What on earth stops pensionfunds to take legal action to end this theft, we're talking billions a year here. They certainly have enough financial resources at their disposal for a legal battle.
Has something been done with this? http://www.nanex.net/20100506/FlashCrashAnalysis_Recommendations.html Analysis of the "Flash Crash" Date of Event: 20100506 Recommendations Recommendations: Quote and trade data must have time stamps reflecting when they were generated. This will ensure delays can be detected by everyone. Reasoning: Changing the procedure to time stamp at the time a quote or trade is generated is a near trivial exercise. It probably comes as a surprise to many that time stamping isn't done that way now. Quote-stuffing should be banned. Reasoning: Quote and trade dissemination (data feed) is a finite resource, and should be treated as such. Add a simple 50 millisecond quote expiration rule: a quote must remain active until it is executed or 50ms elapses. If the quote is part of the NBBO, it may be improved (higher bid or lower offer price) at any time without waiting for the expiration period. Reasoning: The exchanges must protect the integrity of the National Best Bid/Offer system. What is the point of having a National Best Bid/Offer, if not everyone in your nation (apologies to Alaska/Hawaii) can reasonably execute a trade against it? 50ms is approximately the time it takes light and electronic communication to travel from New York to California and back. It is impossible to transmit information any faster. This rule would not limit quote/trade rates. So long as trades are executing, quotes can update thousands of times a second. Only a small percentage of quotes today would be affected and the potential for catastrophically high rates would be eliminated.
a good question and you would have thought the large pension funds and etf's (vanguard et al) will be at financial loss. it's probably a combination of the following: (i) lack of knowledge/belief that they are actually losing out financially (ii) lack of proof that they are are losing out financially (iii) fear of reprisals Banks earning money from client flow (over and above the spread) is nothing new. Banning proprietary trading doesn't solve it as these HFT firms and other entities get set up. Essentially it is just skimming off OPM. One of the reasons I would never scalp for ticks in a popular market. If you mess with a persons income they will try and stop you, you have to remember that. One of the positives of this Sarao case is that more people are thinking about what is going on 'under the hood'.
I think your last point is the explanation of their indifference. From their perspective HFT-firms just replaced the daytradersquad that was feeding of the specialist. They accept the fact that marketparties *from the inner circle* are making a living of scalping ticks, like you say it's always been that way.
Flash crash trader who made $40m to appear in court after failing to raise bail funds Navinder Singh Sarao has been in custody for a week as he contests extradition to the United States By Marion Dakers, Financial Services Editor 3:50PM BST 28 Apr 2015 The home trader accused of playing a role in the "flash crash" of 2010 is due to appear in court on Wednesday after failing to raise the £5m needed to cover his bail. Navinder Singh Sarao, a 36-year-old from Hounslow, will return to court for a further bail hearing after spending a week in jail. He is fighting a request from the US Department of Justice to extradite him for trial in Chicago. Mr Sarao first appeared at Westminster Magistrates’ Court on April 22 to face the charges of wire fraud, commodities fraud and market manipulation. While he was granted bail, it came with conditions including a £5m surety, surrendering his passport and staying off the internet. "If they haven't paid they come back every week," a court official told Reuters. "He's not paid as yet." The US authorities claim his trading tactics contributed to a lurch in the stock markets in May 2010, when a crash in the E-Mini S&P futures contracts spilled over into equities trading to knock as many as 1,000 points off the Dow Jones index before bouncing back. They allege that Mr Sarao used a customised trading programme to place layers of “spoof” bids for the contracts, in an attempt to nudge other traders into chasing the price down. Court documents claim he made almost $900,000 on the day of the flash crash, which the Commodity Futures Trading Commission initially said was sparked by a large sell order from an institutional trader and made worse by rapidly-trading alorithms. The Department of Justice claims that Mr Sarao made $40m from illicit trading between 2009 and 2014, sending some of his profits to offshore firms to the Caribbean islands of Anguilla and Nevis,