The Crooks Are Still Here

The fuss created by Michael Lewis’ book seems to have died down, but the crooks remain.

The fundamental problem is that the HFT boyz pay the exchanges for various advantages.

  • They get direct feeds that avoid the delays inherent in the Consolidated Quotation System. They also are allowed to co-locate and/or install fast dedicated links to avoid propagation and other network delays. This means that they can see and act on market events long before I can even see them.
  • They are provided with specialized order types that allow them to manipulate the order and transaction stream in ways that I cannot.
  • They are allowed to engage in DoS tactics such as overloading links, causing network congestion and thus foreclosing anyone else from receiving timely quotes or trading for short intervals.
  • They are allowed to enter orders that they intend to cancel prior to execution in order to always be first in the queue.

Quite apart from what they may or may not do with these, the mere existence of these special advantages is unconscionable. Some of them are specifically and clearly illegal. The exchanges have a severe conflict of interest and are at the root of the problem. They are allowing the crooks to prosper in return for a modest share of the loot. This must stop.

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  • Moira Saganski  On April 28, 2014 at 1:13 pm

    Do agree with you on this, anyone who has a frequently traded a US security, has experienced the wide variations of price based on trading patterns not related to economic or business events. Quite apart from being exasperating, it is unconscionable, small investors savings and large investors who are investing on behalf of retail clients and pensions have the prices whipsawed as a direct result of HFT.

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