US Busts Insider Trading Hackers 113
An anonymous reader sends news that U.S. authorities have dispersed an insider trading ring that broke into remote servers to grab press releases before their official publishing date. The group hacked into organizations called PRNewswire, Marketwired, and Business Wire, taking as many as 150,000 press releases over the past five years, including those involving earnings reports. The information was sold to other people who used it to buy and sell stocks. The nine people targeted in this sting netted approximately $30 million, while an SEC lawsuit targeting 32 individuals says the take was more like $100 million. Their scheme is a new type of distributed insider trading that didn't rely on leaked information from employees of any of the targeted companies. "They ran this like a business. They provided customer support: The hackers allegedly set up servers for their customers to access their information, and 'created a video tutorial on how to access and use one of the servers they used to share the Stolen Releases.' They responded to customer feedback ... Their fees were performance-based, and the performance was audited."
The stock market (Score:5, Insightful)
is a huge joke. Just close it down. It's very little about investment anyway. It's mostly about people having inside information grabbing cash from people who don't. And high frequency trading. The sad thing is that Economists don't seem to see this as a problem. Well, maybe this type of event on a much larger scale could actually do good by showing how bad things really are.
Re:The stock market (Score:4, Informative)
is a huge joke. Just close it down. It's very little about investment anyway. It's mostly about people having inside information grabbing cash from people who don't. And high frequency trading. The sad thing is that Economists don't seem to see this as a problem. Well, maybe this type of event on a much larger scale could actually do good by showing how bad things really are.
Because it's better if investing your savings and diversifying is hard?
You want a way for not-super-rich-people to buy small chunks of companies and invest. It gives them a way to get a return on their savings.
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Except "investing in a company" used to mean buying a share of it (note that word) and then being paid a dividend based upon their trading success.
Not it means buying a share of a company in the hope/expectation that the value of the share will go up and you can sell it to someone else for a profit.
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A large portion of the stock market no longer pays dividends.
Re: The stock market (Score:2)
It's irresponsible for a newly growing company to issue a dividend. Once a company has established it's profit margin and can't use that dividend money to invest in itself to grow to greater profits in the future, that's when it should consider using a dividend. Otherwise it's use of cash is suboptimal. Think about what apple has done in the last 1 5 years.
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A large portion of the stock market no longer pays dividends.
So use the very purpose of the market to reward those companies that DO, and invest in them instead of another company that you think is unwisely re-investing its proceeds back into growing the company.
That's the whole point of the market. Put your money where you want to. Mature companies pay dividends, but are less likely to increase dramatically in value. Younger, more hungry companies tend to have their stocks grow (or fall!), but hold off on paying dividends until they're well settled in. Nothing h
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People trading on the market who are actually looking at real economic indicators are rare. It's supply and demand so the game is all about pumping to create demand and emotion based
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If a company is profitable but isn't paying a dividend, then one of the following must be true:
1) They are investing cash in new businesses or opportunities as quickly as they are bringing it in. A growing business with good opportunities should be doing this instead of paying out a dividend and stunting their growth.
2) They are using their cash to buy back shares in the market. This extra demand for shares makes the price go up
3) They save the cash. This increases the value of the firm and outside inve
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The problem is the efficient market part. If a stock is popular it's likely already valued beyond what the company could ever earn in a hundred years. The only relation between what a company is doing from a business perspective and the stock price is the number of positive news blurbs that can be issued to pump the stock (and be immediately forgotten by pretty much everyone who bought and/or sold the stock). The CEO givin
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"diversifying is hard"... Coming from someone who probably spouts "a house is an investment" on command, that's hilarious!
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Because it's better if investing your savings and diversifying is hard?
You want a way for not-super-rich-people to buy small chunks of companies and invest. It gives them a way to get a return on their savings.
I don't know about it having to be "hard", but insider trading is how the big boys and girls make their money. Otherwise it's just a lottery for the widdle folks. Insider trading is an integral part of the stock market.
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Of course that is what HFT is all about. But even before that faster and better links to the market data including after hours trading were available. If knowing and having the ability to trade based on pricing information everyone else doesn't have isn't insider trading nothing is. It's the ultimate insider trading, I don't need to know anything about your company. I just know the price went down so I fill the now too high buy order of someone who d
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Sure, there's irresponsible trading, but I don't think you understand the purpose of the stock market.
