The Problem of HFT: Collected Writings on High Frequency Trading & Stock Market Structure Reform

by Haim Bodek

From the Back Cover
"Modern HFT wasn't a paradigm shift because its innovations brought new efficiencies into the marketplace. HFT was a paradigm shift because its innovations proved that anti-competitive barriers to entry could be erected in the market structure itself to preference one class of market participant above all others."

Genres: Finance

112 pages, Paperback

First published January 15, 2013

Reviews

[Julian Dunn · Rating 3 out of 5]

Haim Bodek is one of the main characters in Scott Patterson's book "Dark Pools" about how HFTs and exchanges have colluded to rig US equity markets. This topic has also been extensively covered in Michael Lewis' "Flash Boys", so I never read Patterson's book and instead went directly to the original research. As the former CEO of a high-frequency trading firm that he founded, Bodek eventually turned against HFT and alerted the SEC to the destabilization of markets caused by these strategies. In other words, Bodek knows what the hell he's talking about.

That said, this collection of essays is not particularly accessible to the layman, especially for someone not versed in the jargon of equity markets. I admit to skimming several of them as it wasn't clear whether Bodek was adding additional information or simply writing very long sentences using financial jargon in order to establish his credibility with an audience that consists of brokers, traders, and institutional investors.

While I learned a great deal about the specific techniques HFTs use to rig markets (e.g. employing custom order types that they've developed in collusion with exchanges, and what those consist of) the level of detail in these essays is far beyond what's necessary for the average reader. It's probably worth skipping this book unless you're the type of person who knows the difference between top-of-book and top-of-queue and therefore would be interested in knowing what, exactly, a hide-not-slide order is in the context of Reg NMS.

[Jovany Agathe · Rating 3 out of 5]

High frequency trading is all about speed, right? Turns out, not quite. Yes, speed is a prerequisite, but to quote Haim Bodek: "the US stock market had become almost exclusively a special order type game." In other words, to play the game, you need to understand the "plumbing" of the markets, the special order types, and how they work under the hood -- without that, you'll almost always lose against the new breed of HFT traders. The problem is, these order types are neither consistent, documented, or regulated. As a result, few firms "in the know" get guaranteed returns, at the cost of all the other market participants. The system is broken and Haim Bodek provides a rare glimpse into this world...

[Dimitri Bianco · Rating 5 out of 5]

Excellent book for those who want to understand the issues with Regulation NMS. The equity markets have been toxic since Regulation NMS. This book covers a lot of details on how this regulation and corruption with the exchanges has caused issues in the equity market including a large shift of investments to off lit exchanges (dark pools and etc.). It's a quick read at about 100 pages but gives you a good insight to some of the problems HFT and bad regulation has caused.

[Marks54 · Rating 3 out of 5]

This book was recommended to me by someone in the business as a source for greater detail on some of the issues raised by Michael Lewis in his recent book on high frequency trading - Flash Boys. This is a book of chapters/essays by the author that likely began as working papers or industry articles. The book is a bit on the dense side but provides considerable background about the industry changes trading rules, the proliferation of competing exchanges and private "dark pools" that have grown since 2007 and which have caused much of the concern that Lewis focused on. Lewis is a better writer but I feel like reading this book will help separate the signal from the noise in terms of how this industry is evolving, how transparency is being promoted, and which institutional reforms are likely in the near term. The entire area of market microstructure and the behavior that accompanies it is hugely complicated however and many will feel the need for additional homework after this book. The author provide a wealtth of additional reference to pursue for those wishing to learn more.

[Jeremy · Rating 4 out of 5]

Constructive and informative resolution to the topics of HFT