Saturday, 12 May 2018

Water, silt, electronics, and life don't mix

Nice floods down in Tasmania far from the maddening crowd:

The clean-up from Hobart's worst storm in decades is underway, with the total damage bill estimated to run into many millions of dollars.

Unfortunately, we got hit with about 70cm, or knee height water and sludge through the house. Servers recently moved from the home/office into the city are safe thankfully. All the tinkering stuff, notebooks, old hdds, many records lost sadly. Awful smell is probably the worst thing. Many people much worse off, though escaping would have been nice.

A sign of the times:

No longer over road - after through house ;-|
Up to the third drawer:

Gadget containers filled from the top, can't be good :-(

A few levels of trays, including HDDs trashed:

  FPGA hacking gear drying out:

Lots of gear drying out:

Only seven rooms at least. I suspect silt and water and precision equipment don't mix so well.

On the bright side, data is safe. No virtual bits lost. Real bits can be replaced.


Tuesday, 20 March 2018

Project Everest - Adaptive Compute Acceleration Platform

What would you do with a 50 billion gate budget?

Mt Everest from the Tibetan plateau - Wikipedia
I meander about this occasionally in my dreams. Xilinx has gone a step further and spent about $1B, four to five years, and the efforts of around fifteen hundred engineers to come up with Project Everest.

Xilinx is calling the result the adaptive compute acceleration platform (ACAP). They are expecting to tape out the first version in chip form, code-named "Everest",  in 7nm at TSMC later this year [Xilinx Press Release.]

The idea is to use a network on chip (NOC) as a fabric assist to glue together some ARM based CPUs, "programmable engines"; HBM; RF ADCs / DACs; 33G, 58G, 112G Serdes, and programmable IO. It also suggests that Xilinx is going to swing back to using a mix of monolithic and interposer-based chip delivery too after eschewing the interposer approach for their latest monolithic UltraScale+ designs.
(click to enlarge)

The goal is to target the kind of workloads GPUs and AI chips, such as Google's TPUs, are now doing at a reasonable W/Op rate.  In addition, they want to target more application-oriented specific chips, such as RF baseload ASICs, with this flexible, or adaptable, chip architecture that can seemingly do it all.
(click to enlarge)
It is a very interesting approach. FPGAs have been adding more complex, dense application specific logic blocks for a while to add connectivity or compute opportunities that would otherwise consume too many FPGA resources or be too slow in their generic FPGA routed form. We've seen that in the growth of PCIe, memory interface, embedded processor, DSP, BRAM, network specific blocks use in modern FPGAs. Project Everest takes it another step including a bigger palette for your palate with the addition of an alternative glue of the NOC instead of just relying on FPGA routing resources.

Those familiar with Jan Gray's very cool GRVI Phalanx will not need to wonder long about the usefulness of such an approach. It is useful. 
(click to enlarge)
Why it takes four or five years, 1500 engineers, and a billion dollars I don't know but perhaps there is some cofounding of various project costs in there. It reminds me of Wave Computing's CGRA to an extent that they are adding a lot of coarseness to the FPGA fabric but what it really means is a bit lost in the vagueness of what we know so far, especially with respect to the "programmable engines." We don't really know what it means. The effort is certainly a bit more extreme than the light budget and 1-2 man years that went into the Epiphany-V, a 1024 core 64-bit processor:
Epiphany-V development (source)
(click to enlarge)
One of the keys, perhaps the KEY, to the usefulness of this project will be the usability of the engine. Xilinx understands this and is suggesting you'll be able to access it with your C++ or Python. How flexible that will be, remains to be seen. Targeting ML toolkits, BLAS, etc will go a long way to making such a beast an indispensable bit of kit. The following development stack is encouraging:

(click to enlarge)
Xilinx suggests it will be easier to use than CUDA, with Python access, TensorFlow, etc, so large numbers of software developers may ignore the custom hardware engine underneath. A nice and ambitious goal for sure.

Having blocks for CCIX connectivity for building cache coherent interconnects for multiple chip solutions makes the mind meander into some fascinating territory. That is quite the kitchen sink.

The idea of 50B gates opens up this kind of dreamy architecture, as Victor Peng, Xilinx CEO, alludes to here [Anandtech interview],
"It is fundamentally different than what it was a few years ago, for example, somebody asked the question could you have done an ACAP prior to 7nm. Well we could, it would be in certain respects maybe a little less powerful, more costly perhaps, but the kind of the coming together of all those things together at 7nm makes this just the right time for the company to take this more quantum leap."
The intriguing bit, pardon the pun, is going to be in understanding the so-called hardware-software programmable engines. They will not quite be programmable to the bit. Their details are undisclosed for now,
"It's a little bit hard to talk the new product without pre-announcing some of the features, but I talked about hardware software programmable engine, which won't be an engine that is customizable down to a single bit, but it will have notions of some granular data paths and memory and things like that, and it has some overlay of an instruction set, but while most people won't program it, it still has hardware programmability. We’re not just somebody else coming out with a VLI doping multi core architecture because then what is the difference between us and someone else right? There's always going to be that secret sauce."
Finding out the NOC capabilities will be interesting. Xilinx has licensed a 3rd party NOC so it will not be groundbreaking in itself but the combination should be powerful you'd expect.

Here are some performance claims in Xilinx's footnotes (click to expand to read):
(click to enlarge)
Xilinx is saying here that Everest will provide 20x Virtex VU9P acceleration for deep learning. Frankly, that is too low to dislodge the case for an Nvidia V100, Pegasus Drive, or Google TPUv2. We'll have to wait until we see some real benchmarks.

We can't get too excited as shipping and revenue will be next year even if tape-out and perhaps some engineering samples come out this year. Xilinx may still shoot themselves in the foot as their high-end Virtex FPGAs retail for $10-50K. Selling a $50K accelerator will cause some pause. My paws will pause. Delivering a beast that can outperform an Nvidia V100's 120 TOPS for ML at a similar price will be the benchmark they will have to meet.

