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SEC Probes High Frequency Trading

Tue, 03 Apr 2012 21:31:20 GMT

A WSJ article discusses what the SEC is looking at:

The SEC is examining whether such order types unfairly allow high-speed traders to jump ahead of other investors in an exchange's "order book," or the queue of buy and sell orders that are typically ranked by price and when they were received, according to people familiar with the matter.

Another area of focus for the SEC are the rebates some traders earn from exchanges even as other investors pay fees to complete trades, say people familiar with exchange operations and the SEC probes.

The SEC should ignore the quid pro quos among institutions, exchanges, and retail flow, because for decades exchanges and brokers screwed consumers via their coalition on the commissions and spreads, which were encouraged via the regulators. Why trust them now? As if the current most prominent regulator, Barney Frank, won't be an effective crony capitalist in 9 months, setting an example for all the other current regulator big-wigs. The key for them to be valuable is creating barriers to entry, as there's no big institution that's going to hire someone good at lowering costs to consumers. Of course, that's all hidden behind some pretext about protecting against fraud, and helping the stability of the exchanges, and fairness, and lots of other platitudes. Just think about whatever the SEC wrote in the 60's and 70's and know they were shills for the brokerages and exchanges who colluded to steal investors blind via spreads and commissions that never would have survived a competitive market (thank you regulators!).

What caused commisssions and spreads to come way down over the past 20 years? Not regulatory innovation, but rather competition via the internet, just as in life insurance.

In business, there are lots of different fee structures, and they depend on a lot of variables: a la carte, teaser rates, bulk savings. To view each as a conspiracy that must be proven otherwise is meddlesome and ignorant, creating the completely understandable system that only stasis and oligopoly generate.

If they are truly interested in stopping another flash crash, they should disallow market orders. That is, the flash crash of 2011 was caused by some Texas bumpkin selling $4.1B worth of Eminis (ES) at market prices, which created a panic. Now, just as in hijacking airplanes for kamikaze missions is probably done, that specific trade won't crash markets again, but making sure all exchanges have a contingency for a stupid market trade would be a good thing.

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