tag:blogger.com,1999:blog-19649274.post3069638893142117555..comments2024-03-27T17:16:12.789+05:30Comments on The Leap Blog: Preventing shocks or becoming resilient to them?Ajay Shahhttp://www.blogger.com/profile/03835842741008200034noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-19649274.post-29695148017259339342012-11-04T21:30:47.795+05:302012-11-04T21:30:47.795+05:30Good thoughts -all. It was a pleasure to read this...Good thoughts -all. It was a pleasure to read this blog and the comments here. I will be visiting here often now.Anonymoushttps://www.blogger.com/profile/15997005682415731626noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-87500617673030311222012-10-19T15:17:46.146+05:302012-10-19T15:17:46.146+05:30Usefulness of HFT for the economy! Once we start w...Usefulness of HFT for the economy! Once we start with questions like this, there are more broader ones to be considered. <br /><br />1. Should exchanges be for profit and be listed entities. Apart from inherent conflicts of self listing, there are also priority conflicts between shareholders interest and the interest of investors. <br /><br />Exchanges are primarily (at least in India) expected to be Market Infrastructure Institutions with widely distributed institutional ownership. That is changing with the new approvals.<br /><br />2. The relevance of derivatives has also be be considered. Hedging requirements are fine, but what happens when we start prop or speculative trading in derivatives? Unfortunately, trading in derivatives is viewed by most as a maturation of the market.<br /><br />3. Non margining of institutional trades in the cash market on T day also poses systemic risks to the market. I Have not seen any discussion on this critical aspect of the safety of the central counter party..<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-58677380663733770352012-10-19T12:53:44.646+05:302012-10-19T12:53:44.646+05:30Economists seem to live in their own world. As the...Economists seem to live in their own world. As the world is entering a recession, they would need to answer tough questions like how HFT is useful for the economy, and answer the questions in simple terms. Till now, the traditional economics based on greed has failed to bring prosperity to the hard-working masses. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-5723160281720797242012-10-18T10:37:31.493+05:302012-10-18T10:37:31.493+05:30You make a good point. What would be the benefits ...You make a good point. What would be the benefits of a system in which shocks are prevented. I can think of some reasons for. Perhaps there are many more against.<br /><br />Most people (including investors, media and for that matter some of the "regulators") are not able to understand this "normal designed behaviour" of the market or for that matter the incredible resiliency of the market which caused it to bounce back. You can read many crazy views in the media and perhaps equally crazy solutions. Dealing with this situation is perhaps worse than dealing with the few milliseconds of market drop. Countless hours are being spent in analyzing, reviewing, investigating the system that behaved as designed. if the system were to be tweaked to prevent shocks like the one felt on Oct 5, we would save this entire debate.<br /><br />At the same time it is important to find solutions to the un-intended consequence of this event, which is the triggering of stop-loss orders. This requires debate and a workable solution.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-90393294942490459372012-10-17T19:46:44.250+05:302012-10-17T19:46:44.250+05:30Sure, it was avoidable. But, the argument is wheth...Sure, it was avoidable. But, the argument is whether its worth avoiding? If the system behaved as designed and expected, there is no issue. Its already bullet proof. <br /><br />Philosophically, this is similar (with some differences) to Taleb's arguments on robustness of financial systems (as well as arguments by behavioralists like Kahneman). They argue that stability is not necessarily a good goal for a complex system. But, redundancy and robustness are worth aspiring for. The way I interpret it is that a system which can work under shocks is preferable to a system in which shocks are prevented. I think its true for complex systems.<br /><br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-50729623205852523772012-10-17T11:40:54.701+05:302012-10-17T11:40:54.701+05:30Emkays case was a not an algo trade mistake but a ...Emkays case was a not an algo trade mistake but a fat finger. IMHO and 2 cents worth, it was avoidable. As Ajay points out the systems behaved as designed and expected. But if we create and anticipate scenarios we can make things even more bullet proof.