High Frequency Trading, and Proof that the SEC Approach to Insider Trading is Completely Wrong

Got to love Mary Jo White, the Chairwoman of the SEC.  While Michael Lewis’s book Flash Boys was getting all the headlines and was the topic of some of the best television  on CNBC, ever, Ms White used the firestorm to ask for more money for the SEC.

Shocking ? The only shock would be if she didn’t use any occasion the SEC was in the public eye to ask for more money. It is unfortunate because there is no greater waste of money than what the SEC spends trying to enforce  insider trading laws.

Let me give you some examples of just how poorly the SEC manages our tax dollars when it comes to insider trading:

1. Did you hear the one about Gary and Clif of the Florida East Coast Railroad ? Gary and Clif noticed that there were a lot of tours of the company being given to guys in suits. So they guessed that something good was going on and decided to invest in stock of the company. They guessed right.  The SEC sued for insider trading. THe SEC lost.   How many millions of dollars of taxpayer money were wasted ?

2.  In the case of SEC vs Schvacho the SEC charged Schvacho with using inside information he obtained from a friend who was CEO of a company he traded in.  Both parties said under oath that they never discussed the stock and no Material Information about the company ever changed hands. This is what the judge had to say about the case ““And I would note, as I said before, that it’s unfortunate that this issue has come up, and while Mary Jo White wants to try more cases, I hope that she impresses upon especially counsel in her agency that the goal here is for a just result and not just  for a result.”  The SEC lost.   How many millions of dollars of taxpayer money were wasted ?

The SEC works hard to expand the definition of insider trading. The first question I have is why? What does it accomplish ?  I have no problem with classic insider trading being illegal. If you are the CEO or director of a company and you use information you have access to to trade and profit and gain in some manner, that is wrong.  The Department of Justice does a good job of going after criminals who inside trade. The SEC doesn’t.  Leave Insider Trading to the Justice Department.  

The SEC on the other hand deals with civil litigation. They have stated many times that the goal is to increase investor confidence in the markets.  Which leads to the question of whether or not these efforts have resulted in increased investor confidence  ?  Not according to every poll I have seen. Not according to anyone I have ever talked to. Investor confidence continues to decrease. Despite this, the SEC continues to think Insider Trading enforcement is the way to increase confidence in the markets. It is not.

The absolute fact is that investors DO NOT CARE ABOUT INSIDER TRADING and DO NOT USE IT AS PROXY FOR WHETHER OR NOT THE MARKETS ARE FAIR

How do i know this is a fact ?   By looking at reality. Ask yourself the following questions:

How many trillions of dollars are invested in global equities and markets outside of the United States ?  Have you ever invested in global markets ? 

Before you or anyone you know ever invested in foreign markets, or have you ever read or heard about anyone EVER checking the insider trading laws of a given country before making an investment ? 

Have you or anyone you know or read about ever sold global equities because of lax enforcement of insider trading laws in that country ? 

I have asked these questions at numerous conferences and events, no one has ever said yes. Ever.

The point being that investors don’t care about Insider Trading laws. They don’t use it as investment criteria. They don’t have concerns about it. Its not an issue. Trillions of dollars are invested globally without concern for insider trading, yet the SEC continues to bring ridiculous enforcement actions as a proxy for investor confidence. It is a waste of taxpayer money.

THE SEC SHOULD GET COMPLETELY OUT OF THE INSIDER TRADING BUSINESS.

They waste taxpayer money going after the Gary and Clif’s of the world in what appears to be nothing more than a full employment act for current, future and former SEC attorneys. They should be concerned with the issues that truly impact investor confidence.  The things that matter.  Finding Ponzi schemes, penny stock frauds,  Market Structure Issues like HFT.  If it adds risk and costs to the entire market, deal with it. Investors are concerned with actions, transactions and risks that can cause them to lose all of their money.   Non Criminal Insider Trading is not one of those things. Right now its just a waste of taxpayer money.  Money that the SEC says it doesn’t have enough of.

Leave insider trading to the Justice Department. Take all that money that the SEC wastes on insider trading civil litigation and put it to good use.  There are smart people at the SEC , lets get them working on smart things that truly impact investor confidence.

