Speed—the only HFT advantage? Not so fast
By Vasant Dhar
What if the entire data trail of the stock market were available to everyone after the end of the trading period, such as a day or a week?
Asking the right questions of the data was key to finding the exploitable patterns buried in massive amounts of data. Interestingly, the program stopped working when Reg NMS came into effect. The regulation had, in effect, eliminated my advantage and created new opportunities for a new breed of players who could exploit NMS to their advantage.
An important overlooked fact in the current debate is that the same players who invested in speed have also invested in big data and sophisticated predictive analytics. If we consider the sheer volume of data generated by the stock market — quotes, orders, trades, cancellations, prices, messages — it is enormous. When combined with news releases and economic data, the fire hose of information is overwhelming to all but the most analytically astute. A player with the ability to discover buried, but exploitable, patterns is at a huge advantage over the significant majority who are not well positioned to find them, including regulators.
Read the full article as published in CNBC.
Vasant Dhar is Professor and Head of the Information Systems Group and Co-Director of Stern's Center for Business Analytics.
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