I like the approach but the specifics will matter. We will all have to wait for more meat on the bone to be presented. Especially for what those "programmable engines" really are. Can they compete with thousands of Nvidia streaming compute units? I don't think Everest completely eclipses the idea of a NOC with thousands of small CPUs with custom co-processors attached, but it may make it harder to justify a start. Again, specific performance and price matter. Xilinx has been strong on delivering glorious high-end chips - just not high-end chips priced for the masses. Let's hope they give us something fun we can afford.

Happy chipping away,


Press release articles with discussion:

Friday, 2 March 2018

Nasdaq sues IEX for patent infringement

(click to enlarge)
Nasdaq is attempting to neuter the InvestorSexChange (IEX).

Yesterday Nasdaq and Nasdaq Technology AB decided to preempt the usual Ides of March bushwhacking with an earlier little march to the District Court in New Jersey to file Case 3:18-cv-03014 against IEX Group, Inc; Investors Exchange  LLC.

Let's have a meander around this.

It has been widely reported:
Nasdaq Press Release, "Nasdaq Files Patent Infringement Lawsuit to Protect Intellectual Property"

Reuters, "Nasdaq sues rival IEX Group over patent infringement" by John McCrank
Bloomberg, "Nasdaq Sues ‘Flash Boys’ Exchange IEX for Patent Infringement" by Annie Massa
WSJ, "Nasdaq Sues IEX Over Stock-Exchange Technology Patents" by Alexander Osipovich
FT, "Nasdaq sues IEX for allegedly infringing technology patents" by Nicole Bullock

Here is the complaint filed on behalf of Nasdaq by Critchley , Kinum & Denoia, LLC and  Susman Godfrey LLP in all its insomnia-inducing eighty pages of glory.

(click to enlarge)
Notably, Nasdaq is asking for willful damages which could attract up to treble damages if IEX is found at the requested jury trial to have infringed. If it gets to trial.

(click to enlarge)
I'm not the biggest fan of IEX being a public exchange as their Dark Fader style does not promote the kind of public price discovery exchanges are meant to perform. I'm firm in my view that IEX should be placed back in the SEC's ATS box.

That said, on a quick glance, I'm not necessarily a fan of all of the seven "Patents-in-Suit" Nasdaq has opened the suit with. Some of the patents seem a little abstract or obvious to me. Some are quite specific and do hit IEX quite directly. Overall, it looks a strong opening gambit from Nasdaq until discovery allows some refinement.

The seven patents in question are as follows, but you'd best just scan and skip if you wish your grey matter to not fuse and cry out in pain from the l33t patent-speak.

7,647,264, "Closing in an electronic market

Abstract: A method for trading a security in an electronic market includes receiving closing orders and orders for the security traded in the electronic market, disseminating an order imbalance indicator indicative of predicted trading characteristics of the security at the close of trading, determining a closing price for the security based on the closing orders and orders, and executing at least some of the closing orders at the determined closing price.

"Closing orders are executed in a single transaction. The information included in the imbalance indicator improves transparency and price discovery. Disseminating the imbalance indicator gives market participants an opportunity to adjust their trading based on the imbalance indicator by adjusting the price and/or size of existing imbalance only orders, or by submitting additional imbalance only orders. The closing process improves liquidity, reduces risk and reduces costs for investors seeking to trade at the closing price."

7,895,112, "Order book process and method"

Abstract: A system for execution of transactions includes a main memory of a computer system storing an order book to match a portion of security interest in the order book to a received order for a security.
Primary claim

7,933,827, "Multi-parallel architecture and a method of using the same"

Abstract: Multiple securities processors each process attributable security interest messages generated by market participants. Each of these attributable security interest messages relates to a specific security chosen from a plurality of securities traded on the securities trading system, such that each individual security is assigned to one or more of the securities processors. An order routing system routes each attributable security interest message to one of the securities processors.

8,117,609, "System and method for optimizing changes of data sets"

Abstract: A system and method for generating an update data set to be sent to remote terminals. The update data set comprises operators describing differences between two data sets, so that a remote terminal is able to transform an old data set into a more recent data set. The system comprises a comparator for comparing data elements in the data sets, and a selector for selecting operators based on a change parameter stored in a memory.

8,244,622, "Order matching process and method"

Abstract: A trading process for trading securities in an electronic market includes a matching process to match a portion of a received order for a security against a security interest stored in an order book that resides in main memory of a computer system.

"According to an aspect of this invention, a trading process for trading securities in an electronic market includes a matching process to match a portion of a received order for a security against a security interest stored in an order book that resides in main memory of a computer system.

According to a further aspect of the invention, a method for trading securities in an electronic market includes matching a portion of a received order for a security against a security interest of stored in an order book that resides in main memory of a computer system.

According to a further aspect of the invention, a computer program product residing on a computer readable medium includes instructions for trading securities in an electronic market cause a computer to match a portion of a received order for a security against a security interest stored in an order book that resides in main memory of a computer system.

One or more of the following features may also be included.

The main memory may be random access memory. The main memory may be a cache. The received order may be validated. The marketability of the received order may be checked against a state of the electronic market prior to matching the portion of the received order. The security interest may be retrieved from the order book in main memory. The security interest may be updated in the order book in main memory. The security interest in the order book in main memory may be added to. The matching of the portion of the received order may be reported to an execution log file. The matching may occur in a securities processor.

One or more advantages can be provided from the above. By matching security orders with security interests stored in a random access memory based order book, the orders may be quickly executed due to the fast access time of the order book. Further, besides quickly executing an order that can be matched, an order may be quickly entered into the order book if the order can not be matched. Additionally, if an order is not marketable the order can be quickly returned to the user. By providing faster matching more security transactions may be matched over a period of time thereby reducing the potential backlog of security transactions."

