Possibly gave preferential treatment.
Hedge funds, unlimited short selling and now high-frequency traders have been for some time a regular source of concern for financial consumer protection advocates in Germany. The Frankfurter Allgemeine Zeitung recently reported on high-speed automated trading-related investigations that diverse U.S. financial regulators at various levels are making.
- The F.A.Z. said the U.S. Securities and Exchange Commission is investigating whether certain software programs might accelerate transactions for some traders and not others.
- The state of New York’s attorney general, Eric Schneiderman, accused U.S. stock markets of using computer hardware to give speed advantages to high-frequency traders, to the detriment of private investors. He said the markets are letting high-frequency traders set up their computers inside the markets’ data centers and giving them access to “ultrafast” cables connecting to the markets’ networks.
- The U.S. Commodity Futures Trading Comission is investigating “complex agreements between so-called high-frequency traders and the [Terminbörsen: derivative exchanges, or futures markets] Chicago Mercantile Exchange and Intercontinental Exchange. The agreements have to do with rebates for the execution of stock orders.”
Last month the company Business Wire, which the F.A.Z. said is a competitor of Marketwired and a subsidiary of Berkshire Hathaway, agreed to stop providing similar services. Warren Buffet stopped the practice working with Eric Schneiderman after it was found that high-frequency traders had been able to obtain these data directly from Business Wire, rather than via the official route through high-speed subscriptions to intermediary news agencies such as Bloomberg, like everyone else.
A data specialist firm called Nanex said a 100-millisecond difference in publication delivery of a company’s press statement had at least once sufficed to earn a profit of US$800,000.
In a related F.A.Z. op-ed, the author commented that the S.E.C. in Washington, D.C., should have been doing much of this regulatory work, but lately Attorney Schneiderman has been “making them legs.”
Update on 03 Apr 2014: One of many interesting responses to Michael Lewis’s 60 Minutes interview about his new high-frequency trading book, Flash Boys, said the relevant wireless connections are faster than fiber optic connections.
The F.B.I. said it too is investigating.
(MIG lichh ah VISE ah beh FORD sooked beh HOND alt.)