In our blog on Habrakhabra we told about Nanex system which is used for visualization of data on the exchange auction. Turning-out schedules allow to see visually distribution of trading volumes and to reveal anomalies in the changes in price. Today we will talk about the founder of this system which has become the real hit and a thunder-storm of hedge funds and the HFT companies.
From the simple programmer from the American remote place thanks to the knowledge and thirst of justice Eric Scott Hunseyder turned into the real fighter with dishonest game in the financial market and became its real star. Journalists of the MarketWatch edition described the biography of the founder of Nanex, and we chose its most high points.
Programmer self-educated person, easy school
Hunseyder was born in 1963 and the State of Florida grew in the city of Menati. Telling about the youth, he with a smile remembers sailing walks along the coast of the Gulf of Mexico. His father was a farmer and grew up tomatoes, and mother — the housewife. Hunseyder, the second for a seniority among four brothers and sisters, was the clever teenager who with ease studied at school. "Everything came to me easily," he told in interview for the MarketWatch Internet edition. Hunseyder started trading in actions after the college termination. He came to a conclusion that it needs to automate demands to succeed therefore decided to learn the C%2B%2B programming language independently. Its first trade program which opens long and short positions on futures when their sliding averages are crossed, allowed it to make of 6000 dollars 36000 dollars a year.
The similar success could make the young man conceited, but instead he decided that it obviously does not have knowledge. He decided to leave for a while independent trade and was engaged in development of software for traders, having worked in a set of the companies keeping such projects.
Eric Hunseyder
In 1995, having been sure that the Internet in a root will change trade, he left corporate work to write the program which displays in real time information on actions and futures. In 1996 he sold this Quote.com program where started Livecharts, system of visualization of data in real time, and QCharts, the automated trade workplace for Windows. When in 1999 of Lycos bought Quote.com, Hunseyder received the large sum of money and built the house in the State of Illinois — there and now there lives all his family. And in 2000 Hunseyder based Nanex. The company from three people collected information on stock auction, futures and options at the New York Stock exchange, Nasdaq, BATS and the Chicago commodity exchange.
Nanex buys exchange data — ispolzuyuetsya both historical information, and quotations in real time. The system stores about 4600 days of information, since 2003. "We constantly buy new servers," Hunseyder speaks.
"I looked behind the scenes and I did not like that I saw"
The exchanges began to master the electronic auction about three decades ago. Electronic trading allowed some companies to use a fast-changing situation in the market on milliseconds quicker, than competitors that provoked technological race of arms managed to make their it. For the last 15 years the world financial market became much more fragmented: where there were three main exchanges of the USA earlier, now there are more than 40 exchanges and alternative trade systems.
Today HFT traders use algorithms to analyze a situation in the market and instantly to react to the slightest changes which also can be caused by actions of robomouths. Technologies made trade faster and effective. But the system did not become more transparent, it is rather on the contrary. Many began to ask a question, whether HFT dealers who, in fact, can get advantages over other bidders at the expense of the improbable speed bring benefit.
On May 6, 2010 the Dow Jones index fell almost to 1000 points that became the biggest intra day falling for all the time. Governmental investigation called the large warrant which has provoked panic sale of financial instruments that led to an instant collapse of stock market as the failure reason. However the structural problem which led to sharp falling of the largest financial market for 10% in 20 minutes, was not revealed.
In the research published in June of the same year, Hunseyder assumed that the high-frequency trading companies reacted to that large warrant a huge number of the demands which were cancelled even before execution. It led to "zabivaniye" of a flow of quotations which is necessary for traders for transactions.
According to Hunseyder, use the technician, like this, creates illusory liquidity which led to crash of stock market and the subsequent drama events. For the problem description it entered the new term "zabivaniye of quotations" ("quote stuffing"). Hunseyder told that "it something was similar to network attack on the website, the system cannot simply cope with it and falls off".
Hunseyder, having been sure that could define the main structural problem, published more than 2000 reports telling about any manipulations later. Some — in only some offers, others — with the detailed explanation of to what, according to him, to manipulations the markets are exposed.
"I looked behind the scenes and I did not like that I saw" — Hunseyder speaks. In reports and social media it criticizes operating not by rules of HFT dealers, the exchanges which are relieved of criminal prosecution; regulating structures which do not do enough for protection of interests of investors.
Use of "a zabivaniye of quotations" and other similar tactics has to be pursued on zakno. But still such cases are single, and Hunseyder explains it with that fact that the exchanges insufficiently actively investigate manipulations on the trading floors — in many of them big customers with whom nobody wants to quarrel can be guilty.
In turn, predsavitel of the exchanges, for example BATS and the Chicago commodity exchange, assure that their companies watch closely possible violations of the rules of trade as their main objective there is a protection of interests of investors. Someone from them, such as the New York stock exchange and Nasdaq, in general refuse to make comments on Hunseyder's charges.
Hunseyder's investigations won to him glory of the fighter with system whose traders, brokers and scientists-economists ask for suggestions. When there are sharp falling in the market like a collapse on August 24, 2015 when the Dow Jones index decreased on 1000 points in 30 minutes, journalists and investors throw it letters and calls. Dialogue with it try to enter and representatives of the state — Hunseydera invited to round tables and discussions in the Federal Reserve System of Chicago.
