U.S. Edition October 27, 2018 Today's Paper MARKETS SEC Won’t Release ‘Speed Bump’ Study It Promised Two Years Ago Investors expressed surprise at decision not to publish the study, which the agency committed to in 2016 The SEC declined to share any of the study’s findings and said it has “no immediate plans to release it to the public” because the report is internal. PHOTO: STEPHEN VOSS FOR THE WALL STREET JOURNAL 5 COMMENTS By Cezary Podkul Oct. 24, 2018 1:14 p.m. ET The Securities and Exchange Commission won’t release a study of the impact of brief delays in stock trading on market quality and pricing that investors have been expecting for two years. The SEC committed in June 2016 to complete the study when it reinterpreted one of its rules to allow so-called “speed bumps” that briefly pause trades before relaying them to exchanges for execution. The move allowed IEX Group Inc. to become the first exchange to offer a trading venue that slows the speed of trading. IEX argued that the 350-microsecond delay helps prevent rapid-fire traders from racing ahead of typical investors and unfairly profiting off of their speed advantage. That claim was disputed by high-tech trading firms that warned the speed bump could increase trading costs for investors. In late June, shortly after the two-year window expired for the SEC to complete the study, The Wall Street Journal filed a public-records request to obtain a copy. The agency responded on Oct. 16 with a heavily redacted, 18-page document, “Report on the Effects of IEX’s Intentional Access Delay on Market Quality, Including Price Discovery.” A spokesman for the SEC declined to share any of the study’s findings and said the agency has no “immediate plans to release it to the public” because it deems the report internal. The SEC has premised policy actions on in-house economic studies before and has publicly issued studies after rules became effective to assess how well they worked. But the agency also has discretion to withhold records it deems to be part of the “deliberative” rule-making process. Investors expressed surprise at the decision not to publish the study. “The expectation was that this would be public information,” said Ken Bertsch, executive director of the Council of Institutional Investors, which represents pensions and other large investors. “I don’t know why it’s so secret.” RELATED COVERAGE New ‘Speed Bump’ Planned for U.S. Stock Market ‘Flash Boys’ Exchange IEX Wins First Listing The Modern Markets Initiative, a Washington organization representing high-frequency-trading firms, also expected the SEC’s study to be published. “It’s in the public interest for this information to come out,” said Kirsten Wegner, the group’s chief executive. In June, SEC economist Edwin Hu published a separate study that looked at the impact of IEX’s speed bump on trading quality. That study—which does not represent the views of the SEC or its commissioners—found a decrease in trading costs for some stocks. A spokesman for IEX said the exchange does not know the findings of the SEC’s report but expects the results to be similar to Hu’s study, which IEX lauded as a validation of its business model. Since the SEC granted IEX’s application to become an exchange, others have also begun to experiment with trading delays, including the Chicago Stock Exchange and the New York Stock Exchange. However, exchanges utilizing speed bumps still account for only a small fraction of overall trading volume. Without more guidance from the SEC, it’s hard for exchanges to know if they’re making the right choice by introducing speed bumps, according to Tyler Gellasch, executive director of Healthy Markets Association, which represents large investors. “This looks like it may have some of that information,” he said of the SEC’s study.
There's billions of dollars at stake. The corruption is sweet on this one. The average person is too uninformed to even notice this while the people making the money are just throwing some sugar on SEC. I wonder how many SEC people got promised HFT jobs based on this decision. There's absolutely no reason not to release this if they really want to improve the markets.
SEC must make all exchanges disclose latencies, intended or unintended, as far as access points to exchanges are concerned. Otherwise, you are playing favorites. Allowing an exchange to introduce deliberate one-sided delays was a mistake the SEC won't want to admit.
The solution to HFT front running is frequent double blind batch auctions. See this interesting paper. Problem with current system is that say ES and SPY do not correlate in the 10 millisecond or so time world so HFTs benefit by attempting to un arbitrage correlation. Batch auctions return trading to price competition. Maybe a new administration in Washington will ignore lobbyists and make the change the way the up tick short sale rule was mandated in the 1930s. https://www.researchgate.net/public...nt_Batch_Auctions_as_a_Market_Design_Response
You're making an implicit assumption that HFT has a net negativit impact on market quality and pricing. A simplistic view says it does, and if forced to guess I'd say it does, but we're not forced to guess, we can actually do A/B tests. So while I'd tend to agree with an auction model, I think it would be madness to just pass a law mandating it without testing it first on some subset of the market. Perhaps we can go in together on starting an IEX competitor that uses the auction model?
Saying that HFT is a problem is like saying making fast cars is the reason for car accidents. Should we all take public transportation to solve it? Unfair advantages of any kind (info/costs/regs) are the problem, hft is a natural progression. The only reason sell side complain about them is because they don't want to invest in technology to compete. Much cheaper to lobby. As far as front-running, here's my primitive opinion - Macro traders front run Governments, Hedge Funds front run Macro Traders, Swing traders front run Hedge Funds, Day Traders front run Swing Traders, Scalpers front run Day Traders, HFT front run Scalpers, Insiders front run everybody. Front running is as old as Wall Street, the only difference is the speed of information dissemination. Let's make things fair, transparent, and accessable to all without stifling innovation.