Other people (including very many securities regulators) think that the problem here is that the law is missing a prohibition.
Front-running is a specific thing, someone who has a duty to you to execute on your behalf instead executing on their own behalf. Large market participants have started co-opting this term to mean, "not allowing us to hide our huge information advantage and thereby screw the rest of the market".
They do this because they know the idea of a market run by computers scares people and most people have heard the term front-running and know that it is wrong. They are trying to bypass market dynamics for their own gain, to the detriment of everyone else through public relations/regulation.
This is completely not the argument presented in the OP. "Front-running" is fine because it leads to quicker inclusion of market information in price and makes large players pay for their own large trades.
The land analogy is a bit strained, as those who buy stocks are necessarily betting on future earnings rather than investing their own labor into its growth. But I think the analogy holds for those who put in effort to analyse an industry and thus make buy/sell decisions based on their efforts. Frontrunning or behavior analyzing is essentially robbing a company of the fruits of their efforts. The market will adjust based on their buy/sell transaction, it does not need another middle man to adjust market price a millisecond sooner.
Or is it just that you believe that ONLY the landholders should be able to profit by raising their sales price, and not some third party who may have "invested" his/her time and money in figuring out what Disney's future plans are and starts "front running" Disney on land acquisition?
It feels like the more we discuss, the grayer the situation gets.
The seller should be able to sell for whatever they want, and if they know Disney is selling and they raise their price accordingly, then so be it.
I'm assuming you're drawing an analogy between this scenario and trading on the stock market. The difference with the market these types of deals are expected--people with different levels of understanding will make trades in their own interest.
- What happens when the SIP goes down? Should the US markets shut down? - What is the motivation for innovation if everyone uses the SIP? One advantage of multiple markets is that they are also competing with each other to improve in terms of technology, and rates. - Why is it better to trade in a world with less information?
Somebody will make that trade, so we're really just arguing over who gets the money.
Also, what specific prohibition would you change in the law? And who do you think that would help?
Citation?
A) that jellicle thinks it's morally wrong? He certainly seems to think that.
B) That costs have lowered? Spreads have dropped 10-20x in the last 10 years. Here's the CIO of Vanguard talking about how that's benefited everyone who buys one of their index funds:
But it doesn't lead to any of these things. It leads to worse-functioning markets with worse prices for everyone else.
Where do you think the profits made by HFT come from? The air? Ghosts? Fairies?
Here's the Vanguard CIO saying the same thing: http://www.cnbc.com/id/49434073
You realize that spreads used to be 12.5 cents or 25 cents and now they're generally 1 cent right?
You could probably get the same benefits by (a) forcing exchanges to allow something like a 10^-9 granularity of prices, (b) restricting matching engines to operate on something like a 15 minute heartbeat, (c) regulating the crap out of exchanges to lower the barrier of entry.
You'd get reasonably low spreads while eliminating the waste of resources caused by the high speed arms race. At the same time, for individuals who actually invest (rather than speculate/trade), the spread is a distraction. Access to markets and fees are the real hurdle.
For instance, consider a middle-man between a wholesaler and a retail consumer. The wholesaler sells widgets in lots of 1000 for $1 a widget, and individual widgets for $2. A middle-man steps in, buys the lots of 1000 widgets for $1 a widget, and sells direct to consumers for $1.50 a widget.
Consumers are getting a better price, and the middle-man derives a comfortable profit.
But there is a PR/Power imbalance currently in the market. The large purchasers have tons of money had influence. They are using it to smear the sellers of the product they want. The sellers happen to be an easy group to smear (they are highly technical, secretive, and operate in a world that no one seems to understand).
If anything is immoral in all this is that they are actively trying to obfiscate what is happening in the markets and thereby spreading fear.
Once you understand what it is that they are doing, it's pretty clear that it's wrong.
Unfortunately, they like to muddy the issue. Hell, the OP does that every time it comes up on HN by asking people to explain what their problem with it is using obtuse industry jargon (e.g. "which part of FIX/OUCH enables front running?").
An analogy (flawed as they all are) is if you came onto these forums and claimed that udp networks were evil and a tool whereby network consultants got rich on the back of "regular internet users". To back this up you pointed to some articles in People that claimed "Don't trust your UDP network, it might delete your traffic!" When anyone who actually understood networks said something like, "well it's nuanced, error checking is valuable in some cases and not valuable in others" you said, "DON'T MUDDY THE WATERS WITH YOUR JARGON!"
At this point, because networking is such a widely dispersed information set, and there aren't any high profile authors backing up your assertion that "UDP IS DANGEROUS IT LOSES PACKETS!" members of this forum would start down voting you into oblivion and making cogent arguments about why you are so very, very ignorant.
The only reason this hasn't happened yet is that knowledge of electronic trading systems is not as widely disseminated and every one with a 401k and a DSL modem thinks they know what electronic trading is about.
I will tell you this much, everyone who has ever actually traded electronically sees your comments and thinks of you as the "UDP is evil" guy. That we are in the minority means that we can't just laugh at and/or ignore you like we could if you were claiming nonsense about networks. For all I know you are a senator. So with that said, ask a straight forward question, I will answer it without any equivocations given that they aren't covered by IP agreements.