I confess I don't know much close flash orders, non existence i of the Big Boys on the Street, until I read that the SEC is banning them. (For a clear diagrammatic explanation of flash orders, meet here.)
It seems to me that flash orders tin give the sack hold upwards understood equally "request for liquidity" issued to diverse potential marketplace makers/liquidity providers, non dissimilar the commons "request for quotes" (RFQ) mutual inwards other industries. They are issued when at that spot is non plenty liquidity on a specific telephone commutation to satisfy an investor's need, as well as they ultimately practise goodness investors yesteryear lowering their transaction costs. The fact that high frequency traders are able to brand lots of coin yesteryear providing this liquidity is too the point. Liquidity providers are supposed to brand coin yesteryear providing liquidity!
Some people, including Senator Charles Schumer as well as this New York Times op-ed, believe that flash orders are akin to front-running, a clearly illegal trading activity. But they are wrong. Front-running way that if y'all know individual is going purchase a stock, y'all pace inwards front end of them
and purchase it cheaply first, hoping to sell it to this slower buyer at a higher price. In the example of flash orders, the high frequency traders are instead selling this stock to the master copy investor, frequently at a lower cost than available elsewhere as well as hence benefiting this investor, hoping that the prices volition come upwards downwardly inwards the time to come later this liquidity require subsides. This is patently non illegal. This is what a marketplace is built for!
Another way to empathize that flash orders are non at all front end running is that anybody, including y'all as well as me, are gratis to set inwards restrain orders at the same cost equally those of the high frequency traders, way ahead of time, inwards a specific exchange, as well as acquire liquidity providers ourselves. You don't convey to facial expression for a "request for liquidity" earlier doing so. And presumably y'all volition reap the same benefits equally the high frequency traders. You are non taking whatsoever additional risks over the HF traders either, since if no requests for liquidity ultimately arrive, y'all are non whatsoever worse off for wear. You cannot begrudge the profits of the HF traders simply because y'all didn't set the restrain orders inwards house beforehand!
Maybe at that spot are unopen to other angles which I missy which tin give the sack convince me that flash orders are evil. But until my form readers convince me otherwise inwards the comments section, I volition regard this slice of legislation equally unopen to other SEC effort at demagoguery.
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