Reg NMS’s Order Protection Rule (Rule 611) says you can’t trade through protected NBBO quotes, outside a few narrow exceptions. That’s the letter of the law.
The practical effect isn’t just a bit of latency. It rewires incentives. With 611 in place, the question for latency-sensitive firms becomes: what HFT tactics can I run that are 611-compatible? Without 611, the question would be: what HFT tactics actually add value for my counterparties? That’s a very different optimization.
For firms on direct feeds (often building their own synthetic NBBO), 611 doesn’t add much information. The constraint is compliance, not discovery.
Because NBBO is size-agnostic and top-of-book, anchoring execution to it lets micro-lot quotes steer outcomes. You can influence the protected price with tiny displayed size. That’s great for gamesmanship, bad for displayed depth, size-sensitive pricing, and near-touch discovery.
Also: if two informed counterparties want to trade away from the protected price to reflect size or information, 611 mostly blocks that outside limited carve-outs. We lose mutually beneficial, size-aware prints to satisfy a benchmark that ignores size.
On settlement, the uniform benchmark helps in calm markets. But it’s naïve to think that holds through a real black swan. In stress, timestamp ambiguities and fragmented data make “what was executable” contestable, and disputes spike regardless of quote protection.
In a sound market structure, the clearer (CCP or clearing broker) should carry and underwrite that tail risk—margin, default funds, capital, and enforceable rulebooks. Instead, 611 shifts accountability onto quote-protection mechanics, insulating clearers from responsibility and, perversely, amplifying systemic risk when the system most needs well-capitalized risk absorbers.
There is no reason why shares should be bought on sold in time frames far too short for anything to have meaningfully changed about the companies or market conditions.
This is the free market speaking. If there was one exchange there would be ~no~ less latency arbitrage. But there are many... Which creates a competitive landscape and reduces fees for investors. The by product is you have many HFTs that come in to take advantage of mispricings, even if they are on sub millisecond scales. It doesn't harm the company or the investor. Its quite the opposite... Investors benefit from competition amongst exchanges and HFTs.
In addition you have redundancy in the markets system. Exchanges are important for national security... Having everything centralized would risk people's retirements, savings, and more
One other aspect of HFT that is good for the general investor is that HFT injects liquidity, making it easier for a general investor to liquidate their position, which is a desirable thing for human traders. HFT does not magically make human investors engage in more or less speculative behavior.
HFT is an easy thing to attack, but I've never encountered a lucid argument for why it's bad. "It's not fair that I'm not as fast" isn't really a reason unless you explain why removing liquidity (i.e., making it harder for you to find a buyer at your price point), paired with you moving up the "trading swiftness" rankings, is preferable.
the common argument against it is that it guarantees a technological arms race and by those conditions pushes the smaller groups out of the competition.
it's unfair in the same vein that the rich are always offered better loan rates than the poor. Yeah, it's obvious why that would be, but it's not fair either.
although imo pushing small-backer arbitrage out of the equation is a good thing.
What HFT arbitrage does is rapidly push markets with different prices into alignment with each other. If you banned HFT but kept multiple markets, the inevitable result would be markets with bigger differences in prices for longer.
The only kind of trading that really good HFT trading pushes out is other slower less efficient arbitrage traders, but why should we want more worse arbitrage traders if the result is markets being more out of sync?
What's important economically is that traders that trade based on fundamentals can do so efficiently across multiple markets. Efficient HFT arbitrage trading helps that, it doesn't hinder it.
> the common argument against it is that it guarantees a technological arms race and by those conditions pushes the smaller groups out of the competition.
But a cursory examination of history would reveal that the literal opposite has happened.
The issue isn't that there's a lot of change coming from inside the markets, it's that there's a lot of change coming from outside the market, and it's all interconnected.
The behavior of other participants is itself a first-class signal.
Rule 611 compresses that signal. By forcing everything to orbit a size-agnostic NBBO, it collapses a lot of the “behavioral bandwidth” (depth, imbalance, sweep patterns, replenishment, cancel/replace cadence) into a single top-of-book tick. Less resolution, less information.
High-resolution flow tells you who wants what, at what size, and how urgently. When we gate execution through protected quotes, we encourage tactics that flick the top-of-book with tiny size and discourage truthful size revelation. That’s signal destruction dressed up as protection.
