Research Studio Update Week 7

This past week has been a whirlwind of speaking to experts and consultants about my research. In chronological order, these are the people I’ve spoken to with a few notes from our conversations.

Nancy Nowacek
Meeting with Nancy was wonderful. She immediately got my concept and was really good about offering references that she thought might be relevant. The first thing we discussed were waterlots, and a project we’d both seen at the CCA Curatorial MFA show in 2010 (I guess we’re both from the Bay Area). Sandra Nakamura makes installations with pennies that represent larger value connected with prices of land. For this piece she turned a grant from CCA for the amount it would have cost to buy the waterlot it sits on during the Gold Rush. She then turned this amount into pennies.
She also referenced the Propeller Group, a collective from Vietnam who were in the last Triennial at the New Museum. They did a project where they re-branded Communism, overlaying two opposing forces that makes the viewer confront the absurdity of the capitalist machine.
She told me to look at Carsten Holler’s work, since he approaches his artwork very grounded in his scientific background. She told me that the slides are about doubt, which is an interesting and non-interactive take on them.
Find a poetics about the technical
Try to make connections; 5-6 thought experiments
Do something that confronts the body – where the emotion lies
Look at Xavier LeRoy (choreographer) and Cassie Thornton, who has an excellent project where she turns people’s debts (bank statements, bills) into nuggets of paper mache gold, or bling.
Exercise to examine the core mechanics of a prop – light, heavy, bouncy. Emotion as an end goal.

Sean McIntyre
Sean McIntyre, a first year who does a lot of work with mesh networks, had a previous life as a high frequency trading programmer. It’s sort of the best case scenario, since he gets what we do here at ITP, and he’s not under an NDA like all current high frequency traders. He was nice enough to sit down with me last week and tell me a little bit about how the system worked (from his experience). He worked at Virtu, and did a lot of quality assurance, which was basically making sure that the algorithms worked properly before they “unleashed the beasts” (his words). He confirmed that they colocated their algorithms in three locations – Carteret, Weehawken and Seacaucus – most likely so that they could communicate with the trading exchanges nearby. At this point, NYSE didn’t have their Mahwah data center built yet (2008-2010).
GETCO was the company to beat
Bankruptcy in seconds (if things went bad)
Arbitrage across data centers
Citigroup stock was consistently in the top 5 for volume. Volume was the biggest indicator for HFT, much more important than closing price. They liked Citigroup cuz it was relatively cheap, and predictable.
In terms of liquidity rebates and transaction fees (other factors beside bid and ask spread that affect HFT algo decision-making), these are negotiated individually between the exchange and each trading company. This is one of the reasons that Virtu poached Chris Concannon, a former VP of Nasdaq, due to his connections and ability to negotiate better prices for their company.
Rebates are tiered according to a firm’s performance. More volume, lower fees
Chronos – their name for a time-based strategy
Algos usually incorporated multiple strategies
Not so sure about the HFT algos that lure others by buying and cancelling – Your can easily piss off an exchange by spamming them with buy/cancel orders
HFT has a data processing problem
Nasdaq exchange protocol = FIX protocol
Every exchange has a different standard of sending messages, need to figure out how to get them all to talk to each other
UDP
Messages from data center in 1 of 2 formats
Whole book or stock specific

Petter Kolm
I spoke with Petter Kolm from Courant Mathematical Finance Dept last Thursday, which has direct connections to Wall Street firms.
He told me that HFT algorithms are actually not that complex, just operate really fast
He suggested that I might model one simple system – and change parameters overtime
If volatility in the market goes up, algorithms become more aggressive
trading – sell-side activity, service to customers to minimize transaction costs – “agency algorithms, sell-side algos”
Aggressive HFT – one strategy is to pick off those large orders, and buy ahead in order to sell them the stock they want at a profit
Passive – place limit orders in the book
Limit – spread based on supply/demand
Aggressive HFT – instead of providing liquidity, you take it
Prop Trading Firms, Hedge Funds & HFT firms all employ different strategies at different frequencies
Market Making – they can be at the top of the limit order, buy low, sell high
colocated latency, 3-4 ms in exchange, longer if outside
Dark Pools – 30 dark pools exist
-they’re listed on the web
-just “another form of electronic trading”
-allow people who want to trade larger amounts of shares at once to execute them in one go, without the market seeing it and changing the price of the trades – “slippage”
-in dark pools, trades are marked at the midpoint between the buy and ask prices, don’t have to reach the ask.
-in reality, the avg size of a trade in dark pools isn’t as large as what they were designed to accomodate

Marius Watz
Very helpful, offered to put me in touch with Knight Capital Group, who he did dataviz for. They gave him a full day of intraday trading data for various stocks to visualize. He said I could use his name and perhaps they’d offer something similar.
He said the map sounded really interesting, referenced “They Rule”, Kevin Slavin, etc. Something he would “tweet”
He said to look at the Nanex crop circles and pick them apart with someone who might know what’s going on – they could be an opportunity to visualize

Tom Igoe
Went to office hours with Tom for his advice on the “understanding networks” angle to my research and project. He had some great ideas in terms of distilling my concept and how to proceed
Some notes from our meeting:
Not just actual locations, but distances/speeds in relation to how fast packets can travel. For instance, speed of fiber cable will connect the same two locations at different rates.
How has HFT changed the daily workflow for traders? (Trying to see if it has affects on human actors, or if things have changed over time because of it)
In addition to talking to quants, reach out to fund managers to see if this has changed the way they manage their team?
How might it affect a fund manager vs a specific stock trader?
If HFT injects liquidity it also injects volatility
Look at the GPS Spoofer article again with Higgs Boson debunk in mind – basically, they thought they find a particle that went faster than the speed of light but really it was an error in their GPS signal data
What do I need to ask a quant vs a trader?
Have the principles behind shorting changed (because of HFT?)
How have human trading patterns changed since HFT
Arbitrage – pure inter market arbitrage, other strategies
Tell me about some of the different methods that traders use, pattern of those methods over time, both manually and algorithmically

In addition to these first person sources, I have also been reading about human perception of time, and the time it takes to process actions and our consciousness of our actions. I read a chapter from The User Illusion, by Tor Norretranders, that described an experiment done by Benjamin Libet in which he attempted to determine the time and order of people’s consciousness of their own actions. Essentially, people react before their conscious brains do, so the whole idea of conscious action and agency generates from impulses in the body, where our brains explain them by saying they “wanted” to do something.

Another interesting thing the reading referenced is Wilhelm Wundt’s complexity clock – which is a clock that takes about 2.56 seconds to make a full rotation. People can still visually see the 3 ‘o clock, 7 ‘o clock (etc) spots around the clock, so that they can pinpoint smaller amounts of time more easily than just trying to sense what time it was when they made a decision.

I’m also reading up on whitepapers about GPS and different high frequency trading strategies, which I will summarize in another blog post.