8,280,797, "Closing in an electronic market"

Abstract: A method for trading a security in an electronic market includes receiving closing orders and orders for the security traded in the electronic market, disseminating an order imbalance indicator indicative of predicted trading characteristics of the security at the close of trading, determining a closing price for the security based on the closing orders and orders, and executing at least some of the closing orders at the determined closing price.

8,386,362, "Information distribution process and method"

Abstract: A process for distributing information in an electronic market includes an insertion process to insert, in a file that resides in a storage medium, information representing an activity relating to a security interest stored in an order book that resides in main memory and is accessible by a matching process.

Further claims

Nasdaq is claiming at least four Nasdaq employees went to work at IEX and some or all were likely to have knowledge of the patent material. Nasdaq points to quite explicit language where IEX has acknowledged in their own material that they have carefully studied Nasdaq material so that they may perform similarly, especially with respect to the closing auction indication.

The case will not be able to be dismissed easily. 

It's worth reiterating, discovery will be interesting as Nasdaq will be hunting for further similarities and possible patent infringement additions to the suit. There has been no claim of source code copying alleged and you'd expect there not to be any, but you never know as stranger things have happened. Non-disclosure experts at forty paces will be expensive for IEX.

Some of the Nasdaq patents' claims seem overly broad and one line of attack from IEX will be trying to get patents invalidated in parallel to the process of the suit. Alice may help as some seem a little too abstract to really hold water. Alice rails against the all too abstract. IEX will be busy. It certainly looks like the closing imbalance indication violation will be a hard one for IEX to dodge. The employment of the ex-Nasdaq staff does not help.

I'm not sure all the other exchanges around the world using a non-Nasdaq platform will be cheering as many exchanges' matching engines use similar techniques. For example, there are not many exchanges that don't use the '827 patent, "Multi-parallel architecture and a method of using the same" technique for separating symbols over separate hardware matching engines. It's a pretty natural technique to use and it's not the kind of patent I like to see granted.

It is certainly going to be quite the distraction for IEX but you can have little sympathy for the "plucky Flash Boys exchange." IEX has long misled the public about their fairness and efficacy. IEX has used improper and intemperate language in the market structure debate to both glorify itself and teardown its critics. One should not forget the shameful attacks IEX has launched on some commentators. Such misbehaviour from IEX may not help them. You might imagine IEX's credibility could be called into question in court, especially with respect to a jury trial, when the court's attention is drawn to IEX's pattern of promoting incorrect information and misleading the public and their customers. Their BS may come back to bite them.  This may even be an essential line of attack in court. IEX's false public image is that of the good little guy providing fairness against the evil exchanges when that is far from reality. IEX is, in some regards, the least fair and most uneven of the public exchanges in the US. It may be necessary for Nasdaq's counsel to dissuade the jury from their potential IEX prejudice due to IEX's false fairness schmarketing. That could be interesting.

IEX performance

IEX has a bit over 2% market share for the last year. It remains a very expensive place to trade due to their high fees. It would not be unexpected if IEX was to bring in somewhere between $50-$100M in fees over the next year and they are likely to be sitting on a cash pile of the order of $100M you'd think. Inordinate fees for such a small market share.

IEX's market structure abuse and false marketing may have them laughing all the way to the bank. They may even have enough cash to pay some treble damages if the allegations are proved and willful. Though I expect the elimination of the infringing technology is probably the Nasdaq goal. If Nasdaq wins on all counts and the infringing tech has to be eliminated, not much of IEX will not be burnt to the ground. It's an existential threat to IEX. IEX will no doubt try to trivialise the suit as just a nasty competitive approach. That is kind of right and kind of the point. Patents are granted to those that take the innovation risk for good reason. Nasdaq is not a troll. They have real tech that should be given the protection an innovator deserves, even if I might not see eye to eye on all their claims.

Here is the recent IEX market share showing an average of around 2.3% recently:

(click to enlarge)
IEX continues to be a mainly dark exchange, though the additional US-wide volume spike from the volatility burst in February drove IEX's darkness to record low levels where only 76.5% of trades in February were not lit. Still pretty dank and dark in the expensive trade restaurant you'd have to say.

It is interesting to see in more detail the few especially higher volume days in February, IEX had more lit activity:

Though this still correlates to being darker for more market share:

Darker for more market share is not an encouraging trend for a public exchange. Efficient public price discovery needs to be promoted. The SEC needs to reconsider IEX's place as a public exchange. It is simply not a well-functioning public market. IEX should be an ATS.

One thought as to why IEX had more lit volume in the market chaos could simply be that the resting orders were disadvantaged for some customers due to the unfairness of the IEX technology platform combined with the fact that the crazy high fees were more acceptable to pay in such chaotic conditions. Hmmm. Also, as more of an outlier, there is an increased chance that the Crumbling Quote Indicator's (CQI) logistic regression may have performed under par.

I'm not sure Nasdaq would want to buy IEX but perhaps a nominal purchase price could be the easiest way out for IEX? Would Nasdaq want to license their tech to IEX? May Nasdaq be required to offer reasonable royalty terms? Could IEX have to eliminate various aspects of the technology? You know just the matching bits, the data feed, the closing auction, et cetera. The non-essential bits, really. They'd still have a brand left but not much tech in the smoking ruins.

Beyond Nasdaq's few hundred patents, both CME and ICE have broad and significant patent portfolios too. You have to wonder why they're not protecting their IP with suits against IEX? It is, after all, kind of a requirement that you need to enforce your patents to keep them viable. Will CME and ICE step up?

Happy trading,


Monday, 19 February 2018

The market factory: things that make you go hmmm

This little meander is just a catch-up on things that make me go, "Hmmm."

A belated HFT St Valentine's thought first:
Heatsinks are red
Packets race through
Bits don’t worry
Neither should you

CME Canaries

Via the WSJ, Quantlab started a very public war with CME and some other traders, likely to be other HFT firms, who have been enjoying the suffocation of canaries as meandered here, "Killing canaries.