Letting informed counterparties print away from the protected price (to reflect size or information) increases informational content. You get cleaner read-through from actual willingness to trade, instead of a compliance-driven dance around a fragile benchmark.
So yes: other people’s actions are the best data feed. The more of that behavior we can see—in size, time, and venue—the better our discovery gets. 611 reduces that visibility by design.
If HFT was genuinely good for the entire market than absolute latency would be what matters but it is only relative latency between HFT firms that matter because they are all competing against each other using the same tactics where whoever is fastest wins.
All participants contribute to price discovery. A nanosecond order book helps with price discovery the deeper it is, regardless of whether orders clear.
> The better the computers hooked directly into the exchange get you mean.
I think you're trolling with this one. But you had an advantage typing your comment into a web browser compared to all the people who wrote theirs on paper and put it in an envelope with a stamp.
A nanosecond order book helps with price discovery the deeper it is, regardless of whether orders clear.
This is a claim, it is not being backed up by evidence.
I think you're trolling with this one. But you had an advantage typing your comment into a web browser compared to all the people who wrote theirs on paper and put it in an envelope with a stamp.
This analogy doesn't make any sense. Why would a person care about nanosecond price discovery? The only benefit is for whoever controls the computers that are able to do it and profit off of it.
If that's not true then why are these firms paying so much money to have nanosecond advantages?
Why do people doing normal trading want to avoid the exchanges that have HFT computers skimming money off their trades?
There is no mutual benefit here. If there was you would be able to explain it clearly and with evidence instead of just making claims about 'price discovery'.
The price is going to get discovered either way just as it has for hundreds of years, it happening a billion times per second does normal traders no good.
> Why do people doing normal trading want to avoid the exchanges that have HFT computers skimming money off their trades?
What's "normal trading"? A prop desk at an investment bank? A hedge fund? A pension fund? Someone who's just installed Robin Hood on their phone?
Most rational participants want lower trading costs and overheads, smaller spreads etc. HFT provides that - the evidence being "look at what the spreads are today, compared with what they were pre computerised trading".
> The price is going to get discovered either way just as it has for hundreds of years, it happening a billion times per second does normal traders no good.
Could you explain how a market participant who makes one trade a day is negatively impacted by high resolution price discovery?
> Could you explain how a market participant who makes one trade a day is negatively impacted by high resolution price discovery?
They’re negatively impacted because the SNR drops when the gain is turned up and causes algorithmic ringing to perturb the price that would be generated by high quality signal.
People who extract money by injecting algorithmic ringing into financial markets are a social parasite.
> The better the computers hooked directly into the exchange get you mean.
I need you to understand that HFT makes decisions based on human-defined parameters. It's not AI-driven. What's the difference between a human saying "these are my parameters, now CPU, go trade based off those" versus "these are my parameters, now underling, go trade based off those"
the only difference is speed, plus i suppose those underlings might suck at following their boss's directives compared to a computer
> The better the computers hooked directly into the exchange get you mean.
This implies a distinction between "our" (i.e., humans) and "the computers." Can you explain what distinction you meant if it wasn't AI? After all, everything computers do outside AI is done pursuant to knowable, describable human control, no different from pressing keys on a keyboard.
So if you didn't mean AI, I think it's worse for your argument, not better.
The difference is that I will actually explain what I mean instead of just making claims with no evidence.
Can you explain what distinction you meant
The distinction is that the computers making millions of trades per second are owned by few people and have a huge advantage. They don't lose money and they don't hold anything.
They aren't wanted by actual people making decisions, they are there in spite of what traders buying stocks to own them actually want. They are there because they make money and from the exchange and make money for the exchange.
Retail traders are the product even though they don't want to be.
It's pretty funny that there are people in this thread pretending like "price discovery" is a real thing that happens in markets based on information. We've all seen Dogecoin and BBBYQ. The emperor has no clothes.
We could make the distinction between price discovery, i.e. what price are people currently willing to buy and sell at (short-term) vs value discovery (long-term).
When I press the buy and sell button, I want the transaction to happen as quickly as possible. So does everyone else.
My millionth of a second is different than yours, and everyone else’s.
It is no different than buying or selling anything else. And there is no loss from the additional liquidity, you can easily set a limit at which you want to buy or sell.
The only way to implement this is to eliminate competition between exchanges.
There are two different things being talked about here.
Trading based on arbitrage between exchanges will happen in one way or another no matter what.
