The slower traders began issuing buy orders. But rather than being shown to all potential sellers at the same time, some of those orders were most likely routed to a collection of high-frequency traders for just 30 milliseconds — 0.03 seconds — in what are known as flash orders. While markets are supposed to ensure transparency by showing orders to everyone simultaneously, a loophole in regulations allows marketplaces like Nasdaq to show traders some orders ahead of everyone else in exchange for a fee.
I guess I find this article to be interesting for three reasons. First, I predicted that this would start to occur nearly a decade ago (which begs the question: why am I still working at $DAYJOB? Ugh.) Second, I find this to be academically interesting, because whenever I see a large-scale system with this many transactions, I wonder to myself how well the system is designed and tested (in my day-to-day work, I continue to see....interesting...methods of ensuring synchronization and transaction-consistency). And third, I think that the people who run these electronic markets really need to put some thought into implementing some fairness algorithms....otherwise I can't see how this situation won't devolve into investment firms turning themselves into high-speed loops that run algorithms that MAKE MONEY FAST....much to the detriment to the actual electronic marketplace.
2 comments:
"otherwise I can't see how this situation won't devolve into investment firms turning themselves into high-speed loops that run algorithms that MAKE MONEY FAST"
It's already happening. I saw a post a couple of months back, sorry I can't find the link now, about how trading firms will move to use cloud based services that provide SLAs partly based on latency.
The window for arbitrage opportunities will shrink to milliseconds.
This is somewhat outside the scope of what you're talking about, of course. Even if the fairness gap you're talking about is closed on exchanges like Nasdaq, there will still be cross-border opportunities for users of well connected cloud services.
Sounds like we're in agreement that there is some room for reform here.
Upon further consideration, I think that one of the best things that could be done in this situation, from the perspective from a {entity} wishing to make a purchase, would be to slow down and shop around.
Let me give an example: if you knew somebody who wanted to buy a car, but hadn't done any research, and subsequently signed a purchase order after talking to exactly one car dealer, you'd call this person a naive consumer.
To me, this is exactly the same situation as we find on Wall Street in this case, except that the time period is on the order of milliseconds.
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