What do you think ? Am I right , wrong ? Missing something ? Let me know your thoughts in the comments section

 

 

57 thoughts on “High Frequency Trading, and Proof that the SEC Approach to Insider Trading is Completely Wrong

  1. @ Stephen Aniston

    The same companies that are underwriting and auditing the firms are coincidentally pushing their stocks to financial investors. They’ve gotten better now the big investment banking firms have separated their divisions, but nonetheless a conflict of interest as you noted

    Comment by AlphaWolf -

  2. HAHAHA! Mark I love you!

    Comment by colintwest1 -

  3. Martha Stewart will agree with you :)

    Comment by AlphaWolf -

  4. Fully enjoyed the post on “High Frequency Trading, and Proof that the SEC Approach to Insider Trading is Completely Wrong”, but really, will they really listen? It would appear that, in their minds, it has the highest level of emotional impact for the public without any real sense of reality… It seems there might be a department that their sole purpose is to raise non-impacting concerns as to distract or cause reason for extra fund raising… Well said!

    Comment by Grant O'Kane -

  5. Love your comments on “High Frequency Trading, and Proof that the SEC Approach to Insider Trading is Completely Wrong”, so true. But really, who listens? It’s the easiest and most impacting topic to the public, in their minds and they need a justification for more funding… Well said!

    Comment by Grant O'Kane -

  6. Okay, here is how I see it. The SEC is made up of folks trying to do the right thing. In order to make it fair for all investors. If someone trades on information that the general public doesn’t have access to it should be considered insider trading. Now I’m not talking about derived info from good due diligence. I’m talking about good ole boy info. The SEC will overstep periodically, but as an investor I like to know that we all have the same information. I haven’t researched the case referenced above, just seems as though these comments are focusing on the overregulation aspect of it. The SEC’s job is to promote fairness for all investors, I’d rather them investigate shady trading practices than just ignore it and say that’s the FBI’s job. Some of us may not see the unfairness or use it to determine a buy or sell. But if I knew a company was a regular for insider trading I would stay away because I don’t have all the info. I’m a Maverick fan by the way. Shark Tank too.

    Comment by Andre Walker (@Walkerwealthmgm) -

  7. I did not read the article because my English is not enough, but I really learn about seo infrastructure, we have a different topic in different knowledge, thank you.

    Comment by metinsarac61 -

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    Comment by Alexander Bedrik -

  9. The biggest issue for me with regards to confidence in investing in the market is the inability of a shareholder to sue corporations for bone headed decisions. If I invest in Coca-Cola and the board pulls a bone headed move and decides to exit the beverage business and just focus on selling umbrellas, courts have moved shareholders can’t sue for a breach of duty. Unless a board member has a vested interest in umbrella factory for example, you can’t sue. Simply put, you can sue a corporation for breach of duty for making a self-serving or corrupt move, but you can’t sue them for being stupid.

    The idea that “the last thing we need is more lawsuits” in this case is ridiculous. There is a big difference in suing companies who have breached their duty to shareholders where an investor has skin in the game versus a slip and fall at a local Wal-Mart.

    I exited the stock market a few years convinced it was rigged. Mark, things have gotten worse since your 2004 post about the market being a Ponzi scheme. I bought the grocery store bonds, A&P, with my eyes wide open. I thought there was a 50-50 chance they went under, and they did, but I bought the bonds at 50 cents on the dollar, and the bonds were secured via assets. I thought my downside would be limited then. Well, some Wall Street hedge fund swoops in and offers bond holders 1.7 cents on the dollar for our bonds, and a judge approves the plan. When I saw former President Bill Clinton sat on the board of this hedge fund, I knew that I was screwed. Obama’s DOJ rewrote bond law/custom with the GM fiasco, and my A&P investement was another example of how secured bondholders, who are supposed to be first in line with bankruptcy settlements, are now arbitrarily tossed around by bankruptcy judges. The GM decision is no longer the exception but the rule. Bankruptcy judges hand out the bankrupt companies assets on polticial favortism now versus the actual law.

    People don’t get that our current commodity trading laws were literally written by Enron. Front running, insider trading, and a host of other activities that are illegal in the stock market are actually legal in the commodity trading market. If you want to read a funny story, check out the one on Stephen Perkins. He was a British trader who in a drunken fit started trading oil futures and single handedly caused the price of crude to go up $1.50 per barrel.

    Just when I thought things couldn’t get any worse, I read this, “In a recent opinion, the North Carolina Supreme Court weighed in on this question, confirming that under North Carolina law, corporate directors’ fiduciary duties are generally owed to the corporation rather than its individual shareholders, and claims for breach of fiduciary duty may generally only be pursued by or on behalf of the corporation.” So let me get this right: shareholders don’t own corporations; corporations own corporations? Can things get any more dumb?

