Longtime Zero Hedge readers are aware of our disgust at what fragmented exchange locations coupled with federal regulation loopholes have done to fair markets when mixed with a cabal of market makers who collude to loot the average US investor. In the years since 2009 when we first informed the world of the potential dangers of HFT (months before the Flash Crash) the race to zero has since sought to extrapolate as much Alpha from errant time-syncing as possible. Latency arbitrage has now hit a new level of insane.
Today we've learned that the legendary Jim Simons of Renaissance Technologies has patented a way of "executing synchronized trades in multiple exchanges" by using atomic clocks on each exchange whose degree of accuracy comes to within billionths of a second.
Whoa. Has the issue of being front run by nanosecond HFT become so prevalent that Jim Simons needs his own patented clock system just to protect his trade execution timing? You bet!
Who knew that the situation had deteriorated so badly that one of the legends of Wall Street trading would require his own, in-house, patented atomic clocks just to ensure he is able execute orders? What a shame that the SEC allowed Reg-NMS to turn the market into nothing more than exhaust fumes and a CNBC background shot.
As for latency arbitrage, it is a beautiful disaster. Beautiful in how complex it is and a disaster in terms of the wake of destruction that is left so a few souls can rake in millions skims retail and institutional equity transactions.
Also, we would be remiss to not give a shout out to Citadel and the crew for their continuous rambling on about how IEX would be unfair by introducing latency in the firm's March 2016 presentation of arguments supporting a denial of IEX's Exchange Status application. The complex part is this: Citadel loves the natural world. There is an embedded latency in the world, on a fast enough level, that is impacted by the curvature of the earth. There is no way to arb that latency away entirely. So Citadel gets whiny when IEX comes in and offers a reasonable and fair slow down to trading, to arb away a piece of a guaranteed economics that only exists in the world Citadel and others wish to take us into.
But Modern Markets/Citadel/Tabb claim at the top of their lungs "Latency Arb doesn't exist".. Patent DENIED https://t.co/zAk9BGPGJO
— Eric Scott Hunsader (@nanexllc) July 7, 2016
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