With ten percent of trades having two milliseconds of delay in the market data feed, Quantlab has a good deal of right on its side.

Unfortunately, for avian-friendly traders at CME, Quantlab's representation in the WSJ was a bit wrong. The delay is more than twice as bad as reported. Or twice as good if you like killing canaries.  Quantlab posed to twitter more pertinent statistics,

That is quite the problem. At 5,093,000 nanoseconds of canary, Alexandre Laumonier, aka SniperInMahwah, pointed out - though with terser language - you can get a canary, package it up, transport it from Chicago to your choice of data centres in New York, New Jersey, and Mahwah, execute a trade, all whilst pouring a cup of coffee, and other participants at CME don't yet know the market price has changed.

I don't have a problem with little canaries. The canaries are natural and all exchanges used to work this way. A canary may be thought of as a technological rebate, as compared to a price making rebate, where you get a little advantage for making a market. You may argue for and against. Especially as there is a little more to the story that an HFT may not disclose. You know, secrets. We have to make a living.

Many exchanges are moving to a "public first" position, but I reiterate, having small canary effects is not an evil in itself. A friendly punch in the arm in jest is OK. Giving someone a black-eye is not so great. 5,093,000 nanoseconds of canary is also not OK. IEX remains the worst exchange as they purposefully notify all other co-lo facilities of all trades before their own customers.

I added an addendum to the previous meander noting that the wise Mr Sam Tyfield noted that under EU regs canaries on both lit and dark venues may be termed "phishing" and would be improper unless you documented your lack of intent in a valid trade plan. To not do so would be to invite risk. Mr Tyfield also contributed a nice poem for St Valentines day:
Canaries are contentious
Feelers are too
And if you want to know book depth
No intent is the clue
It seems to me that we all owe thanks to Quantlab for raising this debacular debate. The momentum is certainly swinging toward freeing canaries from market mining cages.

Canary latency is one of those things that should make you go, "Hmmm."


My meandering mind had mixed thoughts around the disbanding of the Equity Market Structure Advisory Committee (EMSAC) in January just as the first Fixed Income Market Structure Advisory Committee (FIMSAC) met.

My first thought was that there is plenty still to do with respect to equity markets. So, why disband? However, as I noted in "U.S. Equity Market Structure Part I: A Review of the Evolution of Today’s Equity Market Structure and How We Got Here," it seemed a futile body with little consensus, competing agendas, and the dialogue often appeared a little irrational. Themis Trading's Mr Joe Saluzzi was an unusual EMSAC inclusion due to Themis Trading's tiny size, his pronouncements being a little weird from time to time, and also as he is prone to shoot from the hip without enough reflection. All qualities that may similarly dismiss consideration of myself from such a post ;-) For example, Mr Saluzzi was reported in the FT saying that the IEX rebate cleverly disguised as a rebate was not a rebate and it was only applicable to principal order flow, in opposition to IEX's clear documentation:

Not an isolated incident.

In the last EMSAC, IEX's Mr Brad Katsuyama made some rather offensive, ridiculous, and wrong statements about price-providing rebates which I discussed here, "Rebate trafficking." As many know, I'm not a fan of IEX's ridiculous posturing. The evil Dark Fader exchange preys upon others' good price discovery work by subverting market efficiency whilst ripping their clients with ridiculously high transaction fees as they send canary-like advance notifications of their clients' trades to Nasdaq and NYSE in advance of their own clients whilst denying their clients the fairness of a colocation environment. Ahhh, that feels better. As a public exchange, IEX sux. You should go, "Hmmmm."

However, the "other side" at EMSAC could also be found foot faulting. I'm generally supportive, admiring even, of Global Trading Systems and the work of Mr Ari Rubenstein. Pushing his agenda as a designated market maker, Mr Rubenstein argued for his vested interest and against the introduction of closing auctions at other exchanges, specifically at CBOE/BATS. That is not very defensible. Such competition is healthy. It is not quite as simple as more competition is better as there are complications around having multiple closes, but it is nevertheless an obviously good move. It goes to the point that EMSAC was a little dysfunctional. The committee format really does nothing that can't be done by canvassing various types of market stakeholders at a leisurely pace. At least the SEC took the sensible path and alternate market closing auctions are now a thing.

EMSAC's dysfunction was also highlighted to me by Instinet's Mr John Comerford's presentation. He had the most obvious and uncontroversial proposal. There is an undeniable economic argument which Mr Comerford succinctly laid out: market tick sizes should be variable. The market microstructure economics are fairly clear and beneficial. There is a general consensus around this issue with Nasdaq certainly supporting this too. Mr Comerford came to the committee with this small and uncontroversial idea quite cleverly trying to bypass contentious issues that had little chance of traction. This variable tick idea is a market aspect that should be a reasonable and straightforward thing for EMSAC to get behind. It seemed, to me, to be simply drowned out by the surrounding noise as little has been done. If EMSAC couldn't push forward something so simple at the SEC, being disbanded is a reasonable outcome. It will be interesting to see if FIMSAC is also broken.

It certainly seems the SEC needs to rely more on its own analysis and make decisions by ignoring the noise where sound economic arguments and clear public interest exists. Seek counsel, advice, comments, but not consensus. That's a thought. Hmmm.

Show me the data

The common refrain, "show me the data" is often used in a market debate to shut down the other side's argument. This is a line that is often valid, but equally makes me go, "Hmmmm."

We have strong economic and financial theories which often need little debate for particular circumstances. If you prove mathematically A + A = 2A you don't need data to reassure you. The standard for when data is or is not required is quite the fuzz in markets. We should all be aware that the "show me the data" mantra is often just harmful.

It reminds me of the common open source refrain to someone pestering you for fixes, "you have the source, send me a patch." Sometimes that is an honest wish, but more often it's just a successful way of shutting down debate. You know you'll never hear from them again.