    The shame of it all is I have looked at the Securites acts of 1933 and 1934 and investment acts of 1940, and they are laws of beauty: easily read by lay people, concise, and common sensical. It is pathetic that government in one form of another has destroyed such law. People need to get that government gets its power with opaqueness, i.e. the gray. You want to follow the law and so do I, but government these days wants to pull law out of their posterior for political gain rather than just tell us what the law is.

    Comment by Joseph Zadeh -

  10. I think this is wrong. Sec has to rid of pure arbitrage, as an inside trader you never know (you can be anyone). Any investment is speculative, nobody knows what will happen, it’s a pure risk in my opinion.

    Comment by carolinapascala -

  11. It seems that the SEC along every other government agency is trying to take a liberal interpretation of their mandates to expand their reach. This particular practice of high frequency trading though should not be allowed. It’s not that it’s insider trading but another animal which games the system and tips the scales in favor of a small group that has bought an advantage.

    Years ago when all trades were done on the floor of the exchange the floor brokers used to look over the shoulders of the guys running the books to see what orders they had coming into the floor. They would then trade ahead of those orders making lots of money for themselves. This practice is called front running and it is illegal for brokers.

    The problem is that these funds are not brokers and so they don’t fall under the rules of front running as it applies to brokers. To be clear it’s not insider trading because they are not trading on non-public information. They violate the spirit of a law created to fair and equitable market place but not the letter of the law. The danger here is that the SEC cannot be allowed to expand their reach without a corresponding change in the law; that is simply bad precedence.

    There is no difference between front running by brokers and the front running by high frequency traders. The law needs to be changed so that the exchanges cannot grant an unfair advantage to one trader over another. The bigger problem is that these algorithms that trade on these groups behalf can occasionally go awry and create huge swings in the market as we have already seen. But they do contribute a lot of money to politicians so it’s unlikely we will see anything change until there is another major swing caused by these traders.

    Comment by Chad McCurdy -

  12. Pingback: high frequency trading- Stock Market is Rigged

  13. Well said Cubes. Like you said, it all boils down to the fact that HFT doesn’t add wealth or value to the global economy. In my opinion, these talented individuals could devote these billions of dollars and massive amounts of brainpower into efforts more aligned with their core competences and generate superior returns that create real wealth.

    Comment by bradfschmitt -

  14. Pingback: The Idiot's Guide to High Frequency Trading | We Report

  15. The first problem is that there is no bright-line definition of what constitutes insider trading. The second problem is that the SEC’s definition of conduct that it considers insider trading is elastic, always expanding, and creates uncertainty. With a bright-line definition–one that is not created by or subject to further expansion by the SEC–enforcement would not require the amount of resources the SEC now consumes pursuing enforcement actions, nor would it cause so much uncertainty among investors as to what is prohibited conduct and what is not.

    Comment by Lionel Mandrake -

  16. Great perspective. Thank you.

    -Joel Rabb, attorney for the Steffes family in their successful defense agains the SEC.

    Comment by Joel Rabb -

  17. I have to agree, and would go further by pointing out that EVERY successful market place throughout history has been dominated by insiders. Its how you should make money. I’m not talking about the hired-hand CEO trading on information no one has access too, but the Clif’s of the world who really know a market and are really paying attention, should be rewarded with higher returns than the passive or completely unaware investor. Do you think the most successful tobacco farmers and traders are just staring at screens to make their money? No, they’re at the drying barns, they have dirt under their nails, and are experts in their field. The SEC’s massive failure in the Madoff affair frankly should’ve been their undoing.

    Comment by One Yellow Bird (@One_Yellow_Bird) -

  18. I agree with you. If the DOJ is better at prosecuting insider trading cases then give them the budget to do so. Insider trading does erode investor confidence.
    HFT also erodes investor confidence. If Wall Street is all an inside game, then the little guys is getting taken to the cleaners.
    Why is HFT a big suprise now? I’ve heard about this stuff for years.
    I have cut back on what I put in my 401(k) and am putting all of my extra cash on my mortgage. Even if my house depreciates to $0, I’ll still have a place to live.

    Comment by imarunner2012 -

  19. Pingback: High Frequency Trading, and Proof that the SEC Approach to Insider Trading is Completely Wrong — blog maverick

  20. Mark

    Your example of insider trading − if you are the CEO or director of a company and you use information you have access to trade and profit and gain in some manner – is NOT an example of insider trading.Instead, your example is an example of fraud.

