Rigged markets reward cheaters at expense of legitimate users

Important Op-Ed in the New York Times this morning updating on the fight to restore some transparency and utility in financial markets that have been co-opted by a handful of scalpers and cheaters who have purchased preference and control over political and regulatory bodies at the expense of everyone else.

Up until 2006 the New York Stock Exchange was nonprofit and mandated to operate as a utility in the public interest.  Ten years later the New York Stock Exchange, Nasdaq and BATS today own 10 of 11 for-profit national exchanges run in a cunning racket of deceit and entrapment.  The fact that the Securities and Exchange Commission is being lobbied and implored by these same cheaters to reject IEX’s application for a new, slower–by just 350 microseconds–exchange for legitimate investors shows just how indefensible this broken system has become.  “If you don’t allow us to continue  front-running every order it’s unfair,” the opponents insist…. Read the whole story at One way to unrig stock trading:

AMERICA’S equity markets are broken. Individuals and institutions make transactions in rigged markets favoring short-term players. The root cause of the problem is that stocks trade on numerous venues, including 11 traditional exchanges and dozens of so-called dark pools that allow buyers and sellers to work out of the public eye. This market fragmentation allows high-frequency traders and exchanges to profit at the expense of long-term investors.

Individual investors, trading through brokers like Charles Schwab, E-Trade and TD Ameritrade, suffer first as the brokers profit by hundreds of millions of dollars from selling their retail orders to high-frequency traders and again as those traders take advantage of the orders they bought.

Market depth, critically important to investors who trade large blocks of securities, also suffers in the world of high-frequency traders. Startling evidence for the lack of robustness in today’s market comes from a 2013 Securities and Exchange Commission report that found order cancellation rates as high as 95 to 97 percent, a result of high-frequency traders’ playing their cat and mouse game. Market depth is an illusion that fades in the face of real buying and selling.

Again, the fact that broker/dealers are being allowed to sell their client order-flow to scalpers and call that ‘best execution’ is a an outrageous affront to long established legal principles. Clients must demand an end to this abuse.

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