In his all-out war against High-Frequency and Flash trading, Tyler Durden at ZeroHedge points his sights on Flash trading in the options market.
With the ban of Flash orders in equity markets now practically a done deal, politicians, and hopefully regulators, will start focusing their attention on Flash derivative products which facilitate not only a two tiered market but potential market abuse by the privileged few who have access to advance looks in assorted securities classes.
While dark pools will ultimately be the critical focal point of tiered market differentiation, it seems the next immediate area of focus will be flash orders in option trades. As before, a major opponent of Flash, NYSE Euronext, provides a few on why flashed options afford club” members the opportunity to sniff out larger market moves. From Traders Magazine:
[Ed Boyle, who runs NYSE Euronext’s U.S. option business] argues notes that flashed orders can enable participants receiving the flashes to trade ahead of customers whose orders are flashed, either in the stock market or in options. “When an order is flashed, there’s often not a lot of contracts available at the best price,” he said. “It’s when the market is moving fast that a customer is likely to be disadvantaged [by flash orders].” He added that flash orders proliferated in 2007 when the penny pilot began. Arca has price-time priority and maker-taker pricing for penny-quoted options.
Sorry, but railing against the “privileged few” in the options market is nonsense on stilts. The question you have to ask is: who would we be protecting by regulating this activity? And the answer is: other options traders.
So we’re not even talking about mum & pop, here. To regulate this activity is to spend tax dollars — because all regulation will require spending to enforce — to protect options traders. Why on earth would we want to spend our money on that? What greater good is served by that, which makes them worthy of our government’s protection?
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