High Speed Trading Comes Under Fire

If you missed the '60 Minutes' story last night don't worry, the news wire is full of stories about this subject today.  It really is a bit of a bombshell being revealed.

I worked in Financial Services for 5 years at a mutual fund company in downtown Boston so this story really captured my interest.

What are we talking about?

The stock market.  Buying.  Selling.  Front running.  High speed trading.

Let's look at the topic 'Front Running' for a minute.  Wikipedia helps us a bit here:

Front running is the illegal practice of a stockbroker executing orders on a security for its own account while taking advantage of advance knowledge of pending orders from its customers. When orders previously submitted by its customers will predictably affect the price of the security, purchasing first for its own account gives the broker an unfair advantage, since it can expect to close out its position at a profit based on the new price level.

So, what was the deal with the story yesterday?

Here is a good piece on Bloomberg that tells the story:

http://www.bloomberg.com/news/2014-03-30/high-frequency-traders-ripping-off-investors-michael-lewis-says.html

Here is a snippet from that piece:

The U.S. stock market is rigged when high-frequency traders with advanced computers make tens of billions of dollars by jumping in front of investors, according to author Michael Lewis, who spent the past year researching the topic for his new book “Flash Boys.”

While speed traders’ strategies, developed over the past decade with help from exchanges, are legal, “it’s just nuts” that they’re allowed, Lewis said during an interview televised yesterday on CBS Corp.’s “60 Minutes.” The tactics are too complicated for individual investors to understand, he said.

“The United States stock market, the most iconic market in global capitalism, is rigged,” ...

This is really quite a story.  More to come I'm sure.

Happy Reading,

J.W. Gant