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#iex#high-frequencytrading#latency

How to slow down a stock exchange

Tom Scott

6.7M subscribers • 28 videos on Hallway

YouTube
  • Recommended by 1 person: 1 on Hacker News.
  • Presented by Tom Scott

Beginner. No background in the topic needed.

4M views7 years ago1 recommendation

Systems programmingHardwareNetworking and protocolsPerformance and optimization

Tom Scott explains how the IEX stock exchange uses a 38-mile coil of fiber-optic cable to introduce latency and counter high-frequency trading.

High-frequency traders have a few tactics on stock exchanges: but simply put, they gather price information faster than anyone else, sometimes even faster than the markets themselves, and use that to make a tiny profit many, many, many times. There are all sorts of solutions: but it turns out there's a simpler one that involves physics. Thanks to Ronan and all the team at IEX - you can find out more about them here: iextrading.com/ or on Twitter at twitter.com/IEX I fact-checked Ronan's claim about the SEC white paper because it seemed a bit too good to be true, but he's right: see Hu, E. (2018). Intentional Access Delays, Market Quality, and Price Discovery: Evidence from IEX Becoming an Exchange. SSRN Electronic Journal. sec.gov/files/07feb18_hu_iex_becoming_an_exchange.pdf [PDF] Edited by Michelle Martin youtube.com/@OnTheCrux 🟥 MORE FROM TOM: tomscott.com/ (you can find contact details and social links there too) ❓ LATERAL, free weekly podcast: lateralcast.com/ youtube.com/lateralcast/ 👥 THE TECHNICAL DIFFICULTIES: youtube.com/techdif

Why it's here

1 person recommends this

What people say. Recommended as a clear explanation of how physical latency is used to create fairness in financial markets.

m0rphlingon Hacker News • Recommends

On “Goldman Sachs is spending $100M to shave milliseconds off stock trades”

Tom Scott did a nice video 1 on IEX's setup with 38 miles of fiber to add enough latency as a mechanism of fairness. Purportedly, this benefits all exchanges after it was successfully deployed. It seems like the incentives are not there for larger, more established exchanges to implement such blanket latency. So, firms like GS see a benefit to this kind of investment. 1 link to this video

anfractuosityon Hacker News • Mentions

On “Companies Pitch Shortwave Radio to Shave Milliseconds Off Trades”

The IEX stock exchange uses fibre to introduce a fixed delay - link "This 350 microsecond delay adds a round-trip delay of 0.0007 seconds and is designed to negate the certain speed advantages utilized by some high-frequency trader" I watched this short video about it too - link to this video

n3k5on Hacker News • Mentions

On “Timekeeping in Financial Exchanges”

Tom Scott made a short video about these cables: link to this video 61 kilometres of fibre-optics for a 350 microsecond delay.

bigmattystyleson Hacker News • Mentions

On “Intruder at the top of the 20 meter amateur band?”

Do exchanges like HF traders? I know HF traders themselves justify their own existence by claiming they provide liquidity to the markets, but I've always just sort-of rolled my eyes at that. They only extract value and provide none, in my opinion, tax the profits heavily. I think every exchange should pad each order by a random number between 0 and 250ms, it would take care of it. The company profiled in this video add lag link to this video

colejohnson66on Hacker News • Mentions

On “Riot Games: Artificial Latency for Remote Competitors”

Not apocryphal; IEX has 38 miles of wire in their building. Tom Scott did a video a few years ago about it: link to this video

blibbleon Hacker News • Mentions

On “Riot Games: Artificial Latency for Remote Competitors”

the wire thing is definitely real for IEX it's part of the exchange's license and they have several videos of the rather large wire there's even a tom scott video on it: link to this video

kmeisthaxon Hacker News • Mentions

On “Commercial Interests Petition FCC for High Power Allocation on Shortwave”

There's actually an exchange that did this. In order to avoid software problems that would negate the slowing, they actually plugged their servers into a giant box full of fiber optic cable. If someone manages to get past that, then they don't have an HFT firm, they have a time machine. link to this video