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US Securities and Exchange Commission Chair Mary Jo White told a US House of Representatives panel that she flatly rejected claims that retail investors are being fleeced by high-frequency traders who can use their speed to jump ahead with buy and sell orders that fetch better prices. "The markets are not rigged," says White. "The U.S. markets are the strongest and most reliable in the world." White's comments to the House Financial Services Committee mark the first time she has directly responded to allegations in Michael Lewis' new book "Flash Boys: A Wall Street Revolt" that high-speed traders are engaged in a form of front-running, in which the firms are able to quickly identify an investor's desire to buy a stock, rush to buy it first and then sell it back at a higher price. The SEC has been reviewing equity market structure issues, particularly following the May 6, 2010 flash crash incident when the Dow Jones Industrial Average sharply plunged before quickly rebounding. Although staff at SEC are considering whether to launch some pilot studies to test different regulatory proposals, there are no immediate plans to issue rules to crack down on high-speed trading or trading in unlit markets. "I want to be very clear that the market metrics suggest that the retail investor is very well-served by the current market structure."
(Score: 1) by RandomSchmoe on Wednesday April 30 2014, @02:04PM
HFT servers are sitting physically at the exchanges and have immediate access to exchange data that is not available at the same time to anyone outside the exchange. HFT servers can see orders before retailer systems. I've read that in some rare cases they have access to orders sent in before they are actually placed on the exchange.
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(Score: 1) by infodragon on Wednesday April 30 2014, @02:08PM
The latter is illegal if intentional and I know of a couple of cases it was a technical issue that was resolved very quickly. HFT can see market data before retail because they are co-located, light can only go so fast. How can HFT see YOUR order and get in front of it? This is a critical point in the debate that nobody has answered however it is constantly propagated.
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(Score: 1) by cyxs on Wednesday April 30 2014, @04:49PM
If you use a broker that broker routes the orders to a processing house and that processing house sees your order before placing it. That is how they see your order. Also they can then place your order via a slower connection to the market and give the order details to someone else and they have a faster connection to the market. 300ms vs 100ms makes all the difference in this case as they have bought the stock you were going to buy in the extra 200ms that your order takes to get to the market.
Another thing about multiple markets is that big traders have bought the old microwave radio relays between NY/NJ and Chicago to make it so they can place orders faster to those markets because those relays are a fraction of a second faster then via cabling.
(Score: 2, Insightful) by infodragon on Wednesday April 30 2014, @04:53PM
The former is illegal. If someone is caught there are heavy penalties. Please point to an example of this happening on a regular basis.
And with microwave towers, how do they SEE your order FIRST and then beat you to it?
I keep seeing a lot of theory but nobody actually presents evidence or concrete examples. Been waiting for quite some time now (about 7 years) It's like a urban legend that just won't die.
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(Score: 1) by cyxs on Wednesday April 30 2014, @05:02PM
The order placed quicker isn't the broker that is doing the placing but they are selling the market flow data to another party which has a faster access to the market via radio towers or other methods.
Also the use of radio towers is used to jump in front of you on the other exchange if someone sees that someone is buying a stock via the liquidity of that stock going down or that more market orders are being placed via the market flow data. Why do big trading houses spend lots of money buying market flow data from brokers if its not to see where everyone else is doing?
(Score: 1) by infodragon on Wednesday April 30 2014, @05:07PM
Illegal for a party to send your order differently then their own or another party, in which the order is triggered based on another order (in this case your order).
Again hypothetical situation without concrete example or technical detail and reference to broker/ECN practices.
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(Score: 1) by cyxs on Wednesday April 30 2014, @05:23PM
They don't place the other order they sell the market data to another party that is right next to them server wise so nearly no delay. That other party then places their own order via the market and if they have a quicker backend to get to the market then the broker its not violating any laws because the broker isn't trading your or another orders differently they are selling the market data.
(Score: 1) by infodragon on Wednesday April 30 2014, @05:29PM
I've asked again and again but nobody will provide concrete examples of this being done. When making a statement such as this in which an industry, company, group or individual is demonized it should be backed up with examples/fact.
I.E. completely unlawful behavior of Enron, manipulation of credit ratings by the industry that helped propagate the MBS fisaco, Goldman Sachs/Bank of America/... selling MBS garbage rated AAA. There is corruption in the industry for sure, with concrete examples. So far none have been provided to demonstrate YOUR order being front run by HFT.
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(Score: 1) by cyxs on Wednesday April 30 2014, @05:53PM
This could be shown to be true if you had lots of money and time. I recently read about the IEX where they delay the market orders 300ms or something like that and alot of investors are happy with that because it delays or makes HFT harder.
Also another thing that your saying is if order is placed on an exchange that HFT can't jump in front of it. Yes this is true but a standard person can't place orders directly on exchanges. They have to place an order via a broker. That is where dark pools and HFT come into play. A broker sells the market flow data which is all the orders they are processing to 3rd parties and those are the ones that use HFT to jack up the price.
(Score: 1) by infodragon on Wednesday April 30 2014, @05:56PM
A broker has a fiduciary responsibility to get you the best price possible. If they do not do this either by matching against their dark pool or sending your order down one pipe and their order down another they have failed in that responsibility and is illegal.
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(Score: 2) by VLM on Wednesday April 30 2014, @02:46PM
The former doesn't matter to retail investors. Retail order hits, is executed, HFT finds out before anyone else finds out, and ... crickets? The order is already executed, so theres not much to do about it...
They're only entering one order not a hundred, hundredth size orders over a period of time.
Furthermore an investor buys when value is higher than price, so as long as they enter a properly formatted limit order at a price lower than their idea of the value, then even if they were front run on a future order that doesn't exist, which is impossible for a single order executed in the past, they'd still be "OK" just not quite as profitable.