade when you get it right and you lose $0.011 per trade when you get it wrong.

Let's now assume you do 10,000 trades a day.

What winning trade % do you need to win at for almost every day to be a winner?

Let's look:
  • 51% means roughly 99.7% of days are losers, a bit over 0.2% of days are winners
You probably wouldn't be happy with that.
  • 53% means 89% of days are winners
  • 54% means 99.9% of days are winners - you lose one day in four years
  • 55% means you really shouldn't lose
The percentages are tight. It is a matter of getting the profit / loss distribution for your trade outcomes right so a lot of trades make it hard to lose money.

Fundamentally, if you're a high frequency trader, you're doing a lot of trades. That's pretty much the definition of high frequency, otherwise you're a low frequency trader. A lot of trades are silly if you don't have a positive expectation. If you have a positive expectation then a lot of trades means you really should have a very high chance of winning on every day even if each trade's win chance is a bit like the toss of a coin.

Let's look at the same situation if you only did 100 trades a day. A hundred is quite a few but not really high frequency.
  • 51% trade win probably = about 38% of days are winners
  • 54% = about 62% of days are winners
  • 55% = about 69% of days are winners
Not quite as good as having a lot of trades at 55%. However at 51% you were previously pretty much guaranteed to lose with lots of trades but you may live a few days longer with only 100 trades per day. This is also why if you want to bet on red or black at roulette, where the house has an edge thanks to zero, you should just make one large single bet to maximise your chances of not losing.

You can see that lots of trades help improve the guarantees. You win or lose more consistently.

The hard thing about HFT is that if it was easy, everyone would do it. There are no easy trades with the level of sophistication that exists in mature markets. It is challenging and you are constantly being pushed to the margins as someone else is always prepared to make a little less and take all your edge if they can. HFT market makers fight compulsively over the scraps and win by making less than another team. It's a bare knuckle fight against other market makers where your reward is to make less money than your opponent if you win. You in turn get beaten by someone prepared to make even less. You are scared of large trades or better informed traders that will trade through you and screw with your distribution of returns. There is little room for error.

It is simple. An HFT should be making money every day or they will be going out of business. There is money or there is oblivion. There is never any forgiveness, just paranoia.  HFTs are terrified of adverse selection. Worse still, other market makers are trying desperately to replace you by being a fraction better. Lots of smart firms are always shutting down in HFT land. It is a tough business.

So, what's up with traders making money every day?

It's not rigged.  It's just math.

--Matt.



PS: Survivorship bias for HFT types means that all should have consistent profits if they remain in business for an extended period of time. I find that an interesting thought.
___________

Earlier description of how HFT market makers make money
Earlier reasoning as to why investors and speculators can both win in markets

___________

Footnote:  I spent quite a few years as a positioning style trader with a global portfolio of currency, short and long interest rates, equity indices and some commodities.  I made money every year but it was a battle.  Each day was a 48% chance of a win. So, overall I was usually wrong. I was successful because the average winning day was 1.6 times the average losing day. It was pretty scary though as just missing your dozen best days in a year would be the difference between an annual profit or an annual loss. It was also quite funny when people asked for comment on the markets as it was hard to explain that with my trading I was more likely to be wrong that right for any given day.

HFT is pretty similar. It is also just a game of profit and loss distribution. It is a lot easier on the psychology as instead of waiting for a whole year to see if things work out, you should know at the end of each day with a large enough number of trades. Even worse for the psychology is that as a position style trader normally the profits are positively autocorrelated so that if you are losing you expect to continue losing. Worse, you can't do anything about because if you over trade, resulting in extra frictional costs, you're only guaranteeing an eventual loss. HFT has better daily psychology but higher paranoia as there is a lot that can go wrong.

___________

Footnote: This is vastly simplified but correct in essence.  Profits and loss tend to be positively autocorrelated which makes things more volatile in practice. Distributions are nowhere near as simple which is why there are PhDs running around with computers attached to their fingers.


Friday, 4 April 2014

Flash Boys - Misleading information

Flash Boys?  I read the book last night.  Appalling.  I found it a well wide of the mark. It vilifies and accuses inaccurately. The pulsating vehemence of its message makes it a singly dangerous book.

