It’s all about who can fleece other investors, traders and pension funds fastest.
By Pam Martens and Russ Martens of Wall Street on Parade
Some decades back, the late MIT economist Lester Thurow wrote this:
“Essentially, the economic problem is like that of the wolf and the caribou. If the wolves eat all the caribou, the wolves also vanish.”
What Thurow did not take into consideration is that if the wolf pack is large enough, it can survive for quite a while by turning on other wolf packs.
That’s what is happening right now on Wall Street. The wolves are at war with each other. The New York Stock Exchange and Nasdaq have filed a lawsuit against the Securities and Exchange Commission and are slinging mud in court at a former, long-tenured JPMorgan Chase executive, Brett Redfearn, who now polices them at the SEC. We’ll get to all that in a moment, but first some background.
It all started when the stock exchanges decided they no longer wanted to function like public utilities operating in the public interest to create a fair and efficient market place for stock trading in America and would instead become whore houses for high frequency traders at the Wall Street mega banks and hedge funds.
The New York Stock Exchange and Nasdaq allow these high frequency traders to co-locate their computers next to the main computers of the exchanges in their data centers to gain a speed advantage over other customers at a monthly cost that is so exorbitantly expensive that it prices out the average trader and small trading firms. On top of that, the exchanges are adding huge fees for access to their fastest data feeds for stock trade information while giving the public a slower, dumbed-down data feed. These trading advantages allow high frequency traders to manipulate stock prices and front-run orders from the public.
As a result of the Securities Exchange Act of 1934 (which followed the most corrupt era on Wall Street until the present one) the SEC was created to rein in Wall Street’s fleecing of the American public and the excesses that led to the 1929 crash. Under the legislation, the SEC is specifically charged with policing the stock exchanges. Section 6 of the Act mandates that the SEC must ensure that exchanges maintain “the equitable allocation of reasonable…fees, and other charges among its members and issuers and other persons using its facilities.” The same section requires “just and equitable principles of trade,” the removal of impediments to a “free and open market” and specifically states that an exchange shall not “permit unfair discrimination between customers.”
The public first leaned about this budding war in 2014 with the publication of the Michael Lewis bestseller, Flash Boys. Lewis wrote that “both Nasdaq and the New York Stock Exchange announced that they had widened the pipe that carried information between the HFT [high frequency trading] computers and each exchange’s matching engine. The price for the new pipe was $40,000 a month, up from the $25,000 a month the HFT firms had been paying for the old, smaller pipe.” By late 2011, according to Lewis, “more than two-thirds of Nasdaq’s revenues derived, one way or another, from high-frequency trading firms”…