Posts

2014-08-17: Feynman's missing method for third-orders?

2014-07-31: CIA spies even on congress

2014-07-16: Rehm on vaccines

2014-06-21: Kurtosis, 4th order diffusion, and wave speed

2014-06-20: Random dispersal speeds invasions

2014-05-06: Preservation of information asymetry in Academia

2014-04-16: Dual numbers are really just calculus infinitessimals

2014-04-14: More on fairer markets

2014-03-18: It's a mad mad mad mad prisoner's dilemma

2014-03-05: Integration techniques: Fourier--Laplace Commutation

2014-02-25: Fiber-bundles for root-polishing in two dimensions

2014-02-17: Is life a simulation or a dream?

2014-01-30: PSU should be infosocialist

2014-01-12: The dark house of math

2014-01-11: Inconsistencies hinder pylab adoption

2013-12-24: Cuvier and the birth of extinction

2013-12-17: Risk Resonance

2013-12-15: The cult of the Levy flight

2013-12-09: 2013 Flu Shots at PSU

2013-12-02: Amazon sucker-punches 60 minutes

2013-11-26: Zombies are REAL, Dr. Tyson!

2013-11-22: Crying wolf over synthetic biology?

2013-11-21: Tilting Drake's Equation

2013-11-18: Why $1^\infty != 1$

2013-11-15: Adobe leaks of PSU data + NSA success accounting

2013-11-14: 60 Minutes misreport on Benghazi

2013-11-11: Making fairer trading markets

2013-11-10: L'Hopital's Rule for Multidimensional Systems

2013-11-09: Using infinitessimals in vector calculus

2013-11-08: Functional Calculus

2013-11-03: Elementary mathematical theory of the health poverty trap

2013-11-02: Proof of the area of a circle using elementary methods

Making fairer trading markets

Off research topic's, there was a nugget of an NPR story the other day that caught my attention. The story was that the guy about to take over control of the New York Stock Exchange thinks high frequency trading is bad.

Planet Money had a good story a while back telling the story of computer trading from the perspective of one guy, Thomas Peterffy. High frequency trading (HFT) began gaining attention after the 2008 financial meltdown, as attention shifted from complex securities which could be difficult to value to safer methods of arbitrage that offered profit at no risk. Public awareness sprang up as a result of the 2010 flash crash (see Letter to SEC from "The Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues") Today, the technology of high frequency trading and market making is impressive and seductive.

But things have progressed to a point of absurdity, with nanosecond time-scales controlling the outcomes. There is a mathematical explanation for this. It's a well-known phenomena in dynamic optimization and dynamic game theory that some problems lead to "chattering controls", where the best strategy involves making moves as fast as possible, and that first-mover advantages arrising from a slightly faster reaction time can be insurmountable. But there is often some small element of the dynamics that can be changed to restore fairness.

HFT is not making our world a better place. To common sense, it now seems almost certainly a collusion between trading firms, hedge funds, and exchanges to steal massive amounts of money from all the rest of us through arbitrage. It seems like some speed limits would help project us. Here is a company trying to help with this by disrupting the current market.