Ownership of a business is referred to as equity. In a sole proprietorship, one person owns all the equity. But other arrangements like partnerships and corporations are common, in which many people own equity. That may be because they've all contributed to starting the business or later invested their cast to help grow the business. Selling equity can be done privately, which doesn't require a stock market
Re:The stock market (Score:5, Insightful)
high frequency trading isn't investing. in fact anything after the initial sale of the stock by the business is no longer investing in the company. it is just trading.
After the initial IPO the only way a company directly benefits from stock is when they go to borrow money. all those regulations and headaches just means you are giving away pieces of your company to people who want to strip mine the cash reserves, liquidate the assets and move on.
however with a good cash flow a business doesn't need that equity, and can get loans as needed. So why do they need to risk losing their business?
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in fact anything after the initial sale of the stock by the business is no longer investing in the company. it is just trading.
After the initial IPO the only way a company directly benefits from stock is when they go to borrow money.
Not true. After the initial IPO, companies often sell additional stock to raise money.
Also, the subsequent sales of the stock is still an investment in the company, in at least two way I can think of.
1) If stocks were not traded after the subsequent sale, then there wouldn't be a market for people to unload their stock after they bought it. If you make the investment that much less liquid, then you are going to have a much smaller pool of people willing to invest in the company. The lower demand for the sto
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high frequency trading isn't investing. in fact anything after the initial sale of the stock by the business is no longer investing in the company. it is just trading.
After the initial IPO the only way a company directly benefits from stock is when they go to borrow money. all those regulations and headaches just means you are giving away pieces of your company to people who want to strip mine the cash reserves, liquidate the assets and move on.
however with a good cash flow a business doesn't need that equity, and can get loans as needed. So why do they need to risk losing their business?
It's a question of quantity of money. If you need a few thousand dollars, your plan is good. If you want to compete against already existing big companies or very/extremely rich people you're going to have trouble as they have millions to use that you don't (i.e. R&D, infrastructure, marketing, salaries, etc). Good luck getting a ten million dollar (or whatever) loan from a bank that would let you compete.
Even with great cash flow a non-market financed business is going to start more slowly and grow
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I think the purpose of the stock market is much more mundane: to make money. In whatever way. That is why you can "invest" in non-existing "products", like derivatives, futures on crops that will never be planted, even ad-words, and so on. Off course, this must be regulated. The point is that it isn't. Oh, there are a few rules to pretend, but that is basically it. There is a commission to pretend to guard the rules as well, but has shown to only pretend as well (they "investigated" the flash crash only on
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The purpose of the stock market is to sucker people into supporting corporatism.
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In fact this secondary purpose had created an entire industry around it whose purpose is simply to make money for themselves with no interest in the companies they are investing in.
Except that the people who attempt to make money trading in stocks about which they are ignorant usually lose money.
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Except that the people who attempt to make money trading in stocks about which they are ignorant usually lose money.
Did you read the article? People set up an illicit education program and were arrested for their trouble. The system *requires* the investors to be ignorant.
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No. No, no, no. No. No, no. No.
The system requires that all investors work from the same, publicly available information. Insider trading is when you're working from information which is not yet available to the public.
This isn't true at all. If this were the case, there would be bans on company stock options, buybacks, and insider transactions. It's only the public that is meant to remain ignorant while investing.
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Why would there be bans on buybacks? The buybacks are done to raise the stock price, not to get shares at a cheap price. Banning company stock options also makes no sense, as the options are not exercisable for quite some time. And insider transactions must be reported. An insider who makes a move before the release of news is going to be charged with insider trading.
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The problem with the stock market is that the gains are funded from the losses of other market investors. The gains and/or losses should come from the gains and/or losses of the business you've invested in as they do with bonds.
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Sorry, but that is just stupid. By your ridiculous definition, if I am on a desert island and you make a trade based on pricing information I don't have, you are a criminal.
The correct test is not whether it is possible that someone gets information first ,which it always has been and always will be, but whether or not everyone has the same RIGHT to get the information at the same time, and they do.
