Is it true?

Reader comment on: Flash Boys

Submitted by John Gillis (United States), Apr 1, 2014 17:18

While the editor's point is excellent, that a new exchange could offer honesty in trades, and have a comparative advantage if there was hanky panky going on at other exchanges -- I really would need other evidence presented from someone other than such a capitalism-hater as Mr. Lewis.

I heard him on NPR describing the events of his story, and his claim is that stock exchanges were actually allowing certain traders to see the content of someone's trade before it was consummated. The example was Mr. X at brokerage Y pushes the button on his computer to sell 10k shares of Microsoft, and before it is executed, someone Z intercepts it and sees Mr. X is selling 10k of Microsoft, and Z then buys them instead and reoffers them to Mr. X at a slightly higher price. Since the 10k is no longer there for Mr. X to buy, all he can do is then buy them from Z at the slightly inflated price.

If this scenario is true, it is the fundamental breakdown of what an exchange does. If true, then forget the SEC, and other alphabet agencies, it should be a simple matter of tort law for major investors who were treated this way to sue the pants off the exchange for fiduciary failure of the most basic sort. That would sure stop such behavior -- IF it really happened, which requires independent verification from people who understand the market mechanisms and aren't cynical haters of such markets.

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