Friday, June 24, 2016

Footie speculation

So, this weekend promises to be the best weekend of top-level football (soccer, that is) in at least two years, maybe more.

Therefore, it's time for me to make some Entirely Unfounded, Thoroughly Personal predictions:

  • Copa final, Sunday @ 6 PM California time, Chile vs Argentina.

    Argentina will win, on penalty shootout, after an extremely exciting 2-2 conclusion in regular time. This match features the No. 1 and No. 5 teams in the entire world, both of which are playing at peak level in recent weeks.

  • Euro Round of 16 predictions:
    • Switzerland v Poland. Go Poland! They win 1-0.
    • Croatia v Portugal. Portugal return to their previous poor form, and Croatia win 2-0.
    • Wales v Northern Ireland. Northern Ireland had a tough first group, and meet a Welsh team playing very well. Wales win, 2-1
    • Hungary v Belgium. Which Belgian team will show up? Hungary took first in the weakest group, while Belgium survived the toughest group. Belgium 3-1 in a sparkler of a game.
    • Germany v Slovakia. Germany are superb, but Slovakia know how to frustrate opponents. Germany survive, 1-0, after a nail-biting 90 minutes
    • Italy v Spain. What a great match for the round of 16! Both teams were favorites to be in the finals at the start of the tournament. Italy won the toughest group while Spain were exposed by Croatia. Still, Spain return to form in this game and defeat Italy in a painfully ugly 0-0 battle decided on a Spanish goal in extra time.
    • France v Republic of Ireland. Ireland's miracle victory over Italy got them here, but they have no such luck against the hosts. France win 2-0.
    • England v Iceland. In an astounding course of events, England leave the Euros twice in just 4 days, first at the election polls, and then again on Monday in a 2-1 victory by Iceland that leaves the entire British Isles agog in dismay.

So, there you go.

Please don't race down to William Hill and wager your life savings on any of these predictions, of course...

Binge watching myself

As always, I'm rather late to the party.

But, anyhow, I've finally got around to starting to watch HBO's superb new comedy, Silicon Valley.

In addition to being flat-out laugh-out-loud funny, it's also accurate.

Really, really, painfully, accurate.

I'm only finishing up the first season (they're working on the 4th season now), so I'm rather behind, but it's already amazing how many moments, in every single episode, ring true: "yes, yes! I remember when that exact thing happened to me!"

One downside of the show is that if it isn't actually a show about you (that is, if you're not actually a software developer who lives in Silicon Valley), many of the topical references and inside jokes may go right past you.

So if you're a newcomer to the show, and trying to get grounded, or if you've been watching it and wondering: "what they heck are they talking about? Who, exactly, are they parodying this time?", you might find this helpful: Uncanny Silicon Valley: The absolutely definitive, supremely authoritative, person-to-person mapping of “Silicon Valley” characters to real tech world personalities..

Nearly anyone in west coast tech will attest to the show’s eerie verisimilitude, even when (or especially when) the fictional characters embody the worst traits of brogrammers, wantrepreneurs, and VC sociopaths. Silicon Valley is nearly a simulacrum of Sand Hill Road, or as the CEO of Snapchat described it, “basically a documentary.”


Clearly, we need a cheat sheet to decode this farrago of fact and fiction. So here it is, The Official Guide to SVCU (Silicon Valley Cinematic Universe)

Or, perhaps, maybe you just had to have lived it, in order to "get" it.

Monday, June 20, 2016


Don't worry, all those acronyms may (eventually) make sense.

With the recent news that IEX is approved to change from an ATS to an NSE under NMS in the face of persistent objections from other HFTs, we need to see what we can do to unpack this all.

So, let's go back a little more than 10 years, to 2005, when Regulation NMS was established. As a regulation, it is a set of rules:

National Market System (NMS) is a set of rules passed by the Securities and Exchange Commission (SEC), which looks to improve the U.S. exchanges through improved fairness in price execution as well as improve the displaying of quotes and amount and access to market data.