Trading millions of times per second automatically on the same exchange when some people have low latency computers at the exchange with huge amounts of extra information is not necessary.
Also, Wall Street would love this. The more of the order book you submitted, the more information you have about its composition.
The point isn't to make something 'wall street hates' it's to make something that doesn't get money eaten away by automated computers in the middle so that it's the best option for people making trading decisions on people time scales.
> The point isn't to make something 'wall street hates' it's to make something that doesn't get money eaten away by automated computers in the middle so that it's the best option for people making trading decisions on people time scales.
Why is this desirable? It seems like an argument designed only to serve the interests of a small class of person who insists on doing manual trades themselves.
The rest of what you've written just sounds like "I lost money because computers are better than me at the task." I'm not sympathetic to that concern. Computers are better than me at lots of things, so I just don't try to compete at those things. I pay people with access to the computers to do them for me, and then I focus on the things I'm good at instead. Division of labor and all that.
Anyone who isn't involved in HFT should be in favor of rules that slow down trades to human time scales. HFT currently favors a small class of rich people.
> Anyone who isn't involved in HFT should be in favor of rules that slow down trades to human time scales
What are you basing this on?
I’m a former algorithmic market maker. Every plan to “slow down trades to human time scales” I’ve seen were trivially gameable. They were always proposed by a group of concerned citizens, and then jumped on by my bosses, because if the market is slowed down to pre-HFT speeds, Wall Street can make pre-HFT profits on risk-free trading again.
Do you think the internet would work better if we forcibly increased latency? If we did, if the argument were this would flatten the market and better let small websites compete with CDNs, do you think that would actually happen? Google and Cloudflare would say “oh well,” and disassemble their servers?
Our markets have structural problems. They are mostly solvable. HFT is none of them, which is why you keep hearing about it from folks who don’t want reform.
> "How does HFT provide social benefit to the world at large?"
It's explained multiple times in this very discussion. It's not our fault if you refuse to read them. But the most straightforward and obvious way is that it injects liquidity into the market, making it easier to sell when you need to liquidate. (It also reduces volatility overall, another good thing.)
> > the exchanges weren't established for the abstract sake of money, they were established to provide benefit to people.
Snort. The exchanges were established by wealthy people, for wealthy people, to engage in business with other wealthy people.
The NYSE was established in 1792. Is it your contention that anyone except the elites were buying and selling stocks in 1792? Let alone all the exchanges that pre-date the NYSE. The Amsterdam Stock Exchange was set up in the 1600s specifically to facilitate the buying and selling of Dutch East India Company shares. Was Farmer Aardhuis buying shares? Or aristocrats and royalty?
I suspect the root argument is really against the efficacy of markets and capitalism as a useful system for humanity, in which case I say that is a fair debate. The benefits are hardly obvious today.
Retail investors railing against HFTs are sort of like those San Francisco types who protest new development to the benefit of their landlords.
It's nothing like that since there isn't a limited resource and everyone has access to the core purpose, which is to trade stocks.
What I notice with these discussions is that no one can actually explain why a retail investor or anyone would want computers trading underneath them millions of times a second.
At best they try to give hft credit for the automation that happened with computers anyway.
The only people that want it are the people doing it. That's not a business, that's a grift.
> not me. I don't mind if it takes like 20 seconds or so
Which is fine! You can probably find a broker who will give you fee-free trading with that preference. The price you execute at won’t be as good. But unless you’re trading millions, that’s probably fine.
Do you only want us to get our news once daily via a physically printed and distributed newspaper? That’s the timeframe that we used to use for news updates. If not (I.e., you’re in favor of keeping the Internet), how would you reconcile the asymmetry between trading and news updates? If there is a disparity between these timescales, you end up with markets gapping hugely every time they open. This just increases risk and volatility. Yes, markets do this overnight today, but 24-hour markets don’t do this as much and they allow a trader to set stop orders that are active overnight to protect positions. So, for instance, futures markets will gap over a weekend break, but because they trade 23 hours per day during the week, they are much more smooth than they would otherwise be. Compare gaps in ES SPX futures contracts vs. gaps in the SPX itself, for instance. In general, smoother is better for everyone.
Humans do still manually trade. The existence of HFTs doesn't prevent or interfere with that, in fact it makes it easier by ensuring that prices are more likely to be converged to a consensus market price at any given millisecond.