In data we trust. Except when you see your first black swan with white tipped wings in the river by my house in Huonville. I'm not sure Taleb has seen this variety but he would not be surprised. Inductive hypotheses with misconstrued incremental steps can be dangerous with data too. Data sometimes misleads us. Data often confounds us with concurrent experiments, policies, phases, reactions, assimilation, adjustments, and experiential learning feedback contorting us to consider it may be turtles all the way down. Such data review may be as useful as observing that popular butterfly's wings for distant tornado prediction. It is difficult repairing aircraft whilst they fly. 

I like to look at data, but I don't always need it to know what is right. Too often it's a crutch. Next time when someone challenges you with, "show me the data," don't dismiss the call, but do go, "Hmmmm."

Market data fees

IEX is a public parasite that deserves to be kicked back into ATS land where it belongs. One good thing IEX does, however, is offering a rebate to all of its market participants in the form of free market data. IEX has a lot of rebates for an exchange that offers no rebates. Such a rebate is to be commended. It is not necessarily the most useful market feed as, being a little lame, IEX participates rarely at the NBBO, but this market data rebate is unequivocally good. 

"In 2008, two years after becoming a public company, NYSE began increasing fees for non-core data and the other exchanges quickly followed suit. Despite SIFMA and others expressing concern about these fees, the Commission has allowed the exchanges to continue raising prices on proprietary market data, thus allowing market data to be a primary source of income for the exchanges. Exchange revenues in 2016 were driven by a 29.2% increase in market data revenues to a total of $5.4 billion."
Being such an important part of exchanges' income, market data fees are a controversial issue for exchanges.  BATS offered free market data at its inception. Eventually BATS started charging participants for the service. Mr Dave Cummings, BATS founder and ex-CEO, has publicly expressed disappointment in BATS choosing to charge for market data.

Often participants complain that it shouldn't be right that exchanges are just selling them their own data back to them. I kind of enjoy that argument. It brings a smirk. But, it is not a valid argument. It is a bit like the atom defence in patent litigation that nothing should be patentable as it is just rearranged atoms and we know all the atoms. There is value in the aggregation, processing, and careful delivery of market data.

A big unaddressed problem with market data is the demand curve being somewhat inelastic. Every significant participant needs to subscribe to all feeds. Exchanges are free to foist fee enrichments with little recourse. If you want to be careful in fulfilling your best execution obligations in real-time, you need the data. There is not much choice. The rises, product differentiations, complex pricing schedules, and sometimes onerous volume levels serve little good. Even though the various SIPs' latencies have vastly improved, there is no substitute for direct feeds.

Due to such inelasticity and island monopoly behaviours, the regulator needs to regulate here. Market data is more a utility than a luxury. Some people may think, "If only we had a committee to look at this, we could call it something like the Equity Market Structure Advisory Committee." Personally, I think the SEC should just do its job. If it is not smart enough to do it, it should get smarter, but we know it is smart enough. It seems just a little less active than it should be. Perhaps the SEC is hampered by the new laissez-faire mood surrounding all regulators which may be being driven from the top.

Market data is a mess. Fix it, SEC.

HFT kangaroo loose in my top paddock?

Global warming has thawed some pundits' HFT frost. This is definitely one of the nicer things that made me go, "Hmmmm."

Frequent HFT critic and maverick Maverick, Mr Mark Cuban, acknowledged an investment in Virtu as a proxy for volatility. Though this has to be tempered with the idea that he was joining a firm he saw as advantaged rather than changing his mind too much about HFT. Bloomberg wrote in "Mark Cuban Once Trashed Speed Traders. Now He's Investing in One,"
That’s a turnaround from March 31, 2014, the day Michael Lewis’s book “Flash Boys” came out, in which he blasted high-speed traders. “There’s no such thing as bug-free software,” Cuban said that day in an interview on CNBC, calling it the greatest risk to that type of trading. “When you have fat-finger bugs you just don’t know what’s going to happen to the market.”
Bloomberg's Barry Ritholtz's change of stance was more of a change of stance when he reflected, "How committed are you to a belief system?" in the opinion piece, "One Question Investors Should Ask Now and Then - The answer might reveal flaws in your thought processes,"
High-frequency trading: I have been a pretty robust critic of HFT, based on the premise that trading is a zero-sum game. Whatever profits the HFT traders extract are coming out of slower-speed trading accounts. Sniffing out trades before they are executed and jumping ahead of them sure looks like front-running, which in the traditional sense is illegal. I don't know if this variant is illegal, but it sure seems wrong. 
My views on this have been moderated by (of all things) Vanguard Group Chairman Bill McNabb (interviews here and here). McNabb has made a fairly credible case that HFTs make it easier and cheaper for giant shops like his, which has about $5 trillion under management, to execute orders. It required a rethink of how the firm approached trading, but in the end it seems to be money-saver for a company that tries to pass on low costs to clients who are doing things like saving for retirement.
Even as Mr Ritholtz makes a concession, he includes a bit of a flawed thesis, on which the respected, Mr Adam Nunes commented via twitter,

Mr Nunes is so very right. This is a misconception I've been fighting since the newly appointed BT CEO, Mr Frank Newman suggested closing various IB businesses in the 1990s, including my prop trading group, Capital Markets Group (CMG). He suggested there was no point competing in zero-sum games. After the crowded lift failed, getting hot and sweaty as the minutes ticked by, I was wheeled out to choke a little infront for Mr Newman. I did spit out my prior approved question at the all-staff gathering to challenge his view on zero-sum. It was a young twenty-something to the slaughter. I still have nightmares about this wee little public choking and humiliation, but the point was made. Zero-sum begone.

Prior to the "Flash Boys" novella, I meandered about "markets are a zero sum game" being the biggest myth in all of finance, "Hedging – losses as profits that feed traders." Sometimes you have to count your wife's teeth.


