<story><title>Quant turned whistle blower explains how the market is rigged [video]</title><url>http://tech.fortune.cnn.com/2013/11/11/video-the-wall-street-code/</url></story><parent_chain></parent_chain><comment><author>hft_throwaway</author><text>What Haim&amp;#x27;s referring to are a set of order types used on many exchanges to allow traders to place orders on a level that can&amp;#x27;t be displayed for regulatory reasons. There&amp;#x27;s nothing nefarious about them.&lt;p&gt;Reg NMS prohibits exchanges from displaying quotes that would lock (bid==ask) or cross (bid&amp;gt;ask) another marketplace.&lt;p&gt;As an example, say BATS is 10.01 bid 10.02 offered and the 10.02 offer trades out completely. Some HFTs want to be the first to form the new 10.02 bid to earn the spread + liquidity rebate, so they send post-only bids at 10.02. BATS sees stale 10.02 offers on ARCA, so they re-price the trader&amp;#x27;s order to 10.01 bid, or reject it (behavior depends on the exchange). In response to this, HFT algos would repeatedly re-submit their orders until the exchange let them in. This led to enormous stress on their matching engines during price moves.&lt;p&gt;In response, exchanges created order types that would let the trader bid 10.02, but only display it once the away markets faded from their point of view. It&amp;#x27;s basically like having a callback API rather than a polling one. The end result is basically the same, except less load is placed on the exchange&amp;#x27;s matching engine.&lt;p&gt;There&amp;#x27;s nothing &amp;quot;rigged&amp;quot; about this behavior. Traders forming new price levels on public markets still incur substantial risk that the price will move against them when filled. There aren&amp;#x27;t any order types that let you get execution priority in front of a large queue like he describes.&lt;p&gt;These order types and their behavior were well-documented on public websites and anyone concerned with the microstructure of how their trades executed could easily use them. The game he&amp;#x27;s describing is of little concern to anyone other than HFT MMs and execution algos that depend on favorable queue position. The entire process of a level ticking away and a new price being formed in liquid tick-wide names plays out in microseconds these days.</text></comment>
<story><title>Quant turned whistle blower explains how the market is rigged [video]</title><url>http://tech.fortune.cnn.com/2013/11/11/video-the-wall-street-code/</url></story><parent_chain></parent_chain><comment><author>yummyfajitas</author><text>Is there a text explanation of this? I&amp;#x27;m curious to learn what the allegation is, but I don&amp;#x27;t have 50 minutes to spend on what is likely a silly conspiracy theory.&lt;p&gt;The small amount of text present suggests someone is being allowed to jump the queue. Is that the allegation, or does it go beyond that?</text></comment>