US exchanges accused of illegally providing benefits to high-frequency traders
Image: Spiros Vathis | CC BY-ND 2.0
In 2014, Michael Lewis published the “Flash Boys” book - it described the structure of the high-frequency exchange trading industry and described not always completely honest methods used by traders. The book became a bestseller and caused a wide public response.
')
Moreover, in its wake the authorities became interested in the activity of high-frequency traders, lawsuits were filed with some HFT-firms. No visible results of this activity followed at that time, however, as it became known to The Hill, the proceedings are still ongoing.
Claims 2014
Regulators and lawyers, after the release of 'Flash boys', began to check exchanges for providing benefits to HTF-merchants. According to the charges, the exchanges created the conditions under which such traders obtained trading data earlier than others, which allowed them to use frontranning tactics to manipulate prices. HFT currently accounts for most of the trading volume on American exchanges, so trading platforms are interested in attracting such players.
In addition to the lawsuits filed in 2014, regulators took a number of actions aimed at strengthening control over HFT. Thus, the US Securities and Exchange Commission (SEC) has developed a website for data reporting and market structure analysis. Later, the agency invited trade experts and set up the Consultative Committee on Stock Market Structure (EMSAC), which dealt exclusively with high-frequency traders.
What happens now
On December 19, the Federal Court of Appeals of the United States again reinstated a lawsuit against several exchanges, including the NYSE, NASDAQ, BATS Exchange and Cboe. At the moment, representatives of the stock exchanges did not respond to the accusation, although they had previously denied their guilt.
The lawsuit alleges that the exchanges, knowing the consequences, provided HTF-firms with faster access to trade data, to the detriment of other investors. In turn, the exchanges claim that the placement of the traders' servers in the same data center as the exchange trading system, as well as the direct connection, comply with the SEC standards.
They also argue that HFT firms are investing heavily in the development of financial technologies, which gives them the opportunity to compete for trading volumes, improve liquidity and increase market efficiency for all investors.
Meanwhile, EMSAC has been studying various aspects of HFT activity for several years now, but has not yet provided a clear rationale for the frontranning charges.
Representatives of the Modern Markets Initiative, who support high-frequency traders, draw attention to the fact that no clear explanations have been received about the claims for HFT trading, as well as how the frontranning scheme described in the book “Flash Boys” can work in the current market structure. In addition, no information was received from other market participants, who can confirm that the accusation against traders actually took place.
According to Paul Smith, President and Chief Executive Officer of CFA Institute, Paul Smith, these questions need to be answered once and for all, since the topic of confidentiality and trust in the market cannot be left to chance. Financial technologies are extremely important for exchange trading, but not when they are used to manipulate the market.
Other materials on finance and stock market from ITI Capital :
Source: https://habr.com/ru/post/347112/
All Articles