Crypto-currency crime

Bubbles come and go. Meh. Being libertine at heart -  even though the libertine part seems to be shrinking with age - I'm disturbed by my disturbance at the marketing around so-called virtual currencies. Octogenarian family friends, who can't use an iPad, make enquiries about BitCoin. I suspect you, as a knowledgeable technology or finance peep, have been asked similar questions even if you are no longer reading this all too long meander.

If you are no longer reading I presume you will still know if you've been asked about such coinage - despite the breaking of the fourth wall. It is a worry that the National TV News from the public broadcaster here has had BitCoin prices and commentary in the nightly finance report for many months. Crazy stuff for something with the mirage of the modest market cap of a single stock. When remote Tasmanian retail, or the shoe-shiner, asks about Bitcoin, you know you have a retail problem that needs some unfortunate regulatory consideration.

I wrote a child-like meander about crypto-currency and crime last week, "Your crypto-currency response will be weighed." It serves little purpose other than as therapy but I enjoyed the music. The important aspect is to realise, according to the UN, there are some 40,000,000 modern slaves in the world and they deserve their AML back. There are kids being abused and photographed with their pictures being hosted on servers paid for with BitCoin.

Yep, slavery is still a thing:

My musing meandered me to the point of view that crime may destroy BitCoin before other factors, say bubbles. The regulators have been asleep at the wheel. Perhaps with its minor transaction flow profile virtual currencies didn't deserve too much attention, but the genie escaped that bottle years ago. The regulators could have nipped this nightmare in the bud with some pretty simple regulations. They failed their mission.

Most disagreed with this point of view in comments sent back, though I appreciated some support. I'm hoping this is another Søren Kierkegaard moment where my minority view may be right.

Society has a point. There is a minor fraction of real currency that is laundered. There is a minority, perhaps a much bigger minority of virtual currency that is likewise laundered. For the non-virtual case, we've developed some pretty flawed regulations and laws in a ham-fisted attempt to stem such criminal activities. They have a point as the best we can do for now. The same regulations should be equally applied to virtual currencies.

Money laundering is a pretty big deal,

(Sourced from PWC - click to enlarge)

unless you think $2 trillion a year is nothing to worry about.

I've been especially critical of the CFTC's and SEC's tepid response. That seems to be changing as they ramp up the rhetoric to counter their embarassing lack of action. See this sensible Written Testimony from the last week by Chairman J. Christopher Giancarlo. There is a lot of good work in there, including this piece on virtual currencies,
Let’s turn to virtual currencies. Emerging financial technologies are taking us into a new chapter of economic history. They are impacting trading, markets and the entire financial landscape with far ranging implications for capital formation and risk transfer. These emerging technologies include machine learning and artificial intelligence, algorithm-based trading, data analytics, “smart” contracts, and distributed ledger technologies. Over time, these technologies may come to challenge traditional market infrastructure. They are transforming the world around us, and it is no surprise that these technologies are having an equally transformative impact on U.S. capital and derivatives markets.
Supporters of virtual currencies see a technological solution to the age-old “double spend” problem – that has always driven the need for a trusted, central authority to ensure that an entity is capable of, and does, engage in a valid transaction. Traditionally, there has been a need for a trusted intermediary – for example a bank or other financial institution – to serve as a gatekeeper for transactions and many economic activities. Virtual currencies seek to replace the need for a central authority or intermediary with a decentralized, rules-based and open consensus mechanism. An array of thoughtful business, technology, academic, and policy leaders have extrapolated some of the possible impacts that derive from such an innovation, including how market participants conduct transactions, transfer ownership, and power peer-to-peer applications and economic systems.
Others, however, argue that this is all hype or technological alchemy and that the current interest in virtual currencies is overblown and resembles wishful thinking, a fever, even a mania. They have declared the 2017 heightened valuation of Bitcoin to be a bubble similar to the famous “Tulip Bubble” of the seventeenth century. They say that virtual currencies perform no socially useful function and, worse, can be used to evade laws or support illicit activity. Indeed, history has demonstrated to us time-and-again that bad actors will try to invoke the concept of innovation in order to perpetrate age-old fraudulent schemes on the public. Accordingly, some assert that virtual currencies should be banned, as some nations have done.
There is clearly no shortage of opinions on virtual currencies such as Bitcoin. In fact, virtual currencies may be all things to all people: for some, potential riches, the next big thing, a technological revolution, and an exorable value proposition; for others, a fraud, a new form of temptation and allure, and a way to separate the unsuspecting from their money. 
Perspective is critically important. As of the morning of February 12, the total value of all outstanding Bitcoin was about $149 billion based on a Bitcoin price of $8,800. The Bitcoin “market capitalization” is less than the stock market capitalization of a single “large cap” business, such as Disney around $156 billion. The total value of all outstanding virtual currencies was about $430 billion. Because virtual currencies like Bitcoin are sometimes considered to be comparable to gold as an investment vehicle, it is important to recognize that the total value of all the gold in the world is estimated by the World Gold Council to be about $8 trillion, which continues to dwarf the virtual currency market size. Clearly, the column inches of press attention to virtual currency far surpass its size and magnitude in today’s global economy. 
Yet, despite being a relatively small asset class, virtual currency presents complex challenges for regulators. Chairman Jay Clayton of the U.S. Securities and Exchange Commission (SEC) and I recently wrote: 
The CFTC and SEC, along with other federal and state regulators and criminal authorities, will continue to work together to bring transparency and integrity to these markets and, importantly, to deter and prosecute fraud and abuse. These markets are new, evolving and international. As such they require us to be nimble and forward-looking; coordinated with our state, federal and international colleagues; and engaged with important stakeholders, including Congress.
 It is this perspective that has guided our work at the CFTC on virtual currencies. Our work has six broad elements: (1) staff competency; (2) consumer education; (3) interagency cooperation; (4) exercise of authority; (5) strong enforcement; and, (6) heightened review of virtual currency product self-certifications.
The interagency mess is quite troubling. Self-certification is also troubling in this domain. We have the various SROs, SEC, CFTC, FinCEN, FBI, DOJ, FSOC, FSB, IOSCO all with a stake.

