‘People actually rip out the cable from the computer. I’ve seen that happen’ | Joris Luyendijk

A former compliance officer has offered his insights – ask him a question in the thread below, or tell us your experience of high-frequency trades and any other element of the business

Two really interesting issues come up in an interview with a former compliance officer: high-frequency trading and the trading floor culture. (Compliance officers are supposed to make sure traders follow the rules.) So what was that trading floor culture like?

“I remember the first time my compliance boss took me to the trading floor. He opened the door and immediately a trader shouted: ‘Compliance on deck.’ The room just went dead quiet, instantly. Walking up to the door we had heard all the chatting and shouting. Now: silence.”

The full interview is here, with more fascinating vignettes of life on the trading floor. Can I encourage insiders to add their views and experiences with compliance in the comment thread below? In particular the question of whether this sounds familiar:

“On the one hand you are seen as the regulators’ ally inside the investment firm; overseeing the implementation of their regulation. On the other hand, you are paid by the investment firm, and part of their culture and hierarchy. You might say ‘front office’ (traders making the money) looks at compliance the way compliance in turn looks at the regulators.”

The other issue is algo or high-frequency trading (HFT), as the interviewee worked in a brokerage firm where this technology was widely used. This is how algo/HFT works:

“Normally clients call their trader with an order, and traders go into the market to get the best possible price for their client. With algo-trading, traders feed their client’s order into their computer which executes the trade. What this means is that the computer decides when actually to buy or sell, then doing it faster than any human being ever could. Also, it makes no mistakes.”

The interviewee offers arresting details what algo/HFT means for compliance and regulation:

“No human being can see what HFT does. We can only see it afterwards, when it already has made its impact. HFT is very difficult to corset, to manage. Regulators will probably never have the manpower to monitor all the data, to follow all transactions. So a significant portion is delegated to innovative technology. Many people I have interviewed are genuinely concerned over this.”

It’s hard not to feel concerned, too, after reading this:

“You can’t see it the HFT programme, as it is embedded in the computers. So you notice it negatively, when traders complain because something isn’t working. And you notice it when you’re watching the order book on a screen, and you see movement when the programme buys or sells.
“It’s when there’s a panic that you really realise just how strange and evanescent these programmes are. How do we access them? In the last resort people can actually rip out the cable from the computer. I’ve seen that happen, but it seems ridiculously primitive in such technological environments.”

Anyone on the inside who would care to elaborate on this? How has HFT changed things on the trading floor? For better or worse?

Anyone on the outside with burning questions? The interviewee is coming into the thread below to respond. If you’re considering leaving a comment, please read the full text first to avoid overlap.

• This banking blog features interviews with insiders across the industry. Here is a guide to help you find your way.

Today’s interviewee was in “flow” trading (executing clients’ orders) but there is also algo/highfrequency “prop” trading. This programmer at one such hedge fund does a great job of explaining how it works: “Our company is like a surfer trying to spot a wave, ride it for a tiny moment and then get out again before it breaks.” Scary stuff.

This compliance officer is rather frustrated with her job: “You know that the traders and salespeople are called ‘rainmakers’? Our nickname is ‘business blockers.”

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