The Securities and Exchange Commission is asking for the public to comment on their feelings towards “Flash Trading.”   For those of you who do not work in the Securities business (and those who do but are unaware) here is the Wikipedia definition:  

Flash trading is a controversial practice of some financial exchanges whereby certain customers are allowed to see incoming orders to buy or sell securities very slightly earlier than the general market participants, typically 30 milliseconds, in exchange for a fee. With this very slight advance notice of market conditions, traders with access to extremely powerful computers can conduct rapid statistical analysis of the changing market state and trade ahead of the public market.

Critics of the practice contend this creates a two-tiered market in which a certain class of traders can unfairly exploit others, akin to frontrunning. Exchanges claim that the procedure benefits all traders by creating more market liquidity and the opportunity for price improvement.

In my opinion, the only reason why it is being billed “almost front running,” is because the exchanges get a fee for helping facilitate the 30 millisecond head start before the general public.  In the old days when the markets were in fractions they called it front running.  Now that the markets are digitally priced in decimals, an open public comment period and review is required before judgement can be made. 

I equate it to the FDA when it comes to designer drugs that are technically legal because a new innovative compound is molecularly different from the illegal drug.  Now we are innovating software which has replaced human traders.  Because it happens quicker doesn’t mean the effect isn’t the same.  Cheating is cheating. 

Please go to the SEC public comment File S7-21-09 Elimination of Flash Order Exception From Rule 602 of Regulation NMS.

http://www.sec.gov/rules/proposed.shtml

Posted on Monday, September 21st, 2009 at 10:52 am. You can skip to the end and leave a response. Pinging is currently not allowed.

"Greg Gilbert and James Simos" are registered representatives of FINRA member firm, "Infinity Financial Services."