Commentary

Tim Quast
Traders Magazine Online News

We're All HFTs Now

In this guest commentary, author Tim Quast looks back at the history of HFT and how the market has evolved to where many firms now fit the definition of high-frequency trader.

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June 30, 2003

At Deadline

By

Nasdaq ECN

*If you can't beat 'em, join 'em. That might be the thinking at Nasdaq these days, which is feeling the competitive pressures of booming electronic communication networks. Nasdaq officials say they plan to change their SuperMontage platform, attempting to introduce changes which include two separate market participant identifiers, or MPIDs.

Some of the changes would include trade anonymity through clearing, instead of just pre-trade. Nasdaq also wants to include features for discretionary or pegged orders. SuperMontage is experiencing declining volume. Decimals have also meant that it is often easier to use limit orders on ECNs, which have the advantage of speed.

Messages

*The NASD clarified its position on instant messaging last month. The regulator told its 5,400 members to supervise their employees' use of IM and retain all messages for at least three years. Those firms unable to comply with the new interpretations of NASD rules 3010 and 3110 must "prohibit the use of instant messaging in customer communication," the NASD said in a memorandum.

The NASD action mirrors a similar pronouncement by the New York Stock Exchange in March and was expected. Both directives make clear that broker dealers must treat instant messages as they do e-mail. The communiques must be monitored and archived. For sellside traders, IM has become a crucial communication link with the buyside in recent years. But it is estimated that only a quarter of all broker dealers archive their messages. Much instant messaging is done over public networks run by AOL, Yahoo! and Microsoft which do not offer archiving.

Lava

*Lava Trading will begin marketing an order management system to the sellside in the fourth quarter. The vendor of direct access technology plans to leverage its presence on market makers' desktops. On the Nasdaq side, the dominant player, SunGard Trading Systems' Brass, is considered vulnerable. Lava will also compete against royalblue and the NYFIX/Renaissance combo. Lava's decision to market an OMS to the sellside is unrelated to its recent decision to integrate its front-end technology into the buyside OMS sold by Macgregor. Lava chief executive Rich Korhammer says the new OMS is designed to accommodate the practice of sector-based trading. "Other vendors may have both [Nasdaq and listed capabilities]," he added, "but typically they haven't been built and integrated to seamlessly behave in a similar fashion [like Lava]."

Uniform

*Nasdaq trading rules should be uniform across all the venues in which the stocks trade, according to the Security Traders Association, which filed a comment letter with the SEC. "The STA Trading Issues Committee agrees with the premise that regulatory contributions of individual marketplaces are not in balance with the extent to which they share the benefits of a strong regulatory environment," the STA wrote. "While this imbalance is seemingly growing in the eyes of Nasdaq, it has also become a matter of consternation to all market participants including, but not limited to, investors and broker-dealers, as it is those entities that ultimately should bear the brunt of regulatory costs." STA also wrote that all SROs trading Nasdaq stocks must have "an electronic audit trail identical to NASD's OATS Rules and short-sale restrictions similar to NASD Rule 3350."