Matt Taibbi is the man - he's one of the only investigative journalists to consistently stay on Wall Street's ass and make reading about it entertaining (and not just depressing).
So if I know the results of the orange harvest before you, I can buy frozen OJ futures and sell them to you even if you are not placing an order through me.
You still lose out, I still take advantage of my private knowledge. Whats the difference?
What we do have is a promise (cynical folks might say promise is too strong here) that if you are my broker, you can't use my non published order desires to take market positions.
We also have a promise that certain covered individuals working for a publicly traded company, cannot release certain material pieces of information about that traded company to anyone early, nor can they trade on that information before it is released.
The problem is not private knowledge, there is tons of that in the market, and that is what makes people take different market positions, thus enabling the market to exist. What is problematic is for people to take advantage of information that no one else could conceivably get.
There may be no such promise but it is not clear on its face that such a promise should never exist, for example, to maintain liquid and orderly markets.
Is there any situation where it would be desirable?
If only 10 entities could buy real time stock quotes from the exchanges and everyone else had a 5 minute delay, wouldn't that be undesirable?
And what about government interest rate decisions? Should some entities be allowed to get early access?
HFTs don't have customers. They are trading on their own books.
This is just plain false. Knight trading is a HFT firm that trades both their own book and on behalf of clients.
Infact there is a large market of HFT firms that trade on behalf of clients.
As always the term HFT confuses people. HFT doesn't say anything about buy or sell side, it mearly indicates that atleast one of the following is true:
- the firm has a high order to fill ratio, with most orders being live for only fractions of a second
- holds positions for under a few seconds,
- tries to make money by collecting the liquidity fee
- engages in price arbitrage across multiple exchange venues.
This is much like asking, why bother with terms like arrays and linked lists. Lets just call all of it "data structures", what's the difference?
It's basically market research. You can't equate being better at predicting future prices with "front-running".
It's possible that what Reuters was doing is illegal on other grounds, though.
> You still lose out, I still take advantage of my private knowledge. Whats the difference?
Well in the specific instance you use, this would be legal. In the futures market it is not only legal to trade on "insider information", its also expected.
The reason is very simple...consider an orange juice producer, they know what their required input will be( the insider information), the entire purpose of the futures market is to let them go out and lock in a price they will pay so they can budget.
Now consider what would happen if you couldn't trade in the futures market with insider information. If their order would be so large or small that they would move the market then they would be locked out of the futures market and woudn't be able to lock in their price.
While some of his reporting on the crisis was OK, he has a habit of treating equivalently shortsighted or foolish behavior differently if he has predetermined you to be victim or a perpetrator.
That's a really wonderful way to put it.