I have written in the past about High Frequency Trading (HFT) in MoneyLife magazine. Since then much water has flowed under the bridge and this blog tries to capture the activity on how the investigations in the United States into various HFT practices are proceeding… A chronological description of how HFT has occupied the front and center of Stock markets –
- Michael Lewis’s book Flash Boys – A Wall Street Revolt was released in Feb 2014 and before that happened, the New York Attorney General’s Office and the Commodities Futures Trading Commission office in Washington DC opened investigations into HFT practices.
- A study by an employee of CFTC, suggests that HFT maybe illegal under the Commodities Trading Act. CFTC maybe working on toughening the rules for HFT, according to its chairman Timothy Massad.
- On June 25th, 2014. the office of the New York Attorney General filed a lawsuit against Barclay’s Bank for its Dark Pool practices – recommend you see the video and this interview on Fox, because there are bigger implications for Barclay’s… Barclay’s tried to have this case dismissed but it was denied in February.
- Earlier this month, ITG, an Agency brokerage, settled with the Securities and Exchange Commission for $20 million dollars on charges it operated a secret trading desk.
- On July 27, 2015, the office of the New York Attorney General sued Credit Suisse over their Dark Pool abuses. The video is interesting to watch, because it mirrors “TimesNow” type of reporting, with one anchor clearly taking sides and itching for a battle.
- A group of investors sued Barclay’s for their Dark Pool practices but suffered a setback when the Judge ruled against them on Aug 26th. If you read the fine print, it appears to exonerate the exchanges too!
According to Tabb Group, a market research firm, Braclay’s and Credit Suisse have some of the largest Dark Pools and Fox suggests that UBS’s Dark Pools are even bigger. Goldman Sachs and other US banks are not far behind – in fact Michael Lewis argues that there are about 47 dark pools (this was at the time of writing of Flash Boys – the number may have changed since).
Please note that so far in this article, we have only looked at one of the offshoots of HFT – Dark Pools. The other perceived advantages enjoyed by HFT companies, such as Front running has not been addressed in these lawsuits. According to Ed Scheiderman, the AG of NY, Mary Jo White, the current Chairperson of the Securities and Exchange Commission (SEC) is working on addressing the system as a whole and fix all the issues so the Stock Market becomes a fair place for all. Will it? Only time will tell.