High-Speed Traders Exploit Loophole

[antigop]

http://online.wsj.com/article/SB10001424127887323798104578455032466082920.html

High-speed traders are using a hidden facet of the Chicago Mercantile Exchange's CME +0.03% computer system to trade on the direction of the futures market before other investors get the same information.

Using powerful computers, high-speed traders are trying to profit from their ability to detect when their own orders for certain commodities are executed a fraction of a second before the rest of the market sees that data, traders say.

The advantage often is just one to 10 milliseconds, according to people familiar with the matter and trading records reviewed by The Wall Street Journal. But that is plenty of time for computer-driven traders, who say they can structure their orders so that the confirmations tip which direction prices for crude oil, corn and other commodities are moving. A millisecond is one-thousandth of a second.

The ability to exploit such small time gaps raises questions about transparency and fairness amid the computer-driven, rapid-fire trading that increasingly grips Wall Street and confounds regulators.
...
Fast-moving traders can get a head start in looking at key information because they connect directly to the exchange's computers, giving them the data just before it reaches the so-called public tape accessible to everyone else. The exchange connections contain a host of data, of which the advance notice of trade confirmations is only a piece.

[elleng]

1. 'Progress' is gonna kill us.

WISH I could say

[TheMadMonk]

2. All trades should be queued with a small random time delay.

No more than a couple of seconds, but enough to make this sort of exploitation impossible.

[bemildred]

3. High-speed trading is a mathematical fiction and ought to be forbidden in toto.

Sort of the "Gish Gallop" of finance. You want to do that, go to a casino, they will be happy to take your money.