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August 1, 2010

So Not Fast!

By By John D'antona Jr. and Peter Chapman

"They get info much faster than a retail investor in Iowa with a basic modem, but over time those gaps tend to close, such as when more firms or everybody co-locates," Nagy said. "That is what is beginning to happen now."

The bulge bracket firms are reserved when talking about the relationship between the exchanges and high-frequency traders, as they deal with both daily. The bulge said the markets were best served as long as services are transparent and fair. Otherwise, the exchanges could find themselves in the regulators' crosshairs.

"I think they're OK so far," said Owain Self, EMEA and Americas head of algorithmic trading at UBS. "But, there have to be strict guidelines on what they offer and how they offer it. They should be made to deliver these facilities in a scalable fair manner to all members."

Anyone who wants to co-locate should be able to, traders at bulge firms said. But several did note that, as HFTs constitute a large amount of exchange trading business, their influence at certain venues bears scrutiny, to make sure the for-profit exchanges are fairly allocating space in a transparent manner.

The exchanges agreed.

"Our point is that it's healthier for the market if co-location is overseen by regulated exchanges, where the pricing is public, space can be fairly allocated and it is under the SEC's jurisdiction," Mecane said. "If exchanges didn't provide it, you'd basically have the Wild West in terms of people trying to sell real estate proximity to the matching engines without any oversight."