Details

<p>Introduction xi</p> <p>Acknowledgments xiii</p> <p><b>Chapter 1 Birth of High Frequency Trading: Equity Markets Go Electronic 1</b></p> <p>Defining High Frequency Trading 2</p> <p>Who are the High Frequency Traders? 6</p> <p>Impact of High Frequency Trading 9</p> <p>Building a High Frequency Trading Team 13</p> <p><b>Chapter 2 Market Structure 15</b></p> <p>Order Handling Rules of 1997 16</p> <p>Growth of Electronic Communication Networks 17</p> <p>Regulation National Market System 22</p> <p>Market Fragmentation versus Competition 28</p> <p>Dark Pools 32</p> <p><b>Chapter 3 Trading Infrastructure 47</b></p> <p>Rise of High Performance Technology Vendors 49</p> <p>Key Components of High Performance Infrastructure 52</p> <p>Feed Handlers 52</p> <p>Ticker Plant 54</p> <p>Messaging Middleware 55</p> <p>Storage 58</p> <p>Networking 59</p> <p>Colocation 60</p> <p>Sponsored Access 61</p> <p><b>Chapter 4 Liquidity 71</b></p> <p>HFT as Liquidity Providers 71</p> <p>Flash Crash 72</p> <p><b>Chapter 5 Trading Strategies 75</b></p> <p>Examples of Algorithms 77</p> <p>Order Types 78</p> <p>Flash Orders 79</p> <p>High Frequency Trading and Predatory Strategies 79</p> <p><b>Chapter 6 Expansion in High Frequency Trading 81</b></p> <p>Futures 81</p> <p>Fixed Income 84</p> <p>Foreign Exchange Market 85</p> <p>Equity Options 92</p> <p>Over the Counter Derivatives 94</p> <p>Expansion into Global Markets 94</p> <p><b>Chapter 7 Positives and Possibilities 105</b></p> <p>Commoditizing High Frequency Trading 106</p> <p>Trading Technology Demands and Preferences 108</p> <p>Internal Focus 109</p> <p>Choosing Vendors 110</p> <p>Finding the Next Opportunity 111</p> <p>Issues and Risks 114</p> <p>Order Routing Gets Smart 115</p> <p>Smart Order Routing’s Future 118</p> <p>Is Artificial Intelligence Next? 121</p> <p>Economic Indicators 121</p> <p>News 122</p> <p>Securities and Exchange Commission Filings 123</p> <p>The Pseudo-Semantic Web 125</p> <p>Going Global 128</p> <p>The Next Wave 129</p> <p><b>Chapter 8 Credit Crisis of 2008: The Blame Game 131</b></p> <p>U.S. Federal Reserve 131</p> <p>Regulatory Agencies 132</p> <p>Credit Agencies 132</p> <p>Politicians 132</p> <p>End-Users of Derivative Products 133</p> <p>Recent Regulatory History 134</p> <p>Financial Modernization Act of 1999 134</p> <p>Commodity Futures Modernization Act of 2000 134</p> <p>Dodd Frank Wall Street Reform Act of 2010 135</p> <p>Ending Too Big to Fail Bailouts 136</p> <p>Creating Transparency and Accountability for Derivatives 137</p> <p>Hedge Funds 137</p> <p>Credit Rating Agencies 138</p> <p>Executive Compensation and Corporate Governance 138</p> <p>Impact of Potential Regulations and Rule</p> <p>Changes—Securities and Exchange Commission</p> <p>Concept Release 139</p> <p><b>Chapter 9 Conclusion 141</b></p> <p>Glossary 143</p> <p>About the Authors 149</p> <p>Index 151</p>

<p><b>PAUL ZUBULAKE</b> is a senior analyst at Aite Group, LLC, specializing in financial, energy and commodities futures, and options markets. His expertise includes how the application of technology, such as algorithmic trading and FIX protocol, is playing an ever-increasing role in futures and options trading. <p><b>SANG LEE</b> is a cofounder of Aite Group, LLC and currently serves as the managing partner. Mr. Lee's expertise lies in the securities and investments vertical and has advised many global financial institutions, software/hardware vendors, and professional services firms in sell-side and buy-side electronic trading technology and market structure. <p>Lee and Zubulake have both been quoted extensively in the media, including in the <i>Wall Street Journal, New York Times, the Washington Post, Financial Times, Business Week, Reuters, the Chicago Tribune</i>, and other publications.

<p>The transformation from a human based trading model to an electronic model has been one of the most important technological advances of modern investing. But this transformation has not come without controversy. Instead of calling in your orders to a broker who then would execute it via a floor exchange, the order now is instantly transmitted to the various market venues. The market has a new player, but it is not a person, it is a machine that can replicate the role of a liquidity provider but at a much higher rate of speed and efficiency. Sometimes controversial and most times misunderstood, the role of the automated trader is one of major importance in today's ever-changing marketplace. <p><i>The High-Frequency Game Changer</i> offers a forward looking overview of the high-frequency trading trend—including the movement into other asset classes, global domination, and retail traders getting into the game. The book examines who "high-frequency traders" are and analyzes the impact of high-frequency trading on the rest of the marketplace—in particular how it affects liquidity and trading strategies. The authors detail the far-reaching effects, both positive and negative, of this trend, looking at its effect on futures markets, global markets, quantitative trading, future regulatory changes, and more. <p>The high-frequency trader story is one of how the shift of power in a profitable business can create a firestorm of misunderstanding. <i>The High-Frequency Game Changer</i> cuts through the confusion and shows how you can make the most of a fundamental change in the markets that is here to stay.

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