as long as your source is not insider, there's nothing illegal about front-running. if it were, you'd have to arrest all those idiots camping out at the walmart on thanksgiving. classic example of how shortening the physical length to inventory so you can clear it ahead of everyone else benefits the first in line. the guys at the front call it price discovery. most intelligent market participants would too.
HFT Myths
- Thread starter hft
- Start date
That's because it is...
FBI is now investigating HFT for acting on non-public executable orders. Hope they go to jail, but I don't understand the legal precedence as all this was signed off on by the SEC and CFTC years ago.
As far as I knew front running is when your broker sees it's private client orders and places an order to the exchanges before sending your order to the exchange for you.
Having a faster connection or faster feed shouldn't be called front running as anyone with enough money can get access. The sips are not free so they shouldn't be called public.
There will always be a faster feed and a faster connection even in the hft world maybe most of the prop, hedge and big banks can afford the direct feeds but not all can afford the 10k for the fastest fiber path or 20k+ for microwave. Even if people used the same feeds like they did in the 90s there were still places with faster connections, faster computers, and smarter people and there always will be.
These news articles are just propaganda throwing around terms, creating fear and over generalizing hft into a witch hunt like they did with the out sourcing scare or the evil terrorist agenda. It's all smoke and mirrors.
Having a faster connection or faster feed shouldn't be called front running as anyone with enough money can get access. The sips are not free so they shouldn't be called public.
There will always be a faster feed and a faster connection even in the hft world maybe most of the prop, hedge and big banks can afford the direct feeds but not all can afford the 10k for the fastest fiber path or 20k+ for microwave. Even if people used the same feeds like they did in the 90s there were still places with faster connections, faster computers, and smarter people and there always will be.
These news articles are just propaganda throwing around terms, creating fear and over generalizing hft into a witch hunt like they did with the out sourcing scare or the evil terrorist agenda. It's all smoke and mirrors.
Ah, so as long as you have 10 million dollars, then you'll be on equal footing with all the other HFT front-runners? Yes, seems totally fair.
Route all your orders to IEX.
Non-public is the key word here.
People miss a key point about "non-public order info". In the 60 minutes example, they stated that HFT firms were using other firms' order info as a signal to trade at other markets. They conveniently left out the fact that the order info is in fact public. The slow firm's order info gets sent to the exchange, hits the matching engine, gets sent back out on the PUBLIC pricefeed, which is when all firms, including HFT and non-HFT, get it and react to it.
All of the HFT is evil crowd was saying that the trades are actually front run. In my experience they just cancel their quotes at the other end points to avoid adverse selection rather than buy/sell ahead of you. But I don't know, maybe people who've never traded a share know what they're talking about.
you need to be more specific about what "non-public order info" is. if you're referring to market data, there's no such thing as "public data", whatever that is. ALL market data is for a fee based on useage. you pay the exchanges a small fee if you're pulling a handful of quotes via some platform gui, and you pay them a lot of money if you're subscribed to the entire raw feed. those two extremes have much different fee structures because infrastructure requirements from the exchange for providing that service are light for the former and heavy for the latter.
jb514 has it right though. many market makers quote on all exchanges because they're trying to get as much market share as possible, under the assumption that trade arrival most of the time is small and random. if they get filled for the entire amount on one exchange though, that's valuable information to them that more than likely large informed flow is coming into the market, and FV probably isn't where they're quoting anymore, so they rush to cancel on the other exchanges. it's a much better model for understanding the quickly evaporating liquidity than front-running... especially when the liquidity disappears, but few trades actually execute.
just because the stock market has publicly tradeable companies, doesn't mean that access to the market has to be equal _at every useage level_. "fair" is that each participant has to finance as much of an infrastructure burden as he's using and in return have the "opportunity" to potentially benefit from his investment.
the above may sound outrageous because the stock market is such a loaded and vilified industry... but, take a look at other industries:
if you want to fish in the ocean, which is open to the public, wouldn't it be pretty ridiculous to infer that it's not fair that some fisherman have bigger boats or faster equipment and that every fisherman should be "equal" because the ocean has public access? or that you should get the same benefits of a commercial fishing license with much higher catch limits for the price of your personal use license? higher useage and impact require higher fees and it's acceptable to think that those who make the larger fishing infrastructure investments can potentially make more money vs the hobby angler on the pier. why the different expectation for market participants?
