Flash Trading / High-frequency Trading: Legal, or Not?

[lbj 10]

Anyone know much about this, apparently new but dubious practice (I was just reading about investigation into Saxo Bank)?

 

Seems the issue is with where the borderline actually lies on what is legal/illegal?

[SIUYA 11]

There are many things that people may or may not consider illegal in many industries that occur in the world of finance. Unfortunately its not relevant if you consider it illegal, its what the actual law allows

As an extreme example;

you are a stockbroker who has a share placement in a stock to place more shares at $3.00 when the current trading in the market is at $3.50.

You have an allocation of 100,000 shares to place. do you allocate them to all your clients on a proportional basis, do you allocate them to the clients who pay you the most business, or do you allocate them to the one client who will pay you the most brokerage on this one deal.

I have heard some describe this as being bribery if it were considered similarly in other industries, while other times its described as rewarding certain favoured clients over others for there good and repeatable business.

What about those other market participants that may have had orders sitting in the machines waiting to buy at levels near 3.00, and the market opens back at say 3.30. Even though they were actively willing to buy in a free market, they dont necessarily get any shares even though other people get shares at a price below what they were willing to pay

It does happen.... is this fair.

Lots of interesting right and wrong questions to ponder?

Personally for flash trading, I see nothing wrong with it if its only to registered market makers who then have obligations to make markets and provide liquidity.

[BlowFish 10]

It clearly provides an advantage who wouldn't like to see the order flow before everyone else does and then get to choose if you fill those orders or pass them on to the real market not only that you get a rebate for any orders you fill? Win win win situation. Legal sure but then so is the specialist system.

 

Zerohedge has pretty good coverage of such things.