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There are ways to tweak it that might help, like some kind of decreasing capital gains tax index tied to how long securities are held. Create a financial disincentive for short-term trading and an incentive for buy-and-hold. The unintended side effect might be less market liquidity.
I also wonder if there shouldn't be some mandate to pay of dividends. Stocks that don't pay dividends seem to only derive value from price increases in the stock, creating all kinds of perverse incentives.
It might even effect
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I think the issue is, to me, that when the SEC notices you and decides they do not like you then you are well and truly knackered. There is no escape. They can, will, and have hunted people down and I can certainly understand and justify the behavior. What I can not justify is their unwillingness to prosecute those who are intentionally (I simply can not think of any other way to put it - it must be intentional) ignored. That is not acceptable to me. People need to be prosecuted equally and I say this as so
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"Economists don't seem to see this as a problem"
Of course not. They are profiting from the system the way it is now.
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High-frequency trading=respctable insider trading (Score:5, Interesting)
So what about High-frequency trading? Investment bankers pay a premium to the stock exchange to connect their computers closer than everyone elses. They get inside information microseconds before those same punters, and milk them for it, and it's all legit. Isn't High-frequency trading just another kind of insider trading?
http://www.motherjones.com/pol... [motherjones.com]
http://www.nytimes.com/2014/04... [nytimes.com]
http://www.wsj.com/articles/re... [wsj.com]
http://faculty.chicagobooth.ed... [chicagobooth.edu]
Re:High-frequency trading=respctable insider tradi (Score:4, Insightful)
they make billions not millions so different rules apply
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No, because this access is available to everyone, for a certain fee. If a company would offer 'earnings reports' in advance to general release for a fee (bad example, this would be illegal from the company, but you get the idea) people buying this would also no be doing insider trading.
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It would be illegal because it was insider trading so yeah that is a really fucking bad example of something that wouldn't be insider trading.
Re:High-frequency trading=respctable insider tradi (Score:5, Insightful)
But the high frequency trading purchases and sales are, effectively, technologically assisted "pump and dump". They don't hold most stocks for even 60 seconds, and rely on the "forgiveness" of the puchasing system to discard trades they don't ever actually complete, to avoid transaction fees and to discard trades which might lose them money. The positive feedback of one HFT making a few puchases bumps a price incrementally, the next HFT buys some on speculation, the first sells and buys more, and they heterodyne off each other and the other shortsellers until the stock price hits a cap imposed by the other, slower, negative feedback in the market. Then they both shortsell on the way down, draining the potential profits from other, longer term investors on the way up and the way down.
HFT makes its money, not off of investment, but off of pure "arbitrage", off the churn in the market. It's quite destructive and drains the profit right out of normal buying and selling.
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Please excuse me: on the way up, hey heterodyne off the other HFT traders and "real" investors increasing prices and also engaging in short term transactions, not off the shortsellers.
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Thank you, I misused that term there.
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HFT has reduced the total arbitrage, decreased market to market differences and provides a massive liquidity boost to the entire market. The only time one of these HFT systems went bad the only people it hurt was the HFT company.
People like you that are opposed to HFT because you read an article about it don't realize how markets work. If there wasn't HFT there would be market makers and they take far MORE than a the miniscule percentage that HFT takes. When I first started trading you couldn't trade a stoc
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I do know how they work, and that is crap. The HFTs don't create liquidity, they just swim in it. If there are no sincere buyers and sellers, there's nobody for them to jump in front of.
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And on to
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HFT has reduced the total arbitrage, decreased market to market differences and provides a massive liquidity boost to the entire market.
The problem is that none of these are useful services on the scale that HFT does them.
If I got to sell a stock and have it sold in 10 seconds, I'm pretty happy. Market makers and such which make that possible do provide a useful service to the economy, versus me having to sit on my order for three days until somebody else notices it.
On the other hand, being able to sell it in femptoseconds instead of microseconds doesn't add real value. It just becomes a pay-to-win scenario.
Likewise, keeping international
Re:High-frequency trading=respctable insider tradi (Score:5, Insightful)
Reacting quicker to publicly released information is not illegal, no matter how much you personally hate high frequency trading - just because you ensure you have an advantage in the speed of reaction over other people doesn't make it insider trading. Lets say that HFT is banned, reacting to releases before other traders can still net you a huge advantage, even if you are only allowed one trade a second or minute. Its that first trade (either sale or purchase) at current market prices which can make your profit.
