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Under the headline, "The Wolf Hunters of Wall Street", The New York Times Magazine is running this review of a new book. It tells a long story that ends in the creation of IEX (Investors Exchange), a new stock exchange with the intent of bypassing the unfair advantages that co-located high-speed traders currently have. After a few weeks of operation near the end of 2013, their volume was larger than AMEX(!!)
Here's a quote from near the end of the book review:
IEX had made its point: That to function properly, a financial market didn't need to be rigged in someone's favor. It didn't need payment for order flow and co-location and all sorts of unfair advantages possessed by a small handful of traders. All it needed was for investors to take responsibility for understanding it, and then to seize its controls.
"The backbone of the market," Brad Katsuyama (President & Chief Executive Officer, IEX) says, "is investors coming together to trade." While the article is long, I enjoyed the story. I have no connection to this company, but here's their website.
(Score: 3, Insightful) by Anonymous Couuard on Wednesday April 02 2014, @02:04AM
Thanks for the link to the audio clip. I enjoyed listening to it. I liked the comment about the company digging a dedicated tunnel from Chicago to New Jersey to get a 12.5 msec link to beat the fastest link by Verizon, which was 17 msec. Then the HFT bozos use it for the few extra milliseconds to rig the the price on other exchanges to jack up the price by a few cents and cash in. What an absolute racket. They add NO value. Complete parasites.
(Score: 1) by len_harms on Wednesday April 02 2014, @09:55AM
I read the article too. It was an interesting idea using different speeds on their link so the bids appeared to show up at all the exchanges at the same time. That way you minimize who can front run you. It does not however get rid of front running. As more exchanges give the people who are doing it the ability to front run even more.
It is an exchange setup to lure in people who just want to buy hold sell. For the HFT guys they will just use it as another tool to skim .0002 cents out of people.
If you use the exchange exclusively you will not get as screwed. If you go outside of the balanced ones there is a possibility of being front run.
It was also interesting that 2-5ms is enough to get front run.
(Score: 1) by Hawkwind on Wednesday April 02 2014, @06:38PM
I think your referring to the Thor Ring initially set up to deal with the problem (the current best answer from big investors trying to end this being IEX). The tunnel from Chicago was a different beast where the builder of the tunnel "blackmailed" traders to have to switch to his faster connection or become obsolete. A fun note of this is the guy was approached about doubling his price by one of the groups! The thinking being a higher price for access to his connection would reduce competition.
On the IEX point, my understanding is Goldman Sachs just recently announced they'll be sending their business that way. It'll take the biggest investors hounding these middle men to get something closer to an open market.