Commentary

Tim Quast
Traders Magazine Online News

We're All HFTs Now

In this guest commentary, author Tim Quast looks back at the history of HFT and how the market has evolved to where many firms now fit the definition of high-frequency trader.

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July 31, 2004

At Deadline

By Editorial Staff

September 11

*The Securities and Exchange Commission says it found no evidence that terrorists profited from trading activity before the attack on September 11, 2001. The SEC report came at the same time as the 9/11 Commission released the results of its study. The SEC investigation began a week after the attack. That's when conspiracy reports started to circulate on the Internet that the terrorists had been shorting various stocks. However, the SEC conceded in its report that some "unusual trading" had taken place. Still, the regulators concluded that each trade "proved to have an innocuous explanation." The SEC said it examined almost 10 million securities transactions that were executed in the weeks before the shocking attack on the World Trade Center, which was in the heart of New York City's financial district.

Spinning

*Piper Jaffray & Co. has been censured and fined $2.4 million for IPO spinning, according to the NASD. Piper Jaffray violated NASD rules by allocating and selling profitable hot IPOs to executives of corporations from which Piper Jaffray was seeking, or had, investment banking business, the regulator said. "Spinning contributes to the public perception that the IPO market is rigged in favor of company insiders who receive highly profitable IPO shares as a payoff for lucrative investment banking business," according to Mary Shapiro, vice chairwoman of the NASD. She added that the IPO process must be "transparent and fair." The regulator said that sales of IPO shares to corporate executives were decided by Piper Jaffray's corporate client services division, which is an entity within Piper's investment banking department.

Chicago

*The Chicago Stock Exchange plans to launch an electronic book for the display and execution of orders in securities not covered by its specialists. The new system would replace a manual methodology involving handwritten notes. The CHX proposal is pending approval by the Securities and Exchange Commission. Now, whenever an order for a stock not covered by a specialist hits the exchange, a written memo goes into a cabinet. The orders then may be assigned to a market maker. The CHX considers this methodology "extraordinarily inefficient." The plan is to automatically quote these limit orders on an electronic book without the participation of a specialist or market maker. The ECN-like system would permit members to add or remove liquidity whether they were on or off the floor. The technology is the second ECN-like facility planned. CHXpress, which covers all securities traded at the CHX, is also in the works.