I love Michael Lewis' story telling. He really knows how to write a page turner for a geek like me.

Working in an investment bank in 90s, Liars Poker had a cult status with the currency note based serial number poker he made infamous being pervasive with many traders in Sydney too. Without Moneyball there wouldn't have been a Soccernomics book to read. Soccernomics made watching football richer and, as a Liverpool fan, I'm especially liking soccer just now. So thank you Mr Lewis.

The Big Short. Terrific read.  Hmm, but what happened to Paulson? A good story but not quite the full picture. No doubt about it though, Lewis writes books that many people find fun to read.

Nonetheless, Flash Boys is a stunningly dangerous piece of misinformation. The truth is quite a bit different to the words you'll read beyond its red cover.

I know just enough to be dangerous about this as I am a former HFT. I've traded a million index option contracts in a day in Korea on system built from the ground up.  Back, in 2010, when people still used Blackberries, I got a call from Joanne, my broker in Toronto, half a world away, surprising me with the news that I had traded a bit over 13% of RIM at TMX for the day. Really? Some little tin pot firm on the other side of the planet mixing it up with big boys? Lewis is right there, you never know what strange firm may be responsible for a bunch of trading. The little firm I worked in had quite a few years of trading with only a few down days. Not quite as impressive as those firms with one or zero down days, but I'll take it. A team of mine also built a prototype sub 2 microsecond exchange matching engine and I'm the inventor on a somewhat dubious hardware matching engine patent. I like matching engines. I left HFT to do some cool tech but got trampled on spectacularly badly in court. In summary, I think I have just enough knowledge to know that there is quite a lot I really don't know. Though maybe just a enough to call Mr Lewis out on some facets of his book. Just enough to be dangerous.

The IEX guys sound like great lads but let's start by looking at how to win on their platform. Their price is delayed fairly. OK. You are lucky enough know the price is going to be always delayed and thus stale at match point. The stale pricing is guaranteed by many miles of fibre in a shoebox. Great! Try to use all your inputs to deduce an impression of a better price in real time. Throw it at them. Send in limits or IOCs at your biased price and see if you land a trade in their time warp.  Better information exists on the outside of the delayed world.  Use it.  It's still a race. Slower exchanges are always problematic as the world knows better. IEX is no different. You can be played by better information or decisions. You don't eliminate the speed race. Hmm, it's not really much different to any other venue in that regard. There is always an arb in a world that has space and time as a feature.

In theory, there is no difference between theory and practice. Unfortunately, the real world does intervene on our clever ideas. It is wrong to think that there is not a continuum of probabilities and latency where views that seem absolute can't be replaced by a bit of educated guesswork with a virtual latency gain. Things are just not as simple as Lewis makes out. Some people think bunching trades into chunky time slices may be the solution. Such time point based auctions are not the answer. Even if you traded with an auction to the minute there is still a game of maximising your information at the deadline with latency tricks. So even slowing down trading to minutes becomes a latency game. A stupidly inefficient one, but still latency sensitive. Unintended consequences abound. You really do have to be careful what you wish for.

The clever thing IEX seem to have done is simply make a co-location space the size of New Jersey that includes all the other exchanges. It is still a game where speed matters and variances exist. It's just a bit different. Other market structure trade techniques still apply to the IEX context too, it just seems those get ignored in the story as inconveniences.

The IEX guys mean well. I just believe the ultimate basis for their thinking is unfortunately a bit wrong. Not a lot wrong.  Just a bit wrong. They are smart guys but I feel they have been skewered by their misunderstanding of Thor and HFT. When you have a hammer, everything looks like a nail. (Sorry, couldn't resist.) The result is they have run off on a bit of a tangent. It sounds a nice system, but I suspect it is not quite want they intended. There are many good features and reasons why it may make sense to use IEX but you need to get over the idea that it is perfectly fair and cannot be "gamed."