One of those rules, in particular, is Rule 611, commonly known as the Order Protection Rule:

Rule 611, among other things, requires trading centers to establish, maintain, and enforce written policies and procedures reasonably designed to prevent "trade-throughs" -- the execution of trades at prices inferior to protected quotations. To be protected, a quotation must, among other things, be immediately and automatically accessible and be the best bid or best offer of a national securities exchange or national securities association

As I understand it, the basic idea of Regulation NMS is to modernize the system, to enable greater efficiency but also to improve the access to the market by encouraging competition.

Competitors can be of several types. Nearly 20 years ago, the SEC introduced the notion of Alternative Trading Systems: SEC Modernizes Regulations for Alternative Trading Systems

The Commission adopted a new regulatory framework for alternative trading systems. The low cost of technology has allowed new, automated markets -- or alternative trading systems -- to develop. These systems compete directly with the more traditional exchanges, and now account for about 20% of transactions in Nasdaq securities and 4% of transactions in listed securities. Although these alternative trading systems are markets, they have been regulated as traditional broker- dealers, resulting in certain regulatory gaps. The framework adopted by the Commission today, better integrates alternative trading systems into the regulatory framework for markets, and is flexible enough to accommodate the business objectives of, and the benefits provided by, alternative trading systems.

That competitive framework apparently worked, for as of 2014 there were hundreds of Alternative Trading Systems known to the SEC.

Down in the middle of that list, you may see: IEX ATS / IEX Services LLC, which is the particular Alternative Trading System that we're interested in.

Why are we interested in IEX? Well, for that, we need to give credit to the well-known writer, Michael Lewis, whose book, Flash Boys: A Wall Street Revolt dragged IEX out of the depths of obscurity and into the media spotlight.

Who knew that High Frequency Trading could be that sexy?

Michael Lewis just has that effect on people, and organizations.

Anyway, many people think Flash Boys was a wonderful book, while others, including the sober and well-informed Felix Salmon, are not so impressed, but the bottom line is that all of a sudden the people and organizations in the book got a LOT of attention.

The people and organizations in the book include, in particular, Brad Katsuyama, founder of IEX. Yes, that IEX, the Alternative Trading System.

So once Lewis's book was out, and once 60 Minutes aired Katsuyama's story, people started to pay attention to his ideas about what an "alternative" trading system might look like. Which, as Matt Levine explains, is something like this:

The idea is that if you're a big mutual fund and you submit an order on IEX, that order will not provide any information to high-frequency traders for almost a whole millisecond. (A shoebox full of wires is involved, which everyone else seems to find more interesting than I do.) The result is that HFTs won't be able to react to your order by moving up prices on other exchanges, and you'll be able to execute more shares at the displayed price.

It's actually slightly more than "a shoebox full of wires," it's "a coil of fiber-optic cable 38 miles long that slows quotes and trades by 350 millionths of a second," but that's really just a nit. Conceptually, it's just a mechanism, and the more interesting thing is the concept behind IEX.

And that underlying concept is all about High Frequency Traders. As Levine points out, HFT is a matter of quite some controversy:

There are two ways of characterizing high frequency trading. In one, HFTs are front-running big investors, rigging the game against them and making the stock market illusory. In the other, HFTs are reacting instantly to demand, avoiding being picked off by informed investors and making the stock market more efficient.
but, moreover, says Levine,
You don't have to be absolutist about this either way. Whether or not HFTs' behavior of quickly adjusting quotes to market conditions is "predatory" in some moral sense -- and whether or not it ultimately makes markets more or less efficient on balance -- it is clearly annoying to a lot of institutional investors. So those investors like having the option of trading on IEX. And there's no obvious reason to think that the current market structures and rules are the "right" rules, or that high-frequency traders aren't sometimes gaming those rules in not-so-socially-optimal ways.

That is, there is a strong argument to be made for choice, and for options, and for competition: if we don't know, and can't prove, which exact way of operating a trading system is the One True Right Way, then why not allow competitive approaches, and gain some experimental evidence.

That's clearly how the SEC felt, back in 1998, and hence the establishment of IEX in 2013.

IEX proceeded along for a couple years as an ATS, but then, about a year ago, IEX announced that they wanted to change from being an ATS to being a national securities exchange. What does that mean? Dani Burger and Jeremy Kahn of Bloomberge describe it this way: ‘Flash Boys’ Heroes Ask For Stock Exchange Status:

When an exchange has the best price for a stock at any given moment, orders must be routed its way. Lightly regulated alternative platforms, which is what IEX legally is today, don’t enjoy that same advantage. Even with that headwind, IEX has won about 1.4 percent of U.S. equities trading less than two years after launching.