Thinks of it like this. When I put in a trade at human speeds based on business fundamentals, I'm not looking that the millisecond by millisecond prices, I just put in a price I am willing to accept and if the market reaches that price I get execution. HFT makes that easier and more efficient across markets by ensuring prices are converged rapidly.
How do you think it makes it harder or worse? If I put in an order to buy at $x on a particular market because I think the stock is worth more than that for business reasons, what is it about the existence of HFT that is a problem for me?
Disagree? You think milliseconds is “better” somehow?
Then by that logic microseconds are better still! (A straight-faced argument made by thousands of HFT people.)
Then, surely, nanoseconds matter. Again, some traders care deeply about shaving single digit “nanos” off their response times by using smart NICs that can respond before the incoming packet has even finished arriving! Bypassing the CPU entirely because ermahgerd that would waste precious nanos!
Okay, what about femtoseconds? Attoseconds? Low single digit Plank time units?
Clearly the extrapolation is nonsense.
The problem is that there’s always an advantage to some rent-seeker to be faster than everyone else, so there will never be consensus between them and the general public. Or each other.
It’s a classic tragedy of the commons.
This is why laws are required, to prevent that one greedy guy putting “just one more cow” onto the pasture than the other greedy guys.
This is the “speculation is bad” take with a side of naïveté about how markets work.
Open an order book. Prices and quantities aren’t decoration; they’re live telemetry for supply, demand, and how tight the crowd’s consensus is at each level. That’s information, full stop.
A human (or machine) trader forms a view of fair value against that tape. The book helps decide how to trade—size, urgency, venue—regardless of motive: arbitrage, hedge, speculation, investment, cash-out. Intent doesn’t change the math.
Prints are messages. Every execution updates everyone else’s priors. More prints → more information → smoother discovery.
Make the book sparse—only a handful of trades per day—and watch confidence collapse. With weaker consensus and wider error bars, people step back. Liquidity thins, friction rises. That’s not morality; that’s microstructure.
Time horizon doesn’t invalidate the signal. A strategy that unfolds over days and one that resolves in milliseconds both add to the dataset. If it trades, it teaches. More resolution in others’ behavior means better prices and deeper books. That’s the game.
Millisecond trading strategies have zero relationship to information about companies or economic fundamentals and are therfore not economically productive. They're exploiting microstructure inefficiencies like latency arbitrage, order front-running, not price discovery. That's not 'teaching' the market it's a tax on everyone else's execution. The fact that it's legal doesn't make it structurally useful. It is just a result of the rules not being updated when trading became automated at superhuman speeds
> Millisecond trading strategies have zero relationship to information about companies or economic fundamentals and are therfore not economically productive
It is not clear to me that the only economically productive information is "information about companies or economic fundamentals."
If I know some idiot is willing to pay 100x what a company is actually worth, that is economically productive because it gives me, someone better with money, a ton of resources that formerly were controlled by someone who didn't know how to leverage the assets in an economically productive manner. IT's the same argument as allowing adverse possession: transfer of assets from non-productive owners to productive owners, benefiting society as a whole.
With this, I've established a third kind of data beyond "economic fundamentals" and "information about companies."
Right. “Worth” and “price” are relative notions that are only useful when paired with a point of view. What’s your house “worth?” You might have a number in your head, but unless you have a buyer willing to transact at that price, your house isn’t worth what you think it is. And this relates to economically productive information. Your house might also be worth more if one knows that there is gold or oil buried underneath. It might make more economic sense to bulldoze the house and start mining or drilling.
The boundary is "arbitrary", but clearly there has to be one, otherwise we're all nodding in agreement as trading speed heads inexorably towards Plank time units.
We have some convenient "lines in the sand" that we can use as a guide:
- To make trading fair globally, the round-trip time for light around the planet could be multiplied a couple of times. That's about a second.
- The fastest possible time a human can parse the meaning of a long headline (not the full news article!) is... about a second.
- Nobody in their right mind should be buying any significant volume of shares without double-checking their order. There's no way to do this even vaguely carefully in under... a second.
Etc...
Bots trading faster than a second are trading with each other, and the only signals they have are each other.
Humans are what markets are for, not bots.
This reminds me of a story from WWII where a bunch of generals took a holiday at the same time, leaving a junior general in charge. He was in a bit of a panic because he was expecting to be overloaded with work... but found it easy. The generals were making work for each other by requesting reports, organising meetings with each other, etc...