We have to be careful with our technology and regulations. Just because cameras are used for kiddie porn, we don't ban cameras. Similarly, mathematical truths and cryptography are too important for the good of humanity to limit or ban. The FBI and NSA are not too happy with solid cryptography being used in the wild. Shame on them. As a society, we have chosen another path. We choose to use society's lubricant, money, as one of the primary mechanisms to keep our children safe and to act against slavery. This, to me, remains a valid choice. Virtual currencies are subverting this due to a lack of oversight.

The docile and inactive FinCEN at least prosecuted the $4B laundry-o-mat that was BTC-e. A $110M fine was levied. Part of the case included highlighting not only the problem of bitcoin mixers but the clear and present danger of newer virtual currencies that provide untraceable features. Dash in this case:

With many next-generation coins, such as Zcash, and then Monero, improving on the usefulness of virtual currencies for crime, we need to wake up and process this nightmare that refuses to sleep. It is not possible for me to accept that Monero should be available for any reasonable transaction size given the impossibility of AML/KYC application to such a beast.

Australia introduced new virtual currency laws recently but a punter can still buy Monero at exchanges touting AML compliance. Many buy BTC at Coinbase and then convert to Monero.  It would seem there needs to be a central body or regulation that has viral properties. You can't expect global rules to be negotiated or exist - certainly not in a timely manner. A viral approach where you can't transact with a non-member or a non-compliant body is the only workable solution. A cabal of countries agreeing would be better, but the US or the EU could go it alone if necessary, again.

A further step would be for compliant venues to raise a Suspicious Transaction Report requirement for coinage going to non-compliant venues or being tumbled. It is right there in the chain and popular addresses are known or derivable. That is somewhat better than cash in that you can track the trackable, but not the new generation of crime-based coinage such as Monero. The viral possibilities in such an approach are better than what we have with cash. There is hope.

It does make you wonder if there is a grand conspiracy in that Bitcoin may be a long game where the US government is trying to corral all the criminals into a tight space where one sucker punch will bring many undone. Alas, government incompetence and Hanlon's razor makes this unlikely. Yet, it makes me go, "Hmmm."

Virtual currencies are a cesspool that need not be so. Regulators are belatedly picking up the ball, but not fast enough. ICOs and the vulnerability of poorly educated retail are one dimension but I worry more about crime. You should too. This is a thing that should make us all go, "Hmmm."


It was useful that the CAT provider, Thesys Tech, restructured to reduce conflicts. However, the CAT remains weirdly flawed. Not because of Thesys. The specification is just wrong. Not enough people care about this suggesting people are happy for it to fail in its mission even though it may succeed in its rollout. It's like saying a dingo is the perfect boomerang. CAT fees for nothing is a tiny bit disturbing. I doubt Mark Knopfler would be surprised:
Now look at them yo-yo's that's the way you do it
You play the guitar on the MTV
That ain't workin' that's the way you do it
Money for nothin' and chicks for free
Now that ain't workin' that's the way you do it
Lemme tell ya them guys ain't dumb
Dire Straits indeed. I maintain my old view on this described here, "Crazy CAT approved by SEC." It's absurd. This makes me go, "Hmmm."

Market volatility and value

One normal version of our parallel universe's VIX resuming escalated sedation:

What could possibly go wrong:

Valuations continue to make me go, "Hmmm."


It exists as a public exchange. That makes me go, "Hmmm."

Arms carrying arms

Since Sandy Hook, the USA has showed it can't fight its way out of a wet paper bag, or Congress, without a gun. That makes me go, "Hmmm." You need more data? Show who the fu*king data? Well, I guess you now have more fu*king data.

(click to enlarge)
The intention of the Second Amendment to do various things seemingly includes enabling state militia to overthrown a central government. How can they do that with a wimpy AR-15 with or without a bump-stock? Shouldn't cruise missiles, nukes, Mach 2+ fighters, stealth bombers, tanks with uranium tipped munitions, powerful explosives, rocket launchers, 50mm Gatlings, rail guns, patriot missiles, et cetera, all be available for all? Why the restrictions? How can the government get away with denying such obvious Second Amendment rights? How are you going to overthrow the Goliath that is the US government without powerful enough slingshots?

It's a haunting hypocrisy.

Australia used to have one to two mass shootings a year for a very long time. Roughly one every eighteen months. Then a retiring NSW realtor and his wife bought my parents' ten-acre hobby farm at Crabtree in the Huon Valley. Finally a peaceful retirement. The retired realtor's wife took his beemer and visiting guests down to the quite quiet and lovely Port Arthur for a scenic day out. His wife and guests were killed and one poor soul was bundled into the beemers boot as a coward killed thirty five people. The coward viciously hunted the very young daughters of a chemist. One daughter, Madeline, three years old, was lined up, point blank, against a tree as she tried to hide. Her mother was fortunate, in an awkward respect, to have not survived long enough to suffer the visions that haunt Madeline and Allanah's father.
John Oliver's series on gun control: Part One. Part Two. Part Three.
A gun buyback ensued. Twelve or so weeks of debate and legislation passed quickly even though a 'C'onservative government was holding court federally. How many mass shootings in the last twenty-two years, in total?


That should make us all go, "Hmmm."



Thursday, 15 February 2018

Your crypto-currency response will be weighed

The SEC and CFTC have been negligent in their slow and limited responses to coins, alt-coins, and ICOs.
There's a sign on the wall
But she wants to be sure
'Cause you know sometimes words have two meanings
Financial institutions have been negligent. Robinhood has been surprisingly negligent. Fintech, new and old, have certainly heeded the pipers' piping.
Your head is humming and it won't go
In case you don't know
The piper's calling you to join him
It begs the question, can the SEC and CFTC be sued for their negligence? Are they immune? Can they be held to account? Are the staff who are meant to be enforcing the rules immune? Who is asleep and not watching the watchers?
And as we wind on down the road
Our shadows taller than our soul
There walks a lady we all know
Who shines white light and wants to show
How everything still turns to gold
If such products are not securities, they would surely be at least security-based swaps requiring regulatory oversight. Just ask Forcerank LLC for an opinion.