"Right now, IEX is a choice that people may or may not make," Katsuyama said. "As an exchange, you’re part of the National Market System. It becomes an obligation if you’re the best price to send the order. It goes from optional to mandatory."

That is, it's all about Rule 611 (the "Order Protection Rule"). Remember that bit back at the beginning, about how Rule 611 involves " a national securities exchange or national securities association?".

Well, if IEX is an Alternative Trading System, then Rule 611 does not apply, but if IEX is a national securities exchange, then Rule 611 DOES apply.

Time for Matt Levine to spell it out for us again: The 'Flash Boys' Exchange Is Growing Up

I should say that this rule, the "order protection rule," annoys a lot of people. It is sometimes blamed for the market's current fragmentation and opacity. Instead of everyone choosing what market(s) they want to trade in, investors are forced to route their orders to a bunch of smaller venues, giving an advantage to traders with fast computers and a deep understanding of market architecture. But it's the rule: If you're an exchange, and you display the best price, everyone else has to route to you.

In other words, it's competition between exchanges, except that Rule 611 rather strictly constrains the competition.


Matt, can we please have a little bit more detail?:

IEX's quotes, which are effectively 350 microseconds in the past, would be protected along with other exchanges' quotes, which are ... well, they're not exactly in the present. They're some variable amount of time in the past. Every exchange has some delay in processing orders; nothing happens instantaneously, and it's hard to synchronize anything to the microsecond. If IEX is faster at other operations than other exchanges are, then its quotes may be more current than theirs. Its intentional delay might be shorter than their accidental delay.


Other exchanges also have delays between receipt and execution of orders; that is just how physics works. And those delays might be comparable to, or even longer than, IEX's. But they're not intentional.

So, uhm, it's complicated. And controversial.

And, so, the SEC invited comments, and discussion.

Which went on, and then went on some more.

And some of this was a discussion about Rule 611, but other parts of it, as Robin Wigglesworth observes, was a broader discussion about what we know, and still don't know, about High Frequency Trading:

the latest study, by the UK’s Financial Conduct Authority, is not so sure. It looked specifically at the latency arbitrage/front-running issue, and here is what they concluded.
We do not find evidence that HFTs systematically anticipate near-simultaneous marketable orders sent to different trading venues by pure non-HFTs. But when analysing longer time periods (measured in seconds or tens of seconds), we do find patterns consistent with HFTs anticipating the order flow of pure non-HFTs. However, we cannot say whether this is due to HFTs reacting more rapidly to new information, or to order-flow anticipation.


It doesn't appear that that it will be Science To The Rescue here, because this is not science, exactly: it's politics, and society, and Rules and Regulations.

So time passed, and comments were received, and discussion happened.

And time passed.

And, after nine months of this, the SEC apparently decided that, well, the whole point of Regulation NMS was to encourage competition, and innovation, and well, here was some competition, and some innovation, after all.

So, in a 122 page announcement the SEC explained that

For the reasons set forth below, and based on the representations set forth in IEX’s Form 1, as amended, as supplemented in IEX’s responses to comments included in the public comment file, this order approves IEX’s Form 1 application, as amended, for registration as a national securities exchange.

Katsuyama, naturally, is ecstatic:

This is a milestone for all of those who have supported IEX and we look forward to becoming a stock exchange, which will provide us the opportunity to have an even greater impact on the markets.

Meanwhile, existing exchanges such as Citadel and the NYSE are furious:

"Our markets work extraordinarily well for retail and institutional investors, and we need to be vigilant in identifying any unintended consequences of the approval," Jamil Nazarali, head of execution services at Citadel Securities, said in an interview.

Stacey Cunningham, chief operating officer of NYSE Group Inc., said the exchange objected to IEX’s proposal because they were "looking for exemptions to existing rules."

BATS, meanwhile, was initially happy, then was mad, but maybe is feeling a bit more accomodating now:

BATS Global Markets, initially supported the IEX application, but earlier this year withdrew its support, pointing to "gross omissions of fact" by IEX. BATS wrote that the problems "call into question the applicant’s professional judgment."

