Comment: Victims were only the big guys and those who bought their funds.

(See in situ)


Victims were only the big guys and those who bought their funds.

As I read it:

The victims of the high-speed traders' "fix" were those large imstitutions that were making a buy so big enough that no one exchange had enough shares to fill it. Because of this they split the trade orders up among multiple exchanges. When you do this you want to do it all at once, so your early trades don't swing the market price until after your later trades have been made.

Unfortunately for them, their orders didn't arrive at all the exchanges at the same time. This might be either because they all went out at the same time but some went by longer paths, slow links, or got held up in queueing on their way to to some of the exchanges, or because the software that broke the trades up didn't launch them all at the same moment. So their big buys happened early on some exchanges and late on others, in a way that repeated and could be recognized.

The high-speed traders' computers could watch the "early" exchanges, recognize the patten, and send a front-running order via a fast link to the "late" exchanges. This would arrive in line ahead of the victims' order, buy up the available stock, and offer to re-sell it at a slightly higher price - enough to pay the transaction costs and reap a small profit, but not enough to cause the victim's order to be aborted or filled with someone else's slightly-higher offered shares. Then the victim's order was processed and bought the stock at inflated price. (Similarly with sell orders, filling the outstanding buy offers and offering to buy the victim's shares at a lower price.)

The high-speed traders invest some money for a few milliseconds with a guaranteed profit, while the victims pay slightly inflated prices for part of their order. It all looks perfectly normal - like the stock just HAPPENED to go up between the issuing of the order and the trade. Or at least it does until you notice that it happens FAR too often to be chance.

This kind of guaranteed profit adds up SO fast that it was worth hundreds of millions of dollars to them to run more fiber, give themselves a few more milliseconds advantage, and expect to get away with enough more front-running trades to make it all back and more.

The solution was to time the launching of the pieces of the big order so they arrived at the various exchanges at the same time. With no early hints to the high-speed traders, the problem was solved.

This is not a problem for little guys making individual trades through a single exchange. (They still have OTHER problems: The high-speed traders act on news before they can, and if they buy their stock through a big mutual fund the fund's traders might have to do a multi-exchange buy and get bit.)

The new exchange delays all the orders by more than the time it takes other exchanges to process them, slowlowing the information leak from its published trading records into unusability. "Honestey" consists of refusing to let anybody bypass the delay.

= = = =
"Obama’s Economists: ‘Stimulus’ Has Cost $278,000 per Job."

That means: For each job "created or saved" about five were destroyed.