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Washington D.C. “Watchdog” Finally Bares Its Teeth

Politics / Market Regulation Jan 03, 2015 - 12:58 PM GMT

By: Money_Morning

Politics

Shah Gilani writes: It’s 2015, and things are changing, especially on Wall Street. I just know it.

For example, the U.S. Securities and Exchange Commission (SEC) finally figured out that high-frequency traders (HFT) have an advantage over most other investors and traders


And that means the SEC is going to come out with new rules to level the trading field for all investors within a few weeks – or, more likely, months.

This puts the SEC right where it should be.

Today I’ll tell you why that’s the case – and what it could mean for investors like you…

Taking Down “News Feed Trading”

The SEC first picked up the HFT news flash in February. That’s when the Wall Street Journal published embarrassing stories about how high-frequency trading shops were paying for an early look at the University of Michigan/Thomson Reuters Consumer Sentiment Index numbers – and using that information to make huge profits ahead of mom-and-pop investors.

You might know it as “news feed trading.”

And that was followed up by a couple of academic studies that came to light late in 2014. In two separate studies, academics found that HFT shops aren’t only paying for faster information – they are being gifted such info by the disseminators of the Electronic Data Gathering, Analysis, and Retrieval system.

The system is better known as EDGAR. At least that’s what the SEC calls it, and EDGAR belongs to the SEC.

EDGAR is where the SEC gathers all sorts of corporate filings. Investors can go there and retrieve what they want, and then make trades based on what they find.

However, the SEC doesn’t want all of us to have to wade through EDGAR, which is huge. So, it sends out important filings to folks who think they’re important via the Public Dissemination Service (PDS).

The problem is that the SEC never figured out its PDS disadvantages the rest of the public. Instead of getting the best stuff wrapped up and sent early, most individual investors have to plow through EDGAR to find market-moving stuff.

Of course, the HFT boys are down with OPM (other people’s money) and PDS. They make huge trades in the lag time – sometimes just a few seconds – between when stuff is filed on EDGAR and when it’s actually posted on the SEC’s public EDGAR website.

Well, like I said, things are changing on Wall Street.

And because it’s a new year, I’m not going to jump all over the SEC for not knowing they are tools. Instead, I’m celebrating the fact that they finally figured out they are the ultimate tool – and that they are going to do something about it.

What the SEC does remains to be seen.

The good news is that once again the regulators are where they should be – even if it is about 10 years behind reality.

Happy New Year!

Source : http://www.wallstreetinsightsandindictments.com/2015/01/this-dc-watchdog-finally-bares-its-teeth/

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