How To Neuter The Machines


From the forum:

In Sweden, we’ve had an Order-to-Executed Order limit in place since last year. Basically for every 250 orders, at least 1 must be executed on, otherwise a fee of 0,09 SEK (around 0,015 USD) is applied per order above the 1 to 250 ratio.

Norway has now (Thursday morning) placed a 1 to 70 limit in place, with a fee of 0,05 NOK per order above the limit of 1 to 70.

If our regulators want individual investors to come back into the market they need to implement this but with a 1 in 10 limit.

That is, for every 10 orders you place at least one must execute or you pay a fee for each additional order.  Set the fee at 5 cents per order over 10 that does not execute.

1 in 10 is more than lax enough for any human trader, but makes unprofitable the practice of “spamming” an exchange with orders, the overload games that Nanex has repeatedly documented and other forms of behavior that have nothing to do with the price of an underlying security but instead are intended to and do manipulate the market.

This one simple rule change would put a stop to 99% of the games and yet would do no damage to actual trading of actual securities, whether by machine or person, for actual accounts where the intent is to express an opinion of price (instead of simply trying to steal a few pennies from someone else.)

Incidentally I have previously argued for imposing a “must remain valid” time for all orders as well sufficient to allow human reaction time — say, 2 seconds.  Making both rule changes would be even better, although either would make a significant difference.

The market is supposed to be a price-discovery mechanism, not a pick-pocket’s playground.

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