“For all of the outrage kicked up by Michael Lewis’s depiction of fundamentally rigged securities exchanges in his book “Flash Boys,” there’s a giant obstacle standing in the way of punishing high-frequency traders or the exchanges that facilitate them: the blessing of federal regulators. As Dealbook’s Peter Henning wrote in his White Collar Crime Watch column on why high-frequency trading is unlikely to result in criminal charges, securities exchanges openly sell access to high-speed data feeds and to physical proximity that increases trading speed by milliseconds. Exchanges are, in the words of Andrew Ross Sorkin, “the real black hats” of high-frequency trading, since they unabashedly profit from differentiating access to trading information.
“That may be true, but exchanges do so with the full knowledge of the Securities and Exchange Commission and the Commodity Futures Trading Commission. Georgetown professor James Angel, who specializes in the structure and regulation of financial markets, told me Monday that as long as securities exchanges don’t discriminate in the sale of high-speed access, they’re acting within their regulatory bounds. He compared the system to airlines selling different tiers of service: It’s perfectly fine to sell first-class seats to high-frequency traders as long as people in coach had the same opportunity to sit up front and opted instead for the cheap seats.”
Read full Reuters article here.