Both are 'illlegal' says the SEC. before 1934 the year that the SEC was created by the new deal administration, insider trading and front running was NOT ILLEGAL. and that was the professional advantage versus amateurs. or retail participants. Why is it illegal? Cause fair markets was the name of the game, and the gov't i the 1930's wanted a fair market. so nobody had an unfair 'advantage' over the 'public' the SEC only has jurisdiction over securities traded on 'public exchanges' ..Securities EXCHANGE 'commission' if a security is traded or listed in the 'EXCHANGE' then it's the SEC problem. not the gov't or anyone else like the FBI or FTC federal trade 'commission' guns are under the jurisdiction of ATF..alcohol , tobacco, and firearms, why cause alcohol and tobacco taxes is 10% of gov't TAX revenue. and firearms, criminals and ex-cons are banned from owning guns. Front running and insider trading is the way professional trade before SEC made it illegal and it was gaurantee profits. no risk. with front running, professionals are minutes or hours ahead of the 'press release' before the public gets the information...the value of information. ( wall street movie) nobody is really harmed in front running or insider trading. only problem is these professionals would be harassing company executive and employees for 'information' and paying 'bribes' to news outlets to get 'news' before it goes to the public. then you have 'corrupt market' where bribes to insiders and news agencies for valuable information. professionals pay for information. Traders and your trades are not private. and insiders have to disclose their trades to their company that they work for or they can get fired for insider trading or worse prison if SEC enforces insider ill gotten gains from insider information. martha stewart did 6 months in club med prison for insider trading.
Front running and insider trading is technically different. front running is mostly knowledge of client orders and manipulating frontrunning client orders which is legal. insider trading is news or information about the company itself. like merger, bankruptcy, FDA approval etc .or new product or any news before the public gets it. t the guys who say frontrunning is legal is when broker or HFT machine puts a bid ahead of real bid or client buy order and buys the sell orders. and sells it to client buy order for higher price. that are pennies or a tick higher. where as insider trading buys at 50% or 100% higher days after insider shorts or goes long on the stock before insider information was disclosed to public.
insider information is often confused with 'research' and professionals are paid for their research of the industry and before it was made illegal. you were paying for insider information to the broker or professional. who had information that the public doesn't know.
Only reason HFTs can survive is because of the duplicity nature of the exchanges. If the exchanges decide to distribute the quotes as evenly as possible to all participants at the same time ("PUBLIC") and enforce the HFTs to observe FIFO rule ("first-in, first-out"), HFT would be driven out of business the next day. It's really the exchanges that are more corrupt than HFTs.
Shall one not try to achieve better just because the risk of another elite replacing an old elite is nonzero?
Each product can be traded on one exchange. Everyone has access to the same order types. Data is disseminated to everyone at the same time (of course someone who colocates has an advantage over someone miles outside, but everyone inside the collocation center is made equidistant). That would provide a relatively fair level playing field. Everything else is unfair
Don't agree - competition is good, but what we have now is out of control. I totally agree, but that's what we have now. The only barrier to entry is money, not unlike other industries.