If you haven't noticed the SEC is taking center stage in the MSM this week.
- SEC Charges Goldman Sachs with Fraud on Subprime Mortgages
- SEC Workers Accused of Watching Porn Instead of Policing Financial System
- GOP Demands Full Disclosure from SEC Regarding Collusion With White House & NY Times over Goldman Charges
Looks like the SEC is gonna be stretched thin these next couple of weeks when they should really be focusing on the white elephant in the room, Where are the Regulators Who Will Regulate? High-Frequency Trading as High-Tech Robbery. High Frequency Trading? what's that? Sounds like some sort of supercomputer ESP, fortune telling trading scheme, right? Well you're close.
High-frequency trading (HFT) is algorithmic-computer trading that finds "statistical patterns and pricing anomalies" by scanning the various stock exchanges. It's high-speed robo-trading that oftentimes executes orders without human intervention.
Ok, that sounds really high tech but what's wrong with that? well...
HFT allows one group of investors to see the data on other people's orders ahead of time and use their supercomputers to buy in front of them. It's called frontloading, and it goes on every day right under Schapiros nose.
In an interview on CNBC, HFT-expert Joe Saluzzi was asked if the big HFT players were able to see other investors orders (and execute trades) before them. Saluzzi said, "Yes. The answer is absolutely yes. The exchanges supply you with the data, giving you the flash order, and if your fixed connection goes into their lines first, you are disadvantaging the retail and institutional investor."
and it gets even better...
The deep-pocket bank/brokerages actually pay the NYSE and the NASDAQ to "colocate" their behemoth computers ON THE FLOOR OF THE EXCHANGES so they can shave off critical milliseconds after they've gotten a first-peak at incoming trades.
If you own stocks and this doesn't perk your ears then you are playing the wrong game. here is a clip of HFT:
"Let's say that there is a buyer willing to buy 100,000 shares of Broadcom with a limit price of $26.40. That is, the buyer will accept any price up to $26.40. But the market at this particular moment in time is at $26.10, or thirty cents lower.
So the computers, having detected via their "flash orders" that there is a desire for Broadcom shares, start to issue tiny "immediate or cancel" orders - IOCs - to sell at $26.20. If that order is "eaten" the computer then issues an order at $26.25, then $26.30, then $26.35, then $26.40. When it tries $26.45 it gets no bite and the order is immediately canceled.
Now the flush of supply comes at $26.39, and the claim is made that the market has become "more efficient."
Nonsense; there was no "real seller" at any of these prices! This pattern of offering was intended to do one and only one thing - manipulate the market by discovering what is supposed to be a hidden piece of information - the other side's limit price!
With normal order queues and flows the person with the limit order would see the offer at $26.20 and might drop his limit. But the computers are so fast that unless you own one of the same speed you have no chance to do this - your order is immediately "raped" at the full limit price!
The presence of these programs will guarantee huge profits to the banks running them and they also guarantee both that the retail buyers will get screwed as the market will move MUCH faster to the upside than it otherwise would.
If you're wondering how Goldman Sachs and other "big banks and hedge funds" made all their money this last quarter, now you know." ("High-Frequency Trading is a Scam", Market Ticker)
Anyway good luck to all the traders still left in the game cause not only are you up against Deep Blue but it has a direct line to both the NYSE and NASDAQ servers.