Clearly, "Thor" was a great tool. It was effective. However, I don't think the SEC guys were really dishonest in questioning Thor's goodness relative to the idea of over provisioning liquidity at multiple venues. Poor form from Lewis in that regard. Tearing down ideas without proper consideration is never a good thing. The liquidity at various venues was real and could be hit individually. It wasn't fake. You must remember that the HFT market makers are scared rabbits fighting against adverse selection but needing to be stoic and fearless to maintain priority and sufficient size. It is dangerous picking up pennies in front of the market steam roller in the name of efficiency. The market maker may dare to put out more liquidity than they are comfortable with in an effort cover all the bases. Odds are it is safe enough as they shouldn't get hit all at once. Thor! Thwack! Ouch! HFT market making is a thankless and tough job. Perhaps only exceeded by the thanklessness of being an SEC official that is wrongly ripped into by Mr Lewis.

Think about it. If some dude or dudette comes along and cleans your over-provisioned liquidity clock, then, as a market maker, you'll have to adapt and put out less liquidity or otherwise change style.  Is the gaming of the simultaneous orders with Thor really better than the over provisioning of liquidity? Thor's net result is to force there to be less simultaneous liquidity at venues and more bias toward particular venues. Is that a good result? I can see both arguments. There is certainly a ying and yang there.  It is naive to consider just one point of view.

IEX should be congratulated for their endeavours and especially their impressive ethics recounted in the book.  They have certainly tried very hard and it looks a decent enough solution as an exchange. There are also plenty of other ideas about making better exchanges. Then again, perhaps Lewis hasn't really explained it properly.

There are certainly great points in the book, such as the reference to the silliness of some of the inane order types. Some order types do seem to border on the ridiculous. As always, hindsight is a wonderful thing. However, reading the book you also wouldn't know that microwave wireless on the Chicago to New York link pre-dated Spread's cute fibre perhaps as far back as 2009. You wouldn't know that BATS was also the fastest exchange back in 2009 with a round trip of about 443 microseconds.  That was an important feature. Fastest makes a difference. You wouldn't know that there are natural advantages causing liquidity attraction in a game theoretic sense for the fastest exchange. I was horrified by the depiction of the flash crash. Frankly, Lewis' depiction of the May 2010 flash crash circumstances bordered on negligence. It's all a bit loose in the fact department.

There are lots of myths and folklore in trading.  Some are frighteningly unchallenged.  Did you know solely investing in index funds is a really dangerous idea? If everyone did it, there'd be no price discovery. The market would fail. That is an obvious statement but many would find it confronting on a first read. For some ideas you don't need data, just as Einstein didn't really ride a light beam. It is wrong of firms like Nanex to ignore theoretical arguments, just as it is wrong to also ignore the data from the system. Many of the ideas that need confronting are indeed already well understood. It is important to remember a couple of key ideas: markets are best left alone to be the wonderfully efficient mechanisms they are, despite the motivations of their participants; and, complex systems, including human beings, need controls and limits. These principles are in conflict and need constant re-balancing but such ideas _and_ data can guide us.

Why has Lewis gone so wrong here? What's the agenda?

When I was 14 I read a story in the newspaper that I wanted to do Information Science at university. I didn't know what that was. I'm pretty sure I said I wanted to be a pilot.  Wrong message. I learnt at an early age that the truth of an article is often inversely proportional to how close you are to the story. Likewise, I find that I've been at least close enough to the HFT story such that Flash Boys doesn't stand up well to scrutiny.

Flash Boy's message was clear, but I don't know what the Lewis agenda is.  Perhaps he's just got it wrong? Against that, it reads like he has an agenda. Lewis needs to tell us how stuffed up the whole US equity trading system is and how you are being ripped off at every turn. Controversy sells. Hopefully Lewis is just honestly wrong and not really being Machiavellian and trying to sell a boatload of books. He has been accused of just trying to whip up a frenzy to sell his book but I for one don't believe that. He is just pretty badly wrong in my view. I'm sure he'd disagree. Though it was annoying, I found it a fun read. Just don't take it too seriously. I had similar thoughts reading both Lance Armstrong's autobiography and Flash Boys, "Should it be in the fiction or non-fiction section?"

The investor, big and small, insto and retail, needs to remember that there has never been a better time in history to trade and get great pricing on executions.

