> Fill ratios are not designed to prevent either high frequency or low latency trading, it is there to prevent a particular form of exchange gaming (quote stuffing).
They are very effective against quote stuffing, but they also work well against player that leave their quote active in the market for 1ms with high frequency. That's false price signaling, and is independent of quote stuffing (as I'm familiar with it: the practice of throwing so many orders at the exchange that slower players got a lag in their data).
> You are not being clear (and you are being condescending) on what you mean by HFT players & what you find objectionable.
I am specifically talking about HFT players in the US Equity markets - these are the subject of all the HFT discussions on reddit and HN. These do a lot of false signaling, quote stuffing, frontrunning in between exchanges.
> Is a market maker that trades 40K contracts a day but doesn't quote stuff objectionable?
That's fine, as long he is not false signaling either (that is, putting in orders he has no intention of executing)
> What about a cross exchange latency arbitrage trade that is not spamming exchanges? If so why?
This subverts the NBBO system. I believe this should either be illegal, or it should be legal and the NBBO system be canceled. But traders are under the illusion that the NBBO system is protecting them from wasting money to these arbitrageurs, when is isn't.
> Also, I've traded Eurex. They have very specific interfaces for low latency/high frequency traders. You can order different classes of connectivity from them that are specifically designed for these use cases. They also have predatory algorithms, so I'm not sure what they have solved.
The same things: a) quote stuffing, b) false signaling. Being faster costs money, and should provide an advantage - but it should be "neutral".
Is there any way (e.g. quote stuffing) in which you are aware that the faster players on Eurex can causally disadvantage the slower players, like they can in the US Equity markets?
Sure, a very common game right now is quote spoofing (that is already illegal in the US) but still happens and exists on Eurex.
Very fast player X puts a few (<10) big orders on one side of the order book at a level that has some but not a lot of quantity in front of him (using random quantity to make it hard to recognize) making it look like there is more demand than there is.
This will cause other participants to quote at this same level. Once enough orders have been entered behind him, he will yank all of his orders and then cross through that level (or even through 2). He has flipped a level.
His speed allows for 2 properties that make this much easier:
1. He is taking much less risk with his spoofed orders turning into real orders because he can cancel them fast when the market conditions indicate they might get filled.
2. His targets can't catch his cancels/fill through order fast enough to get out of the way.
He can keep his fill ratios within the correct boundaries with no problem.
Also as a contrast to your latency arbitrage point, as a market participant myself, I have no problem paying the latency arbitrage fees. It means that I can shop for trading venues that offer features/fee structures that work best for me, without worrying much about price imbalances.
This is much better for me as a participant than the single exchange monopoly is or having to build up an exchange presence at every exchange.
The competition in that space is so fierce that the cut they are taking from me is much less than the alternatives. For me at least, it is a small price to pay.
They are very effective against quote stuffing, but they also work well against player that leave their quote active in the market for 1ms with high frequency. That's false price signaling, and is independent of quote stuffing (as I'm familiar with it: the practice of throwing so many orders at the exchange that slower players got a lag in their data).
> You are not being clear (and you are being condescending) on what you mean by HFT players & what you find objectionable.
I am specifically talking about HFT players in the US Equity markets - these are the subject of all the HFT discussions on reddit and HN. These do a lot of false signaling, quote stuffing, frontrunning in between exchanges.
> Is a market maker that trades 40K contracts a day but doesn't quote stuff objectionable?
That's fine, as long he is not false signaling either (that is, putting in orders he has no intention of executing)
> What about a cross exchange latency arbitrage trade that is not spamming exchanges? If so why?
This subverts the NBBO system. I believe this should either be illegal, or it should be legal and the NBBO system be canceled. But traders are under the illusion that the NBBO system is protecting them from wasting money to these arbitrageurs, when is isn't.
> Also, I've traded Eurex. They have very specific interfaces for low latency/high frequency traders. You can order different classes of connectivity from them that are specifically designed for these use cases. They also have predatory algorithms, so I'm not sure what they have solved.
The same things: a) quote stuffing, b) false signaling. Being faster costs money, and should provide an advantage - but it should be "neutral".
Is there any way (e.g. quote stuffing) in which you are aware that the faster players on Eurex can causally disadvantage the slower players, like they can in the US Equity markets?