Flash boys...flash in the pan?

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1 April 2014
David Easthope
What the Michael Lewis article (Flash Boys) in the New York Times shows is that there are: • Simply a variety of market centres (including exchanges) out there with different business models. • Long gone are the days of utility-like exchange models out there for US investors. • Trading needs can be organized (mostly) by speed or by price. The HFT guys mostly care about speed, and the long only funds care most about price. • Market centers (exchanges, ATSs, dark pools) are typically good at either speed or price. • Readers of our execution quality reports know this aspect of the market. @JaswalCelent (see the latest here: • Non top-tier investment banks, have been squeezed by the technology arms race and need to find innovative ways to compete beyond IT spending and hiring smart coders. They can also buy or lease tech from the top banks. • Market structure expertise is not a nice to have, it’s a must have, for desks of serious money managers. Firms like Rosenblatt offer this advice. • Some exchanges have known about and have used order book 'throttling' for a long time • Observers of the market have long known that location of data centers, order types, and the rules of engagement in dark pools are important. • Others are simply catching up. Saying co-location is an unfair advantage, if it’s offered at an equal price to all comers, is not reasonable. All in all, the book (excerpt) is a good read and good story, but it mostly catches people up on some of the things that have been happening in the last decade and only covers one potential solution to the issue of market impact, when there are many possible solutions.


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