These were the first iteration of HFT shops and they had brilliant programmers and technology that would make the NSA blush. They also kicked off a 20-year technological arms race that forced many, many firms, including my firm (Mercury Trading) out of business. Well, they didn't exactly force us out of business. They'd have gladly picked our pockets in milliseconds for as long as we willingly let them. I should say they made clear that either we spend a million dollars a month on computers, high-speed access and programmers, or we would no longer be in the club.
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Otherwise a stale quote could be hit by the HFT traders hundreds or thousands of times in a single second, wiping out months worth of trading profits in the blink of an eye. We saw the writing on the wall and sold Mercury Trading to one of the larger players, the hedge fund giant Citadel. So that took us from 55 traders on four U.S. exchanges down to three people – me, my brother, Pete, and our accounting and back-office expert, Mary. We then began to develop algorithims to track HFT and other trades in nanosecond timeframes so that we could use the computers to slow down the data and find the big chunky blocks of stock, options or futures that were a tipoff to the next move that stock, option or future was about to take.
So, I know a little bit about good, the bad and the ugly of HFT — and what issues regulators need to address as they seek to provide more effective oversight of these firms.