09-05-2011, 09:30 AM
Join Date: Jan 2008
Location: The Lumber Yard
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Re: Market Manipulation
Originally Posted by jackb »
Front running is applicable to those that are placing orders for others and using that info to step in front and make proprietary, risk-free trades. There's no evidence that any of the HFTs are involved in such activity. In fact, most of the studies show they are strictly going after arbitrage opportunities.
Seeing a print on the tape before someone else does not constitute front running. Of course, the issue of who gets to see the print fastest is a long-standing issue. From the linking of people yelling stock quotes from window to window, to chalkboards to the ticker tape to now, there's always been someone who, by definition, is first in line. This issue was in play when you (all of us) began trading. Now that it's being fought on the picosecond scale is of no bigger consequence.
Most of the time, those who are first in line are breaking laws. we simply are used to it. A lot of the HFT's may in fact not be breaking laws, if they are not in a position of knowing costumer orders. A firm such as GS or JPM, who deal with investors, should in no way be engaged in HFT activity and yet they are. I would not be content if my broker who had information of my position was actively trading against it.
My commentary is directed toward the exchanges who, for pay. give preferential information to certain parties. It makes for an unfair playing field.