The Commodity Exchange Act defines a swap thus,
“[T]he term ‘swap’ [includes] any agreement, contract, or transaction—… (ii) that provides for any purchase, sale, payment, or delivery (other than a dividend on an equity security) that is dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence[.]”
There will be a reckoning.

Fast bucks. Short-cuts. "In every home a Big Mac. And no one goes outback, that's that."

Fake understanding. Ransoms. Theft. Black-markets. Blackmail. Dodging governments. Hacking. Theft. Scams. Tax fraud. Corruption. Gambling. Extortion. Slavery. Child labour. Tipping terrorists. Funding fakes. Paying paedophiles.

Emperor's clothes.

If criminal enterprises were to try to design an effective money laundering machine, how could they design something better than crypto-coinage? In the words of the great Led Zepplin,
"Ooh, it makes me wonder."

"Ooh, it really makes me wonder"
The supply of finite parcels of infinite species is endless in this Hilbert Hotel. It's not so scarce as to avoid the laws of oversupply and limited demand. The limit of 1/$ as $ follows Buzz Lightyear to beyond, is zero. You may not always have a fiduciary responsibility, but you have both an ethical and moral responsibility cojoined with a simple responsibility to care.

Some banks have been tightening their transactional interfaces, mainly via credit-card restrictions. It is hard to see how any institution that interfaces, however direct or indirectly, to such criminally criminal infested criminal products of crime are complying with their AML (anti-money laundering), KYC (know your customer), and CTF (counter-terrorism financing) requirements. The rates of illegality, lawlessness, tort, and outright criminality in crypto-coinage are such that if you touch it without complete knowledge, which is virtually impossible, you are tainted.

You are tainted.

Even Robinhood's limited restrictions and attempts to hide their AML/KYC/CTF compliance behind indirect coin provisioning is simply a shoddy front. Robinhood's scheme may even be strictly interpreted as furthering money laundering by providing an artifice of indirection in an attempt to legitimise their greed in guzzling crypto-chasing commissions.
And it's whispered that soon, If we all call the tune
Then the piper will lead us to reason
And a new day will dawn
For those who stand long
And the forests will echo with laughter
The limited and growing reaction from financial institutions may also be generously interpreted as growing realisation of guilt. Just asking for a future class action?

There will be a reckoning.
Yes, there are two paths you can go by
But in the long run
There's still time to change the road you're on
And it makes me wonder
There is no free lunch. It's not just the corporations at risk. Employees are at risk. Boards are at risk. Who wants to be on the front page enabling terrorism and paedophilia?

Does anyone go to gaol?
If there's a bustle in your hedgerow
Don't be alarmed now
It's just a spring clean for the May queen
Yes, there are two paths you can go by
But in the long run
There's still time to change the road you're on
There will be a reckoning.
Sometimes all of our thoughts are misgiving
Yeah, that's what I really think,



"But in child abuse networks, there is much less money in circulation" ... "All the same, it costs money to have a website hosted on a server. In this case, payment was rendered in Bitcoin, a virtual currency."


"Beware the risks of virtual currencies posing modern slavery"


"Virtual currencies...are increasingly being used by serious and organised crime groups as they are a form of currency that can be sold anonymously online, without reliance on a central bank or financial institution to facilitate transactions"


CEO Magazine, "Will crime be the end of Bitcoin?

The monetary system hailed as the ‘world’s first cryptocurrency’ might be brought crashing down, not by market speculation but by crime. "


Bloomberg, "The Criminal Underworld Is Dropping Bitcoin for Another Currency"


Cryptocurrency like bitcoin is easy money for criminals

"Bitcoin and its brethren have earned a reputation for fast returns on investment, but they're vehicles for exploitation too."


"The connection between cryptocurrency and crime is only going to get worse as investments continue to boom."

"Holland predicts that it'll be five to 10 years before governments can get a handle on digital currency crimes, and even then it may not be possible. That's because the schemes will just evolve."

Criminals in Europe are laundering $5.5 billion of illegal cash through cryptocurrency, according to Europol


The Washington Times, "Military, intelligence agencies alarmed by surge in bitcoin value in ‘dark web’ fight"

"This summer, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN), the Department of Justice and scores of European illicit finance law enforcement officials have fought back with a wave of operations against Russian cybercriminals. Late last month, they shuttered AlphaBay and Hansa — two of the biggest “dark web” contraband marketplaces rife with the illegal sale of guns, drugs and other forbidden merchandise.
In an even more startling sign of the battle raging around bitcoin, a FinCEN-led international illicit financing task force arrested a Russian “mastermind of organized crime” on a small beachside village in northern Greece less than two weeks ago.
Alexander Vinnik, who is accused of laundering more than $4 billion worth of illegal funds using bitcoin accounts, operated BTC-e, one of the world’s oldest bitcoin exchanges.
U.S. authorities accuse Mr. Vinnik of facilitating crimes including drug trafficking, public corruption, hacking, fraud, identity theft and tax refund fraud."

The Guardian: "Stephen Barclay, the economic secretary to the Treasury, set out the government’s plans in a written parliamentary answer in October. “The UK government is currently negotiating amendments to the anti-money-laundering directive that will bring virtual currency exchange platforms and custodian wallet providers into anti-money laundering and counter-terrorist financing regulation, which will result in these firms’ activities being overseen by national competent authorities for these areas.

“The government supports the intention behind these amendments. We expect these negotiations to conclude at EU level in late 2017 or early 2018.”