Two months into 2012, the
SEC announced that it had been examining the trading activities of
high-frequency trading firms. According to the Wall Street Journal, the SEC was
“examining, among other things, whether high-frequency firms benefit from
delays in the dissemination of prices from various corners of the markets. . .
. High-speed firms use direct feeds from exchanges that can give them a leg up
on slower traders.” High-frequency traders “can access prices a split second
faster through their access to direct feeds.” This is accomplished by placing
the trading computers in the same data center that houses the exchange’s
computer servers. Just over a year later, the Wall Street Journal reported that
high-speed traders were using “a hidden facet” of the Chicago Mercantile
Exchange’s computer system “to trade on the direction of the futures market
before other investors get the same information.” Even getting the confirmation
of a high-speed trade just one to ten milliseconds faster can enable a computer
to know the direction a commodity is going and trade on it. According to the
Wall Street Journal, the “ability to exploit such small time-gaps raises
questions about transparency and fairness amid the computer-driven, rapid-fire
trading that increasingly grips Wall Street and confounds regulators.” Both the
increasing use of high-speed trading and the problem of accountability from a
regulatory point of view raise the stakes in determining the ethics of the
practice.
The full essay is in Cases of Unethical Business, available in print and as an ebook at Amazon.com.