Equities trading in the US is far from perfect. The system has a lot of good features and quite a few things that need some fixing. It always will, but it's pretty damned good. Flash Boys uses many woeful anecdotes to wrongfully undermine confidence in the national market system. Proceed with caution. Flash boys is a dangerous book.

Sunday, 23 March 2014

Corrupt lawyers – why you should seek them out and use them!

After initially publishing this on my blog, I was written to and threatened with defamation by Corrs. Now that I'm am in the US and Chicago I believe that not only veracity, but also the US First Amendment rights extended to all people, citizens and others, should protect this particular piece of discourse.

If a lawyer will do anything to win, including risking their job by lying to a court, wouldn't that be the kind of commitment you would like?

This was the postulate from some of my counsel as to why I shouldn't publicise the corrupt activities of Mr Matthew Critchley from Corrs Chambers Westgarth in Melbourne.

The argument is simple.  If a lawyer is prepared to risk their entire career then that is a lawyer that is truly committed to your cause. All you get from publicising a lawyer's criminal behaviour is infamy and greater success for that lawyer.

Mr Critchley was truly committed to the cause of my adversary in the Federal Court of Australia. The unintended consequence of me publicising his perversion of justice is likely to be his improved profile and billings.

It turns out there was good reason for Mr Critchley to take on this risk.  When he was exposed, the Federal Court of Australia – Victoria, did nothing.  Our courts often have close relationships with their fellow participants in the legal fraternity.  As a consequence, there is a reluctance to maintain the justice system's rules and be just.  Clearly, people like Mr Critchley know this and are happy to risk their livelihood and their potential incarceration as they know the courts are weak with respect to the treatment of lawyers.  There is no moral hazard.

This is a problem for the justice system in Australia.

My case has highlighted concerns with respect to the judiciary from the behaviour and of Davies J and Gordon J especially.  At least with hubristic judges that lack impartiality there is a right to appeal.  With legal representatives that lie and mislead there is no such right.

Infact, Honourable Justice Jessup made exactly this point with regard to Mr Critchley in the matter Boobera Lagoon v Corrs Chambers Westgarth & Zomojo Pty Ltd (FCA VID 1066/2013) where he wrote in His Honour's judgment paragraph 30:
“Furthermore, the order was made in, and the documents related to, a proceeding which was ongoing. In those circumstances, counsel for Zomojo made it clear that his client accepted that it was subject to the usual restriction that the documents could not be used other than for the purposes of the litigation: Hearne v Street (2008) 235 CLR 125, 154-155 [96]. Given the experienced level of representation which Zomojo enjoys in the Hurd proceeding, I could see no reason to determine the present application by reference to an assumption that this restriction would not be respected.”
Honourable Justice Jessup does indeed make a good point. Legal representatives as officers of the court should be accountable for their actions. Unfortunately, though His Honour is now the docketed judge, His Honour is clearly not familiar with the Critchley antics in the Zomojo v Hurd proceeding. Similar thinking as this also lends to the reasons why I was denied to represent the corporates in court, even with a barrister in attendance. The FCA deems that part of the reason legal representatives are required to be used by a corporate is because solicitors, as an officer of the court,  can be held accountable as their careers are on the line.  If only that were true.

Whilst wealth and not culpability shapes outcomes, distortions from abusive lawyers without a prospect of realistic moral hazard corrupt the system to the point of hopelessness for those that mistakenly view the justice system as “just” rather than the broken contract resolution that it truly is. Justice has no place in the system.

If you want to win your case you need to learn from my mistakes.  Don't hide behind the truth.  Don't use ethical legal representatives.  You should use your influence and patronage to encourage favour from the judiciary and registry.  You should call Mr Critchley and give him your case if you want an outcome in your favour.  Just as my opponents, obfuscated and lied, Mr Matthew Critchley was also prepared to express false outrage and lie to the court.

Truth and ethics are for stupid people.  Call me stupid.  You should call Corrs Chambers Westgarth and get Mr Critchley on your side, but only if you want to win.

Happy justice,

--Matt.


