BUS-F 446 Lecture Notes - Lecture 9: Open Interest, Dark Liquidity, Arbitrage
Document Summary
Interesting fact: the fed has enormous interest rate risk due to the poor state of its balance sheet (too much debt). Taxpayers will be on the hook for that increase. We"ve taken a day"s worth of trading and condensed it into a second. What"s going on with hft is just like when options started trading in the 1970s. Stock futures were introduced and allowed you to arbitrage between the futures and the underlying index. It was touted as the reason for the. 1987 market crash, where the markets went down 20% in one day. Another innovation of wall street was the small order execution system (soes). People who used this were nicknamed soes bandits. one other interesting mechanism is the. Dark pool. it allows dealers to remain anonymous while executing trades, leading to lower trading costs. Hft produces a narrower bid-ask spread (greater liquidity) and creates fewer fees for the market-makers.
