CFTC / SEC Flash Report
Quantivity recommends reading Finding Regarding the Market Events of May 6, 2010, in detail. Four thoughts worth pondering during reading, given this lays HFT bare:
- Veracity: is this report correct and complete?
- Implications: given obvious front-running, what are the best second-order parasitic algos?
- Simulation: interesting exercise to simulate this market condition, given the trigger was a simple program order, and back out the aggregate HFT algos necessary to generate this market behavior
- Liquidity: what does liquidity mean in a HFT world, and how should theory be amended commensurately?
This event also demands a collective wish goodbye to orderly price discovery, as this is the ultimate proof by construction of the contrary.
Subsequent posts may comment further, particularly on parasitic algo design. Readers with more inside knowledge are encouraged to comment directly or contact Quantivity privately.