22 August 2014

62571

Neil Crammond - evoi

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front running exchanges !

01 April 2014  |  1518 views  |  0

front running exchanges why do exchanges allow "front running " ?

HFT and Algos have suffered the wrath of  loss volumes over recent years but is the main culprits our exchanges ?

   One of the main reasons why "open outcry " was eventually moved to screen trading was that it could not prevent front running orders ; this was mainly due to hand signals . Therefore screen trading  entered the arena and with anonymity  it allowed retail orders to be rewarded ; volumes grew and markets enjoyed growth . Then through colocation we suddenly began to have our orders "front run " and bids and offers were no longer real and despite constant complaining exchanges denied any wrong doing . Martin Lewis's book "flash boys "  perhaps will awaken regulators to ask if our exchanges are providing "fair and orderly markets " ? 

Sadly  exchanges have given certain members the ability to intercept orders and rearrange their order book ; allowing them to cancel immediate bids and offers and front running paper orders . This practise is STILL illegal yet despite investigations from regulators is still allowed to continue ; no surprise then that volumes have dwindled and retail traders have sought other venues  to fill their orders . Front running is extremely easily to both see and halt but needs a market supervision dept with the authority to suspend and punish . Companies like Virtu financial and RSJ algos have grown and one suspects that their lack of losing days is perhaps linked to this practise ; having one losing day in 1200 is similar to lance Armstrong  winning 7 tours of France ...... Eventually the truth will surface BUT my main quandary is why our regulators have allowed the exchanges a decade of  front running ?

 

TagsTrade executionRisk & regulation

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