Hunseyder became small mass media about a situation on the financial markets — he sends tens tweets a day, the number of his subscribers only in Twitter exceeds 72000 people, among which large exchanges, banks, officials, traders, portfolio managers and journalists. It often illustrates the posts schedules, attaches references to other articles and screenshots of messages of other people. He calls the profile a source "pure news without filter". "Want that or not, it has a voice in this discussion," the director general of alternative trade IEX system Brad Katsuyama speaks.
In life Hunseyder very friendly and polite, he prefers easy conversation by formal interview. Especially he likes to speak about the family and about achievements of his four daughters. However on public it can be quite rigid and unshakable. In the Twitter he called one reporter "lobbyist" and suggested subscribers to ignore market research of one director general that "not to waste precious time" and "several IQ points. Recently he added the congressman of the State of Wisconsin on "the Shame Wall" and used a swear word in relation to a popular TV-network.
Journalists of MarketWatch tried to contact representatives of finance companies which are criticized often by Hunseyder. In Citadel and KCG refused comments for article about it. The Virtu company did not respond to some letters with request of the comment. In response to a request to speak concerning opinion Hunseydera Bill Harts, the director general of Modern Markets Initiative group, answered by e-mail that the group "does not know that Mr. Hunseyder carried out any outstanding researches" on high-frequency trade.
Alternative to the habitual exchanges
Hunseyder is the supporter of the trade IEX platform belonging to managers of assets and venture investors — we wrote about this platform in this material. Unlike other exchanges, organizers of IEX entered a delay into 350 microseconds for implementation of orders to balance possibilities of all bidders. According to Hunseyder, data show that the IEX exchange has the greatest percent of the executed transactions in an average point between the buying prices and sales that speaks about honesty and objectivity.
The IEX company which carries out about 2% of transactions with securities of the USA, fights for receiving registration as national stock exchange. The company submitted the application in September, 2015, but Komissya on securities and the exchanges does not hurry to satisfy it — despite a large number of statements in support of undertaking from traders and investors. The old American exchanges and the large HFT companies like the same Citadel opposed IEX registration.
The main threat — trust loss to the market
As Hunseyder speaks, the belief in justice and transparency supports his fears. Existing rules are sufficient for implementation of protection of interests of investors, but often exchanges the large financial organizations do not observe these rules, and regulators do not make them responsible. Partly so occurs because the technology which would help ostlezhivat possible manipulations in real time is not introduced yet.
Hunseyder complains about lack of the consolidated system of financial analytics which would process information on the auction and analyzed market events. Existence of such tool would help regulating structures to watch the anomalies preceding fluctuation in prices of assets. Without a thing it the Commission on securities and the exchanges simply does not suffice convincing proofs of offenses, even when their existence seems very probable.
Some agree with Hunseyder. In September, 2015 Kara Stein authorized to the Commission told that "the speed and complexity became almost force majeure in the market, effective supervision cannot simply happen without the consolidated system of financial analytics". The cofounder of the Themis Trading company and, in combination, one more critic of HFT dealers Joe Saluzzi declared in conversation with journalists that "the markets moved ahead for some light years, while system of supervision strongly obsolete".
In 2012 the Commission on securities and the exchanges disposed to create the consolidated system of financial analytics, having charged it to partnership of national stock exchanges and associations, among which members the New York stock exchange, Nasdaq, BATS, the Chicago commodity exchange and Agency on regulation of activity of financial institutions (independent non-profit organization authorized by the Congress for regulation of participants of the market).
The project it was planned to realize in 2015. According to Financial Times edition, more than 700 meetings for discussion of parameters, costs, suppliers, etc. were held. As a result, as of November, 2015, only the short list of potential suppliers of data, among which Agency on regulation of activity of financial institutions (Finra), SunGuard and Thesys which is considered still by the Commission was published. All this Hunseydera who calls an objective "to impropriety idle time" as he is able to collect similar data the system though in them and there will be no identifying codes of bidders strongly upsets. Recently he declared at itself(himself) in the Twitter that the similar analytical system for identification of manipulations "will be never created". SEC does not make comments to journalists on a course of this project.
Hunseyder also complains about legal inviolability of the exchanges — the investor who considers that the platform provided important financial information to other players earlier, we will not be able to file a lawsuit against it. Such inviolability was provided to the exchanges as initially they were created as the non-profit member organizations and were regulated by federal agencies.
Many observers schiatyut that they had to lose this inviolability, having become full-fledged commercial corporations. Without immunity it would be easier to make the exchanges accountable to participants of the market. Hunseyder also considers that penalties for violation of the established rules are too small.
Hunseyder is always unshakable in the requirements of justice and the rule of law. Both in interview, and in social networks he says that is afraid of possible undermining trust of investors to a financial system because of problems which it revealed. And it, in turn, can cause serious shocks in the markets: "As soon as people will understand that them deceive, they will cease to participate in it. What then becomes with a subject of pride of the United States? "
Other materials on a subject of algorithmic trade in the blog ITinvest:
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