Totally agree: cringe inducing article. The paragraph that really got me was the following: "Why does this matter? For one thing it means that for years, trading volume in Apple was being misreported -- a situation that can lead to a stock being mis-priced. The system also advantaged one kind of trader over another."
This is wrong on so many levels. Trading volume was not "misreported" it was simply under reported. There is absolutely nothing wrong with that. And it certainly would not lead to any mis-pricings. There is absolutely no way this could advantage one trader over another... none.
There is absolutely no way this could advantage one trader over another... none.
I don't think this is right. Many traders run technical strategies that incorporate trading volume. A trader using the consolidated tape is at a disadvantage relative to another trader running the exact same strategy who uses the full feed.
For example, consider a simple predatory trading algorithm (someone trying to buy ahead of a big player who wants to move lots of shares). If a big player makes a bunch of trades in 99 share lots, they will completely sneak past the predator.
By using the word "predator" you are somehow implying that this is bad behaviour. I disagree with that. Is it somehow wrong to buy because you think the price will go up?
You are further implying that there is 0 market impact from trading odd lots. By "taking" 1 share you are reducing the supply in a symmetric manner. Both demand and supply will adjust to this new information, whether its disseminated to the tape or not.
I intend no value judgement by the use of the word "predator", it's simply a technical term. I'm strongly in favor of predatory trading - it prevents institutional investors from screwing over the little guy by hiding big trades and forcing their counterparties to suffer the price impact.
I'm not implying that there is 0 market impact from trading odd lots. The market will adjust to the new information. It's just that the guy looking at the consolidated feed will not be making a profit by helping it adjust.
I think not printing odd lot trades to the consolidated tape was an anachronism that should have been done away with years ago. I wasn't arguing against that and I think it's a good thing that's happened. My point was that you can't substantially manipulate one of the most liquid, heavily traded stocks on the planet with a few small trades like like the author of the article is claiming. It doesn't work that way.
If there was no advantage to be had, why do computer algorithms include "price discovery" odd lot trades? Honest question, you probably know better than the original reporter does...
Under-reported volume in AAPL cannot advantage one trader over another. I don't disagree, however, that odd-lots can be used by HFTs/algos for price-discovery. I don't think that this necessarily disadvantages any market participants.
Odd lot pings are just ways for HFTs to reduce their capital outlay. You simply don't want to commit too much capital to "ping" passive dark pool orders. So, in the new odd-lot reporting method, oddlot pings will now be reported to the tape. I would argue, however, that this makes no difference to the HFT. The consolidated tape is so slow, that by the time other HFT participants can digest an odd-lot fill from a darkpool, that remainder of the passive dark order would have already been gone/hit/lifted by the pinger. I view this behaviour purely as proper functioning of the markets...
Can you elaborate on the difference between "misreport" (def: a false or incorrect report) and an "under report" (def: a report that reports a number below the truth)?
The effect of under reporting was due to the rules and regulations around how trades are reported to the consolidated tape. Those rules changed recently to bring the consolidated tape volume closer to the actual volumes. Misreporting implies malicious intent.
I don't think the term "misreport" implies malice; just that the report be inaccurate.
A temperature sensor that both reports both high and low temperatures is said to misreport the temperature.
I understand your comment, however, if you are saying that it wasn't malicious - it was misreports stemming from decisions about how to implement the rules.
This is wrong on so many levels. Trading volume was not "misreported" it was simply under reported. There is absolutely nothing wrong with that. And it certainly would not lead to any mis-pricings. There is absolutely no way this could advantage one trader over another... none.