Bots make work for bots, they generate signals for bots ever faster, to be processed by faster bots still, etc...
It's just... nonsense. Zero real information is being generated, they're just "riffing" off of the much less frequent human-initiated trades, all of which take minutes to organise and execute with due diligence.
It's like being asked to write a 10-page essay on a three-line poem.
And you keep incessantly posting about the moral evils of speculation which is only tangentially related to the Texas Stock Exchange. I guess morality policing makes your comments better?
It's a tradeoff. Suppose you are relegated to trading once per minute and you need to allocate $x per trade to make a profit. If you can trade 100 times per minute you need $x/100 to make a profit.
Or, maybe your strategy doesn't make money when you can trade once per minute, but does at a higher frequency.
What is fair about saying someone has to have 100x the capital to participate? You are focusing only on one dimension of cost, when there are several.
The only non-arbitrary boundary is the one set by physics. Everything else is arbitrary. There are ways to greatly reduce front-running of orders, but that actually is an orthogonal issue to HFT and microstructure level trading.
hah someone finally said it. The financial market or whatever the f it's called has become a Monty Python sketch. Like those "pro" StarCraft gamers that keep randomly clicking their mouse for no reason except to keep their APM counter high.
It's exhausting to see good reasons offered and then y'all proudly failing to understand those reasons. Like, there are literally multiple comments here explaining it.
If I have a condition that is resolved by standing upside down on my head, and I invent a 100 ways to balance my body on my head and explain the reasons for each of them, it doesn't mean that standing on my head is a good or sensible thing to do. And none of them address the core problem that is the condition that requires me to stand on my head.
Look at why shares and the stock market were created in the place, and how many layers we laid on top of them and made the means the end and the purpose. If it takes you more than 2-3 sentences to explain something that's purely invented by humans it was probably silly to begin with.
Like the other day I was just watching a video about UTF-8. It spent a good chunk explaining all its various quirks and rules and workaround that all went back to how ASCII was dumb in some of its choices in the first place and now we're stuck with that forever.
heh I thought of that while writing the comment, but I think I covered it with "something that's purely invented by humans" which finance definitely is, unlike medicine, surgery, physics, and to a lesser degree, computing.
Except for the fact that people don’t know what the price is even with all available knowledge. HFTs serve a pretty useful function in converging to a discovered price the market can bear continuously. Prior to HFT markets were generally less stable on their pricing and liquidity was much worse. The fact you can basically trade at any time on anything instantly is made possible by HFT.
I look at them as providing a service like an energy exchange does in ensuring power distributes evenly and regularly across a region across providers and grids. They clip a fee in the middle but they provide a service in stable supply and prices.
This doesn’t mean automation isn’t without risk, and like an energy exchange, when things go badly they can go very badly. But by and large you never notice either the HFT or the energy exchange while you benefit from their existence.
The practical effect isn’t just a bit of latency. It rewires incentives. With 611 in place, the question for latency-sensitive firms becomes: what HFT tactics can I run that are 611-compatible? Without 611, the question would be: what HFT tactics actually add value for my counterparties? That’s a very different optimization.
For firms on direct feeds (often building their own synthetic NBBO), 611 doesn’t add much information. The constraint is compliance, not discovery.
Because NBBO is size-agnostic and top-of-book, anchoring execution to it lets micro-lot quotes steer outcomes. You can influence the protected price with tiny displayed size. That’s great for gamesmanship, bad for displayed depth, size-sensitive pricing, and near-touch discovery.
Also: if two informed counterparties want to trade away from the protected price to reflect size or information, 611 mostly blocks that outside limited carve-outs. We lose mutually beneficial, size-aware prints to satisfy a benchmark that ignores size.
On settlement, the uniform benchmark helps in calm markets. But it’s naïve to think that holds through a real black swan. In stress, timestamp ambiguities and fragmented data make “what was executable” contestable, and disputes spike regardless of quote protection.
In a sound market structure, the clearer (CCP or clearing broker) should carry and underwrite that tail risk—margin, default funds, capital, and enforceable rulebooks. Instead, 611 shifts accountability onto quote-protection mechanics, insulating clearers from responsibility and, perversely, amplifying systemic risk when the system most needs well-capitalized risk absorbers.