So HFT is banned, releases are via email or direct notification and all trades have to be manually entered - how quickly does the press release reach your inbox, how quickly can you type, what if your email or notification server is backlogged, how quickly can someone scan a release for the relevant details (should I buy or sell?), and how quickly can you enter those details into the system.
There are always ways to shave time off of reactions, no matter what approach you take.
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Short of getting everyone into a room, locking them a door, handing them all sealed envelopes with the info, ensuring everyone has read and understood the release and only then demolishing all the walls simultaneously to release the people, how do you propose making sure everyone gets the information at exactly the same time?
I see absolutely nothing wrong with paying for a better physical placement of a server to gain an advantage.
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Or making the 'market clock' tick in human scale quanta.
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Reacting quicker to publicly released information is not illegal, no matter how much you personally hate high frequency trading - just because you ensure you have an advantage in the speed of reaction over other people doesn't make it insider trading. Lets say that HFT is banned, reacting to releases before other traders can still net you a huge advantage, even if you are only allowed one trade a second or minute. Its that first trade (either sale or purchase) at current market prices which can make your profit.
So HFT is banned, releases are via email or direct notification and all trades have to be manually entered - how quickly does the press release reach your inbox, how quickly can you type, what if your email or notification server is backlogged, how quickly can someone scan a release for the relevant details (should I buy or sell?), and how quickly can you enter those details into the system.
There are always ways to shave time off of reactions, no matter what approach you take.
The difference being barriers to entry. If anyone could set up in a market colo and trade then it would be a level playing field. As it is, you have trading houses that have the licenses and so can HFT and everyone else is locked out.
No such barriers to entry exist for the other information release mechanisms that you list.
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HFT is not about reaction times to public information. It is about exploiting timing so that a customer placing a single large order that can be fulfilled only through many different stock exchanges is taken advantage of by predatory stock scalpers. Scalpers, upon noticing the order would not be able to be fulfilled by one single exchange, instead buy the securities on the other exchanges, so that by the time the rest of the large order arrives to those exchanges the scalpers can sell the securities at a h
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In that case the information. is about the market itself and not about the knowing insider information about the business in question. This may be immoral (I am not going to judge, though I invest a bunch it is a hobby and I will openly state that I do not have enough knowledge to judge) but it is not illegal. You can have information about the market, itself, and act on it. You can not have information about a business and act on it. An example, when I sold my business it was purchased by a publicly traded
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There are always ways to shave time off of reactions, no matter what approach you take.
It is not difficult to formally solve this problem with constraints at the exchange. If timing is the issue, then just randomize it. Just delay the evaluation of bids for the timing-sensitive period, and replay the bids with scrambled timing at the end of the period. This would effectively distribute the advantages and disadvantages in timing across the bidders.
The issue is not technical. The issue is political. No one wants to do any of the number of ways to fix this, and there are many ways to fix this th
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So if you buy, buy, buy, wait a month, then sell, sell, sell, you don't pay much/any transaction tax.
But if you buy, sell, buy, sell, buy, sell, you get transaction taxed to extinction.
Now make it so you publish your sell price for a whole hour, before you finalize trades for it.
Now make it so that you cancel too many sell orders, compared to those that made it to the end of the hour
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If the trades are the fastest thing on the network, then they can't be based on any information about the market except other trades.
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Isn't High-frequency trading just another kind of insider trading?
No. That's like saying that you should be penalized because you're smarter and can think more quickly than the guy next to you. You both can make the same arrangements to (for example) become aware of a new request for bids on some project ... but because you position yourself to be able to put every available second before the due date to put together a more attractive offer, and figure out how to respond persuasively in a way that's more profitable for you than it is for the slower, dumber guy standing n
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The issue isn't the algorithms or access to faster computers, it's paying to receive trade data before your competitors do.
No, it's investing the infrastructure and street address that lets you see and process - as quickly as possible - the information that's simultaneously released to everyone. If we were relying only on radio broadcasts from NYC for stock press releases, would you consider taking advantage of the speed of light to be an unfair advantage? Yes, those shrewd bastards who have their radios closer to the transmitter will hear the broadcast a moment before the guy on the west coast. UNFAIR!
