As the head trader at Hillsdale Investment Management in Toronto, she sees a lot of offers to buy or sell stocks that she knows are from high-frequency traders, firms that use ultra-fast computers to trade stocks thousands of times a day to make money from tiny market changes. She also knows that the HFTs are bluffing: their orders are an attempt to get her to reveal what she wants to buy and sell.
Got that? That’s what you need to know right there.
These orders certainly appear to be illegal.
So why are these people not being prosecuted?
Look folks, this is simple: Section 9 of the Securities Act of 1934 makes it unlawful for any person to create a false and misleading appearance of trade, or to influence a price, or to induce the purchase or sale of securities by others.
I’ve talked about this before and so have others. “High-frequency Trading” that is intended to commit “latency arbitrage”, is, I allege, unlawful under existing law. They are intended to induce someone to send an order to which the HFT folks respond by pulling their order before it can fill and then resubmit it at a less-attractive price. The amounts involved per-transaction are tiny, but whether you’re stealing a fraction of a penny or millions at a time doesn’t change the essence of the act.
But that’s not the point of this article. No, rather the point here is that RBC apparently has figured out how to shove this game up the players’ butts and blow their brains out long-ways.
The Thor system counteracts that gaming by staggering the orders it sends out to ensure they arrive at every market as close to simultaneously as possible. That gives the HFTs no chance to react.
Heh heh…. so now the “smartest guys in the room” can’t yank the order, and it suddenly gets executed. Oops – that wasn’t what they intended, but now they’re stuck with the bad price that they offered to buy or sell at.
Oh, and about that prosecution for the HFT boys?
We’re still waiting.