EP 049: Exposing the ‘cheats’ on Wall Street, with HFT whistle-blower – @HaimBodek

Aaron Fifield Podcast Leave a Comment

There’s a very special guest on the podcast this week, who I’m excited to introduce…

His name is Haim Bodek, although some refer to him as ‘The Algo Arms Dealer’ (and I totally understand why).

Haim began his trading career at Hull Trading, a prestigious firm well known for driving forward innovation in the domain of automated trading. Following Hull, Haim then went into significant roles at Goldman Sachs, and UBS – which are all discussed during the interview.

But to further set the scene, in 2007 Haim founded Trading Machines, a high frequency trading operation. At the peak, Trading Machines accounted for 0.5% of all options trading volume, with a team of 25 (one of who, was Bryan Wiener of EP 040).

All was well for a couple years until the beginning of 2009, when Trading Machines ran into issues and began to bleed money, for unknown reasons. Until Haim later discovered, at the root of the problem were secretive order types being used by a select few firms, giving them an unfair advantage to front-run the orders of other participants.

With this discovery, Haim went to the SEC to raise his concern about such order types – little did he know at the time, that this would be the beginning for one of the most sophisticated and complex investigations carried out by the SEC to date. So of course, we speak about all of this in much more detail during the interview.

And we also speak about another fascinating topic – which is, Payment for Order Flow. Haim shares with us what is really happening to your orders after you click the button to buy or sell – you might even be surprised to find out that a large majority of retail orders, never even make it to an exchange…

haim bodek hft whistleblower

“With regard to regulation of HFT, it’s not clear where that line is between unethical and illegal.”

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Lessons learnt in this interview:

  • The backstory of why Haim ventured out on his own, to pursue the low-latency game in options and equity markets by starting Trading Machines.
  • How Trading Machines was heavily disadvantaged by secretive ‘Hide not Slide’ order types that were made available to select HFT firms in 2009.
  • Why Haim made a bold move to call out issues with queue-jumping and similar loopholes, going to the SEC to raise his concern – which sparked an extensive 4 year long investigation and resulted in the largest fine in US history against an exchange.
  • The big question; does HFT really affect retail traders? Haim’s answer may surprise you – while he believes many HFT firms are cheating with the tactics they utilize, he does see a small positive.
  • Haim speaks about the ‘funny business’ of Payment for Order Flow, and why your broker is likely giving you a disservice by maximizing kickbacks from off-exchange market makers, instead of prioritizing optimal execution prices.
  • Plus much more…

Links and resources mentioned:

  • The Problem of HFT – Collected writings on high frequency trading and stock market structure reform. This first book of Haim’s is often read by traders after Dark Pools.
the problem of hft haim bodek
the market structure crisis haim bodek
  • The Market Structure Crisis – Haim’s most recent book covers issues including HFT and beyond, i.e. electronic stock markets and dark pools.
  • Dark Pools – This book written by Scott Paterson is a must read if you’re interested in hearing more about Haim’s story, and the rise of artificial intelligence on Wall Street.
  • The Wall Street Code – A brilliant documentary by VPRO exploring the complexity and market impact of HFT.
  • HaimBodek.com – For more info on Haim you can visit his website here, which also links through to his site for Decimus Capital Markets, where you can find plenty more resources (videos, white papers etc.) – free sign up too.
  • @HaimBodek – Be sure to follow Haim on Twitter, if you’re interested in regulatory developments, firms getting hit, and updates on the market structure argument.

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