____________________________________


Addendum


I'd like to go into detail regarding the many lies of Mr Matthew Critchley and perhaps the obfuscation and memory loss of Ms Janet Whiting before Honourable Justice Tracey but I don't think you'd find it all that interesting.  I think there is one thread you may find amusing but that I find terribly sad. I guess it is a pure form of gallows humour. One day in a far, far, away land, far away from justice in the land of the Federal Court of Australia - Victoria...

I received a phone call from a potential customer and investor from Singapore (we'd previously not proceeded with the consideration of a potential investment offer) who was not happy.  Let's refer to him as Mr X.

Mr X was annoyed that he had received an unsolicited approach for talks around commercial opportunities from Zomojo Pty Ltd's Dr Greg Robinson, my opponent in the law case.  Mr X had studied law at the University of Liverpool and questioned how Dr Robinson had received his details. I said that perhaps his details had been picked up from the discovered or subpoenaed items.  This made Mr X less happy as he understood better than I how wrong this was. I didn't really understand at this stage the importance of this which is essentially known as the Harman Principle due to the important case of Home Office v Harman's ruling on implied undertakings.

I went to my counsel to ask what we should do as Mr X was rightfully not happy.  They understood immediately how important this was and explained the significance.

I wrote a short affidavit explaining what I knew to be true that Dr Greg Robinson had written two emails to Mr X seeking commercial opportunity.  This was put to the opposing counsel, Mr Critchley, and he wrote back with indignation and fury denying it all.  Mr Critchley “threatened” that if the affidavit was not withdrawn he would put it to the court and ask the court to take action against me.

From the correspondence it could be implied that Mr Critchley was speaking on behalf of his client Zomojo Pty Ltd and Robinson but it wasn't explicitly stated.  We assumed that perhaps the client was lying to Mr Critchley and Mr Critchley was of the belief that no such emails took place.  That would explain Mr Critchley's outrage and distinctly funny shortage of adverbs in expressing such.

We asked Mr Critchley directly was it true that Robinson was also denying the claim and more outrage came back from Mr Critchley.  Mr Critchley wrote to Gordon J of the FCA expressing his outrage.

Frankly I was getting a little nervous as this went on.  Was my memory and recollection of the conversation flawed? Mr Critchley's approach was working I guess as I was starting to have self doubt and I didn't have the emails to refer to.  I tried contacting Mr X but I wasn't getting through.  I later learnt that he had been told by his counsel not to correspond to me on the matter.  I understand now that Mr X had endeavoured to provide the emails to the court under the basis of the existing subpoena they had already complied with on the basis of continuing disclosure but all that happened was they received voluminously expensive reasons as to why they did not have to disclose which just frustrated Mr X.

Eventually I received the emails forwarded as Mr X had grown frustrated enough to just get on with it. I suppose his internal counsel must have cleared this as the simplest way forward.

I was especially glad of this as my recollection was correct and the emails were a little bit more damning than I recollected.  Robinson said he didn't know Mr X and apologised for contacting him out of the blue.  Robinson expressed a desire to replace us with a commercial arrangement from Zomojo Pty Ltd.  Pretty damning. Again, we presumed that Mr Critchley simply must not know.

Then in court, Robinson was cross-examined on the matter.  He dropped a bomb shell that took us by surprise whilst Mr Critchley was sitting at the bar table.  Robinson described how he knew about the privileged use of documents which is why he had Mr Critchley assist in drafting the original email! Extraordinary. Not only had Robinson lied. Mr Critchley had lied to us, lied to Gordon J and the court, expressed indignation outrage and threatened us.

Mr Critchley sat quietly at the bar table which indicated that he didn't object to Robinson's evidence. This was an admission of his own lying as you can't let a client make a false statement.

It was quite the bombshell.  The senior partner's involved with the case wrote a letter to Corrs with words to the effect of “...never before in our sixty years of combined legal experience...”

Guess what the Federal Court of Australia did?

Nothing.

The lesson for Mr Critchley? There is no moral hazard.  Crime does pay.

