SEC Begins Probe Of Flash Trading | zero hedge

To the extent that these HFT systems are in fact using flash (or other) traffic to get in front of orders and advantage themselves they are dramatically increasing the violence of market moves. A stock trading at $20 that has a bid come in with a limit of $20.10 would normally fill (assuming sufficient depth) at $20; this does not materially move the market. But if a HFT system "sees" that order, steps in front of it and buys up all the shares at $20 and then re-sells them to the customer at $20.04 (one penny better than the next best offer at $20.05) it has caused the current "last" price to move where it otherwise would not. Multiply this by millions of shares an hour and the impact on price moves could be tremendous. While I understand that many people like the move of the last two weeks in the market, the fact remains that what goes up can also come down with equal violence.

Electronic Trading Head: More Regulation NeededExplore related topics
Goldman Sachs Group Inc Story Quotes Comments Screener (1) Alert Email Print ShareBy Geoffrey Rogow
NEW YORK (MarketWatch) -- As high frequency trading continues to proliferate, the head of the powerful electronic trading desk at Goldman Sachs Group Inc. /quotes/comstock/13*!gs/quotes/nls/gs (GS 162.00, -0.42, -0.26%) says it may be time to rethink regulation in this new trading landscape.

In the wake of a collapsed stock market in 2008 that drastically cut the pocketbooks of all investors and traders, high frequency trading, the use of computers or complex algorithms to trade at lightning speed, is making up roughly half of the daily activity.

At the same time, Goldman Sachs has been one of the largest beneficiaries of this new landscape in trading, with its electronic trading desks remaining one of the market's leaders. Within Goldman's sprawling trading operations, however, high-frequency trading is a relatively minor player, accounting for less than 1% of its revenue in the first half of 2009, according to the bank.

The firm's electronic trading operations overall are continuing to grow, yet it acknowledges the current arms race for speed isn't all good. Newer, less regulated firms are making up more and more of the market share. And, given how much trading now originates and ends with computer programs, it may be time for Regulation NMS to get a face lift.

"The reality is our inter-market routing has become highly technical and highly complex and it's not a bad idea to step back and take a look at it," said Greg Tusar, managing director of Goldman Sachs Electronic Trading, in an interview. "We need to find out if there is anything we should change and where the gaps in regulation should be closed."

Notably, Regulation NMS, as it is commonly called, isn't all that old. It was passed in 2005 by the Securities and Exchange Commission and detailed a series of new regulations designed to protect orders and access for all participants.

Tusar says some changes are needed, but added it would be "bad policy" to make drastic moves. He notes the spreads between how much stocks are bought and sold for are narrower than they've ever been, while transaction costs have also fallen, both of which are a benefit to even the most retail of investors.

One of the most heavily discussed factors in the growth of high frequency has been the evolution of the modern day market maker. Firms like Getco LLC and Hudson River Trading trade in and out of stocks in milliseconds to make fractions of a cent. Their proliferation has provided liquidity to a market in dire need of it, and helped the decline in stock spreads and transaction costs.

Yet, Tusar says even with all the benefits these firms provide, a little more oversight is in order. Unlike more traditional market makers, some high frequency market players don't have an obligation to be in markets in good times and bad. In addition, if they become aware of information, such as through a "flash" order - when an order is routed through a private liquidity pool before being sent onto other exchange for filling - they don't have an obligation to act on that information.

It's a sentiment echoed by heads of electronic trading at several other Wall Street firms and an issue some said they have brought to the attention of the Securities and Exchange Commission.

MarketWatch.com Story

Dow Jones exploring sale of indexes business: report
On Friday August 21, 2009, 7:59 pm EDT
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NEW YORK (Reuters) - Dow Jones & Co Inc has been talking to potential buyers about the sale of its stock market index business, including the Dow Jones industrial average (DJI:^DJI - News), the company's Wall Street Journal reported on its website.


Reuters - The Dow Jones news ticker is seen above Times Square in New York, July 31, 2007. REUTERS/Shannon Stapleton ...

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WSJ.com, citing people familiar with the matter, reported on Friday that Goldman Sachs (NYSE:GS - News) is leading the discussions on behalf of Dow Jones, a division of Rupert Murdoch's News Corp (NasdaqGS:NWSA - News), since it was purchased in 2007 for $5.7 billion.

Since then, Murdoch has come under criticism for paying such a hefty price for a publishing company whose businesses have suffered from the sharp drop in ad sales. Earlier this year, News Corp wrote down $2.8 billion in Dow Jones' value.

