Reply #48: This barely qualifies as "news", a LOL gain of $1million, just clueless kids with big egos [View All]

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One of the participants was proud of his new speed boat!!! Give me a break!!! Almost any trader of other-people's-money knows how to use that information to make a little personal "side bet" to make enough for a new car, boat, etc. in a single day. Only someone new to the "game" would be boasting about it, so the question of interest is why did the NYT do the article?

While such activities certainly depend on "insider" info, you must examine closely the particular exchange/market and the details of the transactions to ascertain if they be legal, illegal, or condoned as common practice by insiders/market makers, routine ignored unless it starts affecting the rich and powerful.

Until I do a bit of research and talk next week with some friends in that corner of the business, I won't really know what this is all about and will refrain from speculating in public; I would like to give DU a little background perspective that some might see as cynical. I will try to keep things simple enough not to require any prior or special knowledge.

In today's world, it could actually be the case that someone could gain a short-lived advantage by finding a way to avoid most of the propagation delays in delivering market data and thus respond to "trades" quicker than can competitors. If you are connected directly to the exchange's computer systems with the highest-speed link and are located as close as possible to the exchange's systems, you will have a small time advantage over someone thousands of miles away who must endure the delays from one or more "hops" through communication routers or even satellites.

It is also possible that a system could be exploiting some idiosyncrasies in how messages are processed by some other system. For example, does scanning for the next transaction in a list start after the "most recent" element, or is there a situation where it predictably starts elsewhere. This is a lot like knowing the "tell" of a poker player, a tiny advantage with a huge impact. In the transaction processing scenario, the vulnerable behavior might involve the exchange system itself or one or more systems used by other traders. I can imagine situations where the systems of other traders have been subverted using techniques similar to those of criminal botnets, trojans, and worms. Why screw with personal credit cards to steal hundreds/thousands when you can screw with trading systems and steal millions?

This could be little more than a new way to play the "spread" as previously practiced by NYSE market makers or those at NASDAQ.

I will post more when I check things out.