On Friday, a BATS spokesman, Randy Williams, said that the company "congratulates IEX and appreciates the significant changes they made to their application to address industry concerns."

And some traders are downright delighted: Flash Boys Hero Wins, Wealth Funds Rejoice

Sovereign wealth funds, which own large portfolios of listed equities, are eager to work with platforms like IEX given their concerns with high-frequency trading (HFI). For example, in a comment letter to the SEC, Norges Bank Investment Management (NBIM), the manager of Norway’s sovereign wealth fund stated, "We would expect that the ‘speed bump’ as well as other proposed features of IEX, such as the relative simplicity of available order types, would mitigate the potential for such rent extraction."

In some ways, the reactions are about as you would have predicted, observes Ben Popper at The Verge: The startup trying to clean up Wall Street just became an official stock exchange

The comment letters for and against IEX are telling. In favor are individual investors, academics, former market regulators, and even some large brokers and high-frequency trading shops. In opposition you find only the high-frequency traders who have been profiting off the current state of affairs and the exchanges that would compete directly with IEX for business.

There are a lot of well-funded, high-strung, complicated institutions here: stock exchanges, sovereign wealth funds, institutional investors, high frequency traders. All of them are extremely wealthy, all of them are interested in making themselves more wealthy, and none of them are particularly known for charitably lending a helping hand to the little guy, nor for explaining in Plain Language what it is they are doing and why they are doing it.

Of course, that is nothing new; that is the way of capitalism, I'm afraid.

For my own part, I am hopeful that the SEC know what they are doing. They certainly know much more then me. So when they say

Within two years of the Commission’s interpretation, staff will conduct a study regarding the effects of any intentional access delays on market quality, including asset pricing and report back to the Commission with the results of any recommendations. Based on the results of that study, or earlier as it determines, the Commission will reassess whether further action is appropriate.
I feel like I'm willing to extend to them the trust to keep that promise.

High frequency trading is fascinating, and bizarre. Is it becoming any less bizarre?

Apparently not.

But at least it is also still remaining fascinating.

Saturday, June 18, 2016

Euro 2016, midway through

We're roughly halfway through the 2016 European Championship, and it seems fair to say we've learned a few things.

The French team, playing on home soil, has done predictably well, and clearly remain favorites. Germany, Italy, Spain, and England have all looked about as strong as you would expect, too. So that's all about par for the course.

Among the upstarts, you'd have to say that Poland are performing quite well, as are Belgium. And hats off to both Iceland and Northern Ireland for each playing well above what most would have expected.

Croatia have a strong result, but how are they not disqualified? That incident with the fireworks was astounding! Surely that calls for an immediate ejection from the tournament. Between that and the ugly incidents involving Russian fans, there's been more controversy than one would hope.

But let's not dwell on that; let's try to look to the good.

For one thing, I think it's abundantly clear that increasing the number of assistant referees from 2 to 4 has been a clear and comprehensive success. Managing a soccer match at this level is a very challenging task, and there can be no doubt that giving the head referee twice as many assistants has changed things substantially. There have been many fewer refereeing mistakes, the emotion and contention on the field has been kept well in hand, and, to put it simply, nobody is complaining about the refs. Wonderful!

For another thing, I'm thrilled to see UEFA deploying the new head injury protocol:

Article 46bis has been added to the regulations and states that the referee will stop a game in the event of a suspected concussion, allowing the player to be assessed by their team doctor.

Any player suffering a head injury that requires assessment for potential concussion will only be allowed to continue playing after the assessment, upon confirmation by the team doctor to the referee of the player's fitness.

I've already seen these stoppages twice in the matches I've watched, and I felt they were entirely appropriate and did not detract in any way from the game underway. This is a VERY important issue, and I'm glad that UEFA are giving it the serious attention it deserves.

There's still lots more soccer to watch, as well as the remaining action in Copa America. Even though it will be over all to soon, I've thoroughly enjoyed both tournaments, and can't wait to see how they turn out.

Go Poland! Go Iceland! Go Chile! Go Argentina! Go Team USA!