    I personally favor insider trading. That is, as a CEO I would like to think that the price of my stock means something. If it goes up or goes down, maybe I could call around my firm and see who thinks they know what. Maybe an accountant found something and believes he or she can predict how the market will react. This is good information for the CEO to have. And do you really think the accountant who finds this sort of information is actually going to be able to accurately predict the market reaction and be able to profit from that prediction? Dream on. And even if so (50% of the time I would guess), is the accountant going to be able to react before all of the other accountants, their families, and their friends?

    The only reasons that insider trading is illegal are because 1) some think it is unfair to give such power to insiders (when I seriously doubt that many, if any, will actually be able to profit from their predictions; and 2) insider fraud is hard to catch so let’s just outlaw insider trading altogether.

    Making all insider trading illegal and prosecuting traders on such trading is akin to calling someone guilty until proven innocent. As long as insider trading is illegal, traders will be subject to prosecutorial overreach. How about just tasking the SEC or the Justice Dept to go after fraud and forget about this insider trading thing? Trade on your own stock all you want. But if it can be shown that you are manipulating the market for your own gain then you go to jail. How simple is that?

    Don’t forget that insider trading only became illegal a few decades ago. Before that it was completely legal. However, before that it was also much more difficult than it is today to catch insiders engaging in fraud.

    I agree with you that making insider trading illegal does not increase investor confidence in the market. But to expand on your thoughts about that — it makes prices so meaningless that investors have to parse the wording of earnings announcements hoping for a clue to what is really going on. With insider non-fraudulent trading legal, stock prices would be meaningful, the market would be more efficient, and earnings announcements would be old news.

    Comment by J. Lee Booker -

  21. Hey Mark, I’m not even a stock market investor which I refuse to do because I think the game is rigged, and your take on what the SEC is doing is definitely correct. Here in Ontario Canada we have the OSC, or Ontario Securities Commission, and they basically only run after the little guys, not anyone who may be involved in insider trading, wire fraud, or any criminal gangs who resort to “Boiler Room Type Stock Scams”. I can only hope that the SEC in the US sees the light which they won’t, and go after people who are criminally negligent and involved in insider trading and organized stock fraud. If you’re smart you’ll keep your cash away from the stock market, mutual funds and even government type investments. But the SEC doesn’t see any harm in this because their hands are tied politically and legally. I blame The US Senate and Congress for not having the balls to indict real criminals involved in IT and equities fraud. They are wimps who hide behind the power of the government and the ability to protect fraudsters and stock market manipulators at the highest level. Thanks Mark

    Comment by Mark Grove -

  22. Hi Mark, While I agree with your assertion that sometimes SEC’s efforts are fishing expeditions, your point about investing in emerging or global markets and not caring about insider trading laws, is way off base. I have 10 years of professional investing experience in Asian markets and have always been skeptical of fiar disclosure. These markets were largely insiders market and researching fundamentals and public filing provided little if any edge at all. It is because of Regulation FD and strict enforcement of insider trading laws, global investors feel far more comfortable investing in US stocks such as Apple and Google (two of the largest US tech companies) than in Samsung or Tencent (two of the largest Asian tech companies, known for their opacity and side dealings).

    Comment by Kalpesh Kapadia (@kalpeshkapadia) -

  23. Great thoughts on the topic Mark. I think this is a perfect example of how government over-complicates things. A clear line needs to be drawn and then it’s the responsibility of legal authorities to hold people accountable for that, and only when they’re in direct violation of the law. If not, don’t waste money and make it so complex. You and I are paying for it, after all. :)

    Comment by James Carian -

  24. Pingback: High Frequency Trading, and Proof That the SEC Approach to Insider Trading Is Completely Wrong | Omaha Sun Times

  25. Great post. I agree. Keep spreading the word homie.

    Comment by donniccolo -

  26. Wow! imagine that. A rich guy sayin “don’t look behind the curtain, nothing to see here.” If I were a billionaire I would probably think the same.

    But, what a great country, cause if you work hard, you too could own an NBA team. A country, unlike some in the news these days, a place where you can’t get there EASILY, because the people, for now, make it hard.

    To quote my man Tom Hanks “it’s the hard that makes it good.”

    Comment by Drink Juice (@DrinkJuice) -

  27. Pingback: Mark Cuban blasts SEC over dealing with rigged market | America's Markets

  28. Mark, first I am a fan. I think you mean good, but your points are misplaced. I am sure you have heard about the largest insider trading case in US history involving Galleon Group and it’s founder Raj Rajaratnam. I have thoroughly researched that whole case and am making a film on the topic called “Billion Dollar Raja”. In the real narrative, what you are decrying led to the prosecution of 85 people and many more in the works. The SEC went after a small hedge fund named Sedna, which it suspected of cherry picking and perhaps insider trading, and that led to uncovering a much larger scheme for industrial scale insider trading. The SEC handed off the case to the Justice Dept to pursue criminal charges, which then employed wiretaps for the first time, bringing down a corporate icon like Rajat Gupta, former board member of Goldman Sachs.