Even though the index business is not dependent on advertising -- making it a steadier revenue source for Dow Jones during downturns -- industry analysts never felt it was much favored by Murdoch, a passionate backer of newspapers and one of the best-known media moguls.

Indeed, a number of analysts expected him to consider a sale of the index business soon after striking the deal for Dow Jones. Representatives for News Corp declined to comment.

Potential buyers might include McGraw-Hill Cos (NYSE:MHP - News) Standard & Poor's, Russell Indexes, MSCI Inc (NYSE:MXB - News), Bloomberg, Pearson Plc's (LSE:PSON.L - News) Financial Times and Thomson Reuters Corp (NasdaqGS:TRIN - News; Toronto:TRI.TO - News; Tril.L.) (NYSE:TRI - News). All of those companies declined to comment.

The Wall Street Journal, in its report, said the process was still in its early stages, and could result in an arrangement other than a sale, like a joint venture.

NAME CHANGE?

Anchored by the Dow Jones industrial average, the best-known measurement of U.S. stocks, the company's indexes business creates and licenses trading indexes.

Dow Jones Indexes has more than 700 licensees and a supporting staff of more than 160. It has offices in New York, Boston, Los Angeles, Princeton, London, Paris, Stockholm, Zurich, Madrid, Frankfurt, Hong Kong and Beijing.

Charles Dow, Edward Jones and Charles Bergstresser introduced the index in 1884, and today it contains such corporate blue-chips as General Electric Co (NYSE:GE - News), IBM (NYSE:IBM - News) and McDonald's Corp (NYSE:MCD - News).

Because the name is so well known -- even if the index itself has been somewhat eclipsed by broader measurements like the Standard & Poor's 500 (^SPX - News) in recent years -- any buyer would face a dilemma: Change the name and use it for branding; or keep it, stick with tradition and miss out on the opportunity to market a new brand.

Any change in ownership could have an impact on the growing business of exchange-traded funds (ETFs) -- investment products that mimic and include many major indexes' components.

"Just as they're one of the three or four biggest index providers, they're one of the three or four biggest index providers in the ETF universe," said Matthew Hougan, director of ETF analysis at IndexUniverse.com. "It's conceivable that whomever buys them could streamline or alter the index mix, and people would have to shift their portfolios. You could also see changes in methodology."

Investors can hold ETFs based on indexes from S&P, Nasdaq, Russell and Dow.

The Dow Diamonds ETF (DIA) was the 17th largest ETF in terms of assets as of July 30, 2009, according to the National Stock Exchange, which tracks ETF data, with $7.29 billion in assets.

Other large ETFs created through the licensing of Dow products include the iShares Dow Jones US Select Dividend ETF, with $3.26 billion in assets, and the ProShares Ultra DJ Financials, with $2.34 billion.

(Reporting by Paul Thomasch, David Gaffen, Nichola Groom and Deena Beasley; Editing by Matthew Lewis, Gary Hill and Carol Bishopric)

Dow Jones exploring sale of indexes business: report - Yahoo! Finance

One world order I guess, Going to heck in a hen basket!!!!!!!!!!
Isn't Brazil where Bush bought 140,000 acres for his "Daughter"??? hmmmmmmmmmm

Nasdaq, Brazilian exchange in partnership talks

Kathy Shwiff
Nasdaq OMX Group Inc. /quotes/comstock/15*!ndaq/quotes/nls/ndaq (NDAQ 21.10, -0.03, -0.14%) and Brazil's financial exchange, BM&FBovespa SA , said they will hold exclusive talks for the next 60 days about a possible partnership.

Nasdaq OMX is working to diversify as rivals chip away at its U.S. cash equities market share and the listings business has been hamstrung by the global recession.

The possible partnership with BM&FBovespa could involve development of an order-routing system between the exchanges that would allow investors connected to one exchange to send buy-and-sell orders for stocks traded on the other.

Also under consideration are the development of a commercial agreement providing for BM&FBovespa to license products and services developed by Nasdaq OMX, and for the exchanges to internationally distribute market data related to equities trading on the other.

BM&FBovespa was created at the end of last year from the merger of BM&F, the local commodities and futures exchange, and Bovespa Holding, the company that owns and manages the Brazilian Stock Exchange. It is one of the largest exchanges in the world in market value and the second-largest in the Americas after Nasdaq OMX.

Nasdaq, Brazilian exchange in partnership talks - MarketWatch