Since either guy can do so but there's only one edge to buy, it's a bidding war, and the person who starts with greater resources wins.
Right. If you bring mor
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But it isn't received simultaneously. The co-locator gets it first, before everyone else. They temporarily have information that no-one else has.
Right. Just like people who receive important documents by USPS certified mail coming out of a reporting agency in NYC would get it much more quickly in New Jersey than they'd get it in California. Why? Because the person who's bothered to keep an office or a PO box 10 miles away is going to receive stuff more quickly than the one who keeps their office thousands of miles away.
Just like it takes longer for information to make it across a few hops and into a server across the continent than it does to ma
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HST != press releases.
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Still wrong, look it up. It's actually a practice that involves making a bazillion insincere trade offers to get a sense of the market, then jumping between two parties who are about to make a deal and skimming a bit for yourself.
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Let me guess: you think that when ten sprinters take off in a race, the guy who's faster wins because he's "jumped ahead" unfairly, right? Yeah.
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No, he is saying that the person closest to the starting gun will hear the sound first and have an advantage over the guy who is further away - even if it is a trivial advantage to human perceptions.
I do not agree with him, I do not think, but that is not what they are saying at all - using your analogy. As a hobbyist, well, I do not see a problem with HFT. It is legal and I do not feel qualified to determine if it is moral.
Two forms of legalized fraud (Score:1)
Biggest problem: delayed price quotes. Often delayed by 15-20 minutes!!
So the small investors are being told a false price, small traders buying and selling stocks are LIED TO ABOUT THE PRICE INTENTIONALLY, and the market intentionally sells the malicious deception of customers to the bulk traders who can afford the real time feed. "Here buy this feed, the ordinary joes we lie to about the price, but this is the real one and it gives you an advantage over them".
Imagine if a shop marked goods at a false pric
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You can pay to get real-time data (or as close to it as possible in your location and the speed of the infrastructure). The trading website that I use purports to do just that - they display the real time price or as close to it as possible. There is some lag, of course. I could do things to decrease that lag including going to the floor directly to get my information. Well, I think I would have to be on the observation deck. I suppose I could get licensed and go to the floor directly.
If you are going to cl
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Can we distinguish between capital investments and consumer goods? No one (here) is saying you getting a BMW is unfair. What people are saying is that the stock market is a pay to win game that results in positive feedback loops. And it's kinda ridiculous.
Imagine this: I pay someone at a company for ad
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One is knowing the market and the other is knowing the business?
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So, just to be clear: doing research on teh company I'm investing in to a degree other people cannot: illegal insider traidng. Doing automated research on what offers are currentyl out there, with no information at all, perfectly fine?
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That sums it up well enough for me. That will keep you out of jail too. Do not ask Bob who works for WXYZ to give you hints on when Widget R is coming to market AND then act on that information. You can ask him but you can not then invest in, short, or invest (or short) a competitor based on that information and, frankly, they will assume the worst if you did turn out to have any information.
Now, if you somehow knew that there was a glitch that let you sneak in and buy stock a little faster and then sell it
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You can pay to get real-time data (or as close to it as possible in your location and the speed of the infrastructure).
Isn't that a bit like Walmart displaying yesterday's prices on the store shelves and on their advertising, and you find out what your real bill is after you hand them your credit card? But, for a modest fee they'll show you today's prices instead?
I get that commodity prices change in realtime. I don't propose that when you are quoted a price that it be valid for a day or anything like that. However, I see no reason that anybody shouldn't just be able to see what the price of a commodity is at any time, a
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TFA is NOT about high frequency trading (Score:1)
So many of the comments thus far have discussed high frequency trading. This story isn't about high frequency trading. There have been similar things in the past involving HFT, like a server ready to disseminate an announcement from the Fed being hacked and orders being placed a few milliseconds before it was physically possible to react had they waited for the official release. That's insider trading that just happened to involve HFT.
Where HFT is characterized as insider trading, it's because servers are s
Corruption (Score:3, Informative)
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And charges for their customers? (Score:2)