Thursday, June 16, 2016

High School

Way back when, some 40 years ago now, when I was in high school, there was a boy who was a year younger than me, a grade below me.

I didn't know him very well; high school is a very stratified society. Twelfth graders don't consort with eleventh graders; eleventh graders ignore tenth graders, and so on.

But I knew him; we crossed paths often; he was, in a way, my neighbor (we were in boarding school, so this is literally true).

And, about all I remember, is that I was rather cruel to him, teased him, made rude jokes. For absolutely no reason at all.

You know, the way boys are.

In high school.

Anyway, I was struck the other week to see that his latest book is now number 1 on the national best-seller lists!

So, congratulations, Justin! I'm thrilled to see how well you've done.

And I'm sorry I was such a jerk, back then.

Perhaps we'll cross paths some day, and I'll get to tell you that, in person.

But for now, I suppose this will have to do.

Tuesday, June 14, 2016

A Burglar's Guide to the City: a very short review

My life-long interest in architecture dates back to my college years in Chicago.

Chicago, of course, is well-known as a hotspot of architectural thought and innovative buildings, and has been thus for more than a century; the city is often given the title as "Birthplace of the Skyscraper."

But it was a happen-stance selection of "Introduction to Architecture" as an undergraduate that lit some spark in me that has stayed alive ever since.

At some point, years ago, I stumbled across Geoff Manaugh's fascinating BldgBlog web site, and immediately became a loyal reader of his always-fasinating essays.

So it was pretty-much a "no brainer" that when Manaugh decided to write a book, I was one of the first on the pre-order list, and hence I found myself reading A Burglar's Guide to the City this spring.

Although this is his second time doing so, writing a book is clearly a bit of an experiment for Manaugh, who is better known as an essayist, a magazine contributor, and a lecturer. On his blog, his essays are lavishly illustrated, filled with hyperlinks to additional resources, and occasionally are interactive; all of these techniques are a luxury not easily available on the printed page.

But I do not wish to be nit-picky: Manaugh is a fine writer, and in Burglar's Guide he has a fine story to tell.

Manaugh's approach is to weave a modern story through a historical context, and he does it well, interleaving anecdotes about famous historical characters such as George Leonidas Leslie and Bill Mason with descriptions of state-of-the-art questions such as the use of helicopter-mounted forward-looking infrared cameras in urban law enforcement, or the accuracy of level design in the espionage-oriented video game series, Thief.

It's all, actually, quite a bit more interesting than I've made it sound, and it helps that Manaugh is good at moving the story along.

So, is this a book you'd be interested in?

Well, you can certainly decide for yourself, but if it helps, you might consider whether you find the following paragraph tedious and stale, or intriguing and startling.

Anyone's geographic understanding of a city can be profoundly improved when given access to an aerial view - when the city is laid out below you like a diagram - and this is all the more true when your job requires you to survey the city from above, imagining getaway routes and potential hideaways, possible next turns and preemptive roadblocks. The officers have uniquely unfettered access to a fundamentally different experience of the city, in which Los Angeles must constantly be reinterpreted from above with the intention of locating, tracking, or interrupting criminal activity. This perspective reveals not only over-looked connections between distant neighborhoods but distinct possibilities for committing - or preventing - crime on a city scale. Police helicopters also come with special optical technologies, often borrowed from the military, including dynamic-mapping software and forward looking infrared cameras. Seeing the city through this literal new lens can be transformative.

I suspect that Manaugh's fascinating, though quite laser-focused, perspective on the world is likely to remain mostly a niche taste, appealing mostly to oddballs like me who enjoy that funny space where architecture, geography, technology, and social studies intersect, forming a distinctive perspective of: "my, look at the unusual way that we humans have constructed this strange world we live in."

Still, I hope that Manaugh's work finds a wider audience, over time, for he is certainly an interesting fellow with quite interesting things to say.

Monday, June 13, 2016


So, for the second time in as many years, mighty Brazil has been knocked out of a world soccer tournament without reaching the finals.

Time was, that never happened; the finals of any world soccer tournament which included Brazil were always: Brazil, and somebody else.

But, times change.

Peru may have been lucky, but they certainly played hard.

Onward to the Copa America quarter-finals!