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HFT next to go? Are high frequency trading algorithms next to be on the chopping block at investment banks?

(Last Updated On: November 30, 2010)

HFT

next to go? Are

high frequency trading algorithms

next to be on the chopping block at investment banks?

With the recent FBI busts, one investigator said:

One focus of the criminal investigation is examining whether nonpublic information was passed along by independent analysts and consultants who work for companies that provide “expert network” services to hedge funds and mutual funds. These companies set up meetings and calls with current and former managers from hundreds of companies for traders seeking an investing edge.”  Some say that this is the new way of doing research and that there really is no story here.

SEC defines insider trading as:

“Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security….Rule 10b5-1 provides that a person trades on the basis of material nonpublic information if a trader is “aware” of the material nonpublic information when making the purchase or sale. ” http://www.sec.gov/answers/insider.htm
Some one analysis was done that stated:

Private market data feeds are insider training:

This changes make their private data feeds available to everyone.  Some exchanges charge for this information, others give it away for free.  The data feeds are filled with enhanced trading information.  The information that you can receive on these feeds is much greater than what the public sees via the SIP (the securities information processor).  Not only can you see orders and trades, but the private data feeds also supply information on revisions and cancellations.

2) Flash Orders – Almost 18 months after the controversy, flash (or step up) orders have still not been banned.
We believe that if the FBI and SEC feel that information that investors are getting  from some “expert networks” is defined as inside information,  then a case can be made that the data that the exchanges are providing could also be considered an “expert network”.  The question becomes is the information that the exchanges provide in their private data feeds considered “material, non-public information”?

The fact of the matter is not all investors are looking at the same information.  Whether this is  technically inside information is not for us to decide.  But there are two simple ways to level the playing field:  1) Private data feeds should only contain information that can be seen by the general public via the SIP and 2) flash orders should finally be banned.

See these exact HFT points!

NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!

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