____________________________________

Some selected quotes from Mr Matthew Critchley:

On behalf of our client, and Dr Robinson personally, we emphatically deny that either our client or Dr Robinson has in any ws contravened the implied undertaking in relation to discovery by making contact... The bare allegation that Dr Robinson ask Mr ... whether he was "interested in doing a deal with Zomojo Pty Ltd in place of Zeptonics Pty Ltd" is completely false and is denied in the strongest possible terms.
 
Having regard to the gravity of the allegation... such conduct is entirely irresponsible and ill-becoming of the legal profession. 
Our client and Dr Robinson require that by 1pm today: 
     1. The allegation be unconditionally withdrawn; and
     2. You provide us with details of any third party to whom your client or your office has repeated the allegation to.
All rights are reserved in relation to this issue, including rights against your office.
You have now openly conceded that you do not hold the emails.  This is devastating.
Your conduct in making an allegation of this nature and gravity without any supporting material and misleading the Court in the matter I have set out is entirely irresponsible. 
The bare (and false) assertions made by Hurd in his Affidavit do not absolve you. 
The allegations are irrelevant to the question and are scandalous. 
If you seek to file the Affidavit of Mr Hurd, and the Court is not willing to strike it out, we will seek to test Mr Hurd's oath. Please ensure he is present in Court in Melbourne for cross examination. 
Your email is offensive. We have repeatedly advised you that the allegations are denied by both Dr Robinson personally and our client.
____________________________________

Follow up: A complaint has been made to the Legal Services Commissioner.  They seem to be taking it seriously.  The initial complaint letter can be read by following this link. Note that though Mr X's details, and the details of his company at the time, have been redacted from this link to avoid any unnecessary disclosure or embarrassment, most of the content is from the public record of VID 1478/2011 Exhibit 11 or from the court transcripts.

Monday, 10 March 2014

Exablaze / Zomojo - Another day, another lie

Sometimes a company lies and misleads so often that they embarrass themselves. Zomojo and Exablaze are having trouble keeping their intricate deceptions consistent.


Dr Matthew Chapman - More Lies

In this particular situation, it is not clear what is the lie and what is the truth. This should come as no surprise as the companies have a history of lying to and misleading the courts and their customers.

Previously, from the witness box in Federal Court, Greg Robinson admitted to abusing privileged documents with the assistance of his legal representatives. The legal representatives knowingly lied in written correspondence to the court, made abusive allegations and partook in threatening behaviour only for their client, Greg Robinson, to admit to undertaking the abuses with his lawyers' assistance during the trial whilst the same legal representatives looked on from the bar table.  The presiding FCA judge, Gordon J, did nothing. The legal representatives continue to be allowed to practice law and continue to be entrusted with privileged documents as officers of the court.

Recently Zomojo has been pushing a line that Zomojo Pty Ltd's Matthew Chapman should have access to certain confidential documents to Honourable Justice Jessup. It has been repeatedly stated that Chapman is an officer of Zomojo Pty Ltd.  I guess he is the Chief Technology Officer even if he is not a legal officer.  Perhaps that counts.  In the last month this line of truth has been pushed again in court and Chapman was granted access to confidential documents on the basis that he is an officer of Zomojo Pty Ltd.

However, Zomojo and Exablaze speak with forked tongue.  On Matthew Chapman's LinkedIn page you'll find that he represents that he is no longer part of Zomojo Pty Ltd.  He claims he finished with Zomojo Pty Ltd in May 2013 which is many months before the claims in court.
Extract from: http://au.linkedin.com/in/matthewchapman on 10-March-2014
Clearly Dr Matthew Chapman is lying with one representation as they are mutually exclusive. Both positions cannot be true.

The continued corruption of justice would be funny if it wasn't so serious.

So, is Chapman lying to Exablaze's customers so they are not aware that when he talks to them they are sharing information with a proprietary trading competitor?  Is Zomojo Pty Ltd lying to the court so that they can maximize their benefit or information gain from their continued lies to the court?  Which is the truth?  Which is the lie?

All we can deduce for certain is that Exablaze and Zomojo treat either the court or their customers with contempt.  Which is the true lie is not clear but we don't need to know the truth as their own conflict clearly pronounces that you should be careful where you place your trust.

Caveat emptor.

--Matt.