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-35985653774473186702012-10-17T02:36:12.059+05:302012-10-17T02:36:12.059+05:30If this cannot be prevented in developed capitalis...If this cannot be prevented in developed capitalist countries, what makes you think it will be prevented in our local markets!!!<br /><br />In today's world of HFT, its institutional buyers and algo trading firms decide how markets work. It will be foolish to expect any major changes apart from some minor things here n there to satisfy masses and media.<br /><br />Rules are decided and crafted by BIG players NOT by retail investors....<br />Is It Possiblehttps://www.blogger.com/profile/06057804136443153674noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-8028027314387212422012-10-16T19:04:51.879+05:302012-10-16T19:04:51.879+05:30Imagine all the weirdos who would have their own a...Imagine all the weirdos who would have their own agendas in meddling inside the systems of NSE and BSE.<br /><br />Don't we have enough of those already. Hence "knowledgeable practitioners"Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-81769739888769981462012-10-16T18:14:04.985+05:302012-10-16T18:14:04.985+05:30These things are easy to come up with but are actu...These things are easy to come up with but are actually much harder than meets the eye. Here are some examples:<br /><br />"1. Not permitting market type orders for algo and institutional orders"<br /><br />Umm, are you nuts?<br /><br />"2. Not permitting market orders beyond a certain percentage of the size of the full order book"<br /><br />This requires that processing every ORDER requires analysing the full book. The number of orders is huge. Think of the processing cost.<br /><br />and so on.<br /><br />"6. A group of knowledgeable practitioners should get together and come up with practical ways to deal with these situations. SEBI would be well served in facilitating such discussions."<br /><br />You have to be very careful about Indian politics. Imagine all the weirdos who would have their own agendas in meddling inside the systems of NSE and BSE.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-89582396013270139922012-10-16T16:14:33.526+05:302012-10-16T16:14:33.526+05:30There are many actions that can be taken pre-trade...There are many actions that can be taken pre-trade to prevent such shockd. These include:<br /><br />1. Not permitting market type orders for algo and institutional orders<br /><br />2. Not permitting market orders beyond a certain percentage of the size of the full order book<br /><br />3. Not permitting market order execution beyond a certain percentage of the previous days Closing Price (A similar move planned for US markets by the SEC)<br /><br />4. Not permitting single orders (regardless of the type of order) beyond a certain quantity and value for retail and institutional orders respectively. The quantum can be determined statistically based on historic data on order sizes and values.<br /><br />5. A unique way of adaptive exceptional handling. Consider two orders as follows:<br />a. An institutional limit order for say Rs 10 Cr with the limit price being within 10-20 bp of the LTP<br />b. An institutional limit order for say Rs 10 Cr with the limit price being beyond 500 bp of the LTP<br /><br />Clearly one could treat these two orders differently. Credit card companies do this all the time. If I am routinely transacting for petrol for Rs 1,000 or Rs 2,000, they don’t call me to verify my 14th transaction of the month. However, if I suddenly have a Rs 2 lac transaction with Tribhovandas Zaveri (clearly an exception) alarms go off and they call and check with me. <br /><br />Exchanges can also use this kind of adaptive intelligence and either accept and process an order or put it aside and have a conversation with the dealer/ member concerned. In any case beyond a certain point where the market will see huge spikes (as in Emkay) they should have a different mechanism. This kind of adaptive intelligence is well within our reach.<br /><br />6. A group of knowledgeable practitioners should get together and come up with practical ways to deal with these situations. SEBI would be well served in facilitating such discussions.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-15794021634479111312012-10-16T14:49:04.455+05:302012-10-16T14:49:04.455+05:30Totally agree with you:
"We need more eyeball...Totally agree with you:<br />"We need more eyeballs, more capital, more limit orders, more arbitrageurs, more algorithmic trading, more short selling."<br /><br />On the more eyeballs side, I have done some analysis on the flash crash using the minute by minute data and what that tells about the depth of order books. http://quantplus.blogspot.in/<br /><br />I would like to explore this topic further by obtaining trade-by-trade data from NSE. If you have some recommendations / pointers, those are much appreciated.<br /><br />Thanks!Ravi Arankehttps://www.blogger.com/profile/08706098376170260290noreply@blogger.com