Category Archives: Finance

The Trading Show Presentations

Here is an interesting set of presentations from The Trading Show. Checkout the first presentation from Blair Hull. For those who don’t know he founded a little firm called Hull Trading.

http://www.terrapinn.com/2013/trading-show-chicago/presentations.stm

FPGAs and High Frequency Trading

If you are looking for a brief overview of the use FPGAs in High Frequency Trading check out this. Cover the motivation for using FPGAs and the infrastructure needed to support a strategy.

Talk on High Frequency Trading

James Thomas from Headlands Technologies did an interview on a podcast earlier this year. If you involved in or follow the HFT industry it will be of limited interest but if you are tech savvy and want to listen to an industry insider talk about it then this is interesting. Ironically Headlands has an office located just a few blocks from our offices in San Francisco.

Taxi Medallions and Regulatory Interference

Slate ran an article on taxi medallions in major US cities and how they are related to fare increases and lower wages for taxi drivers. The article posits that treating medallions like a financial instrument is what has lead to lower wages and higher fares. I want to argue that financialization is not bad and that regulatory interference is largely to blame.

Lets first agree that the market for taxi cabs in New York is inefficient. In 1937 when medallions were first issued for taxi cabs the population was around 6.5 million people. Today it is just over 8 million people. We will assume that the per capita usage of cabs remains relatively constant over time. I have no idea if it is true but we will assume it to simplify things. If the issue is that the rents charged by the medallion holders to cab drivers is too high then most likely there is a shortage of medallions. The article does indeed confirm this.

The supply of medallions is regulated by the city government, so it seems like a logical place to start is increasing the number of medallions. Now understandably the owners of the medallions don’t want any additional medallions issued since it would lower the value of their existing medallions. However the problem is fundamental shortage of medallions so more need to be issues. In economics this phenomenon is called artificial scarcity. Indeed Paul Krugman writes about the medallion shortage as the primary example of artificial scarcity in his micro economics text book. So its not really the financialization of the medallions that is the problem. It makes sense for large cab companies to have a pool of medallions since an individual medallion can be used 100% of the time, something that would be impossible if an individual owned the medallion. What is needed is more medallions, not telling individuals (or organizations) that they may not lease them out.

This is a great example of unintended consequences. While it seems rational to ensure that the market players act in an ethical fashion through some sort of licensing process, it does not seem rational to cause a large artificial lack of supply. Increasing the supply would be an easy way to drive down costs.

I will write shortly about why ticket scalping should be legal and why professional sports teams are not good a pricing tickets.

Information on Low Latency (HFT) Trading

Information on low latency trading (HFT) is hard to come by. Recently Low Latency posted the audio from the London Low Latency Summit. This set of interviews and discussions contains some of the best publicly available informations on topics such as FGPA Feed handlers, which inter-continental fiber links are used, some of the costs, typically deployments, metropolitan fiber networks and strategy deployment. If you are interested in the HFT space check it out.

 

Bloomberg Open Symbology

At Alpha Heavy Industries we are using Bloomberg Open Symbology(BSYM) in all our internal tools. As BSYM is in the public domain we are making a versioned history of BSYM available in a git repo. These files will be updated daily. Please feel free to use them in your own projects.

Cloud Computing

Cloud Computing has got to be the most over used term today. As an abstract term it serves a useful purpose for marketers who understand that many cloud computing will mean to the audience whatever the audience wants it to mean. For me cloud computing means platforms like Amazon Web Services (AWS) and Azure which at their core offer compute and storage services in a remote data center. If you don’t have EC2 and S3 like services I don’t consider your offering to be a cloud. Note I don’t particularly care that iCloud does not fit this definition as it is a consumer service. I will be discussing Cloud from the perspective of a developer and from the business who prefers not to own physical infrastructure.

Last week saw NYSE announce its Cloud. The release as with many “Enterprise” software press releases is short on details. It will probably mean that NYSE will host more back office applications in its data centers. It seems to be the rage today to call SaaS a Cloud in finance. See this about a back office application being hosted remotely and called a Cloud.

What would be cool would be infrastructure for frontend strategy development. That should look something like Amazon’s EC2 and S3 with NYSE providing readily available data sets such as SuperFeed historical and realtime data, low latency connections to the exchange data center, a large compute farm with every machine having a Tesla card and API’s for accessing other pieces of NYSE’s infrastructure.

I am going to continue to use AWS. At least one company is building a finance focused platform on AWS although the approach I am taking relies on capabilities that are unlikely to be built into a commercially available platform. AWS has GPU compute instances which give it a decisive advantage over competitors such as Azure for building financial/trading applications.

New York Times

So Carlos Slim has taken a stake in The New York Times. I have been wondering who might step up to the plate since the clock is ticking. Either Carlos knows something we don’t or he is going to learn some of the same lessons as Sam Zell who bought Tribune Co. Tribune is current in bankruptcy. The game has changed and there are going to be winners and losers. I would bet that New York Times is going to be a loser. Even people I know who read it online everyday would not pay for it. News is now expected to be free. There are a few sites that may survive that I follow WSJ, FT and other sites that are important to high income people. However the idea that a news paper is going to be at the for front of modern media is patently ludicrous. The flip side is that Digg is not the answer either. Digg has never made money and I don’t expect it to anytime in the near future if ever.

So where does that leave us? NYT is going to hobble along as it slips into irrelevance. There will be consolidation in the media market. I expect that Reuters and AP will be the ultimate winners, providing global content to media outlets. Newspapers do not have the scale or the value add to be an effective product in today’s market.

The Ascent of Money

If you consider yourself a financial neophyte or are confused by what is going on today check out The Assent of Money. It is a good overview even if it glosses over some of the more technical details of modern finance. I don’t completely agree with his assessment of quantitative finance. There are many firms that are not quants that are down considerably. RenTech still seems to be raking in the money.

Considering his example of LTCM it seems that an unhedged (or partially hedged) bet on volatility across the world is asking for trouble. All strategies that revolve around that then can become correlated. If I have learned anything it is that in a crises all (or almost all) correlation goes to 1. Still black box systems can and do work and program trading will continue to grow.

Video’s on subprime

Watch them both. They are funny.