High-Speed Trading Whistle Blower Fueled The SEC's Probe Into Order Types On Exchanges

Wednesday, September 19, 2012 07:26
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High-Speed Trading Whistle Blower Fueled The SEC's Probe Into Order Types On Exchanges

Tags: markets | regulation | sec

A player in the high-speed trading space has now become a whistle blower, reporting to the SEC that high-speed trading firms have been the beneficiaries of unfair trading advantages over individual investors.

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Haim Bodek left Goldman Sachs to start his own firm and says he was offered just such a deal, one that would allow his orders to be filled ahead of orders that had been placed earlier. The practice is called Hide Not Slide.
 
Bodek has fueled the SEC inquiry into high-speed trading practices along with the technological glitches that have happened on exchanges over the past several months.
 
High-speed trading functions from algorithms designed to place hoards of buy and sell orders in an attempt to exploit even the slightest price discrepancies in equities. Such trading is now responsible for two thirds of the volume on US stock exchanges.
 
The markets have grown increasingly complex and opaque as a result, making investors less confident because of the glitches. If the high-speed trading firms have indeed been given unfair advantages, investor confidence would be further weakened.
 
Exchanges have not denied giving such firms an advantage, saying they have disclosed the practice of providing them with data feeds with detailed information about trades.
 
The exchanges claim these feeds can be used by anyone who has the right hardware and is technologically savvy. Of course, that cuts out most individual investors.
 
Bodek’s alert to the SEC had nothing to do with the data feeds but, rather, focused on the way orders from high-speed trading firms work. His focus is on order types, which essentially are commands programmed traders use to tell exchanges how to handle their bids and offers.
 
By looking at order types first, regulators can get a clearer window into the fundamental interactions of the marketplace. An SEC spokesperson says that the SEC is in daily contact with market participants on a variety of structural issues.
 
If the SEC finds that order types are being used in ways that present concern under the Exchange Act, it will develop an appropriate regulatory response.

 

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