    You are pointing to anecdotal cases where perhaps enforcement was not necessary, but saying that the SEC should not pursue insider trading and hand it off to justice doesn’t make sense. What you can lobby Congress to do is to better define insider trading. IMHO, that’s the crux of the issue you are really getting at from your own personal experience with the SEC.

    Comment by Nayan Padrai (@nayan1875) -

  29. Mark I have contacted every news outlet no one will listen the govt sold there Gm position in December at a 10 billion dollar loss the GM reports 1.5 million recalls and I think it is up to forty deaths! if it looks like a duck and walks like a duck nobody will bit i have contacted everybody. She wants an insider case this one is easy!

    Comment by Sean Sheehan -

  30. Mark I am an analyst at a global fund in TX. I believe you are 100% right here. Especially, penny-stock promotions have gotten way out of hand over the past few years. Yet the SEC does comparatively little real investigative work in the “stuff that really matters.”

    2 more areas I would add are:

    1) allowing Chinese companies to list directly on NYSE/Nasdaq despite very limited enforcement mechanisms for basic accounting/business fraud (they can list either by filing 10-Ks/10-Qs from U.S. shells acquired through reverse mergers, or through filing 20-Fs from a shellco holdco in Grand Cayman or Bermuda).

    2) audit issues in general: if you look at actual audit reviews/inspections by the PCAOB of accountants and their audits, including the Big 4, they routinely find that accountants sometimes do very little independent verification/testing or questioning of company assumptions, which can allow unethical CEOs/CFOs to inflate revenues/profits. SEC needs to play a bigger role here, with a bigger stick and more in-depth investigations.

    It is a much bigger issue if investors – retail, institutional, wealthy individual – cannot trust the financial statements themselves, than if Gary and Clif give some extra liquidity/demand (and thus slightly better exit price) to people who were going to sell out too early anyway.

    Comment by sb8636 -

  31. Ditto Chuck

    Comment by Chris Hinton (@Chrishinton15) -

  32. Not only are your arguments epically selective,they ignore one basic issue; fairness. You are a complete gift wrapped idiot to present an argument that we shouldn’t care. Yes the SEC is stupid in some cases they prosecute. To ignore them all would cause the system to rot from within even more than it currently is. I question your ethics on this issue.

    Comment by Chuck St John -

  33. The bigger problem is not that the SEC pursues insider trading, it’s that the SEC has done a poor job of defining insider trading. The SEC brings cases under the anti-fraud provisions; there is no specific statutory or regulatory prohibition on insider trading. The boundaries of what is and is not insider trading are carved from the decision to bring enforcement actions (like the one against you) and court rulings that either endorse or decline those actions.

    Comment by Doug Cornelius -

  34. Sure Mark, the number one rule in government bureaucracy is to protect and expand the bureaucracy in order to ensure job security and multiply paths to higher salaries and benefits i.e., perpetuate a culture of entitlement. From an economic productivity perspective this is much like the climbing ivy on an oak tree. Leave it to grow unchecked and it will eventually squeeze the life out of the tree (the tree being the metaphor for the economic system which directly and indirectly supports the nation). The SEC, despite its seemingly unfathomable mandate and unchecked powers, is no different. When you have an institutional traffic cop that is paid, in part, via the number and size of infractions it is able to “uncover”, its only natural that it will seek to generate rising numbers in a manner that is no different from many of the public companies it is supposed to police: by way of innuendo, sensationalism, and unsubstantiated claims. The only difference is that the SEC is not compelled to issue the accompanying disclaimers.

    Comment by Murray Schultz (@mws70) -

  35. Pingback: Mark Cuban: SEC's approach to Insider Trading Laws is Flawed

  36. The SEC is staffed with morons. The guys at the top are sharp perhaps but even Casey Stengel couldn’t manage the 62 mets

    Comment by Mike Rand -

  37. Good morning Marc, I was a series 7 broker back in the 80s. What needs to be discussed is when a group representing a company on the NYC or OC,  invades a brokerage firm and buys lunch for the Brokers, then talks up a company giving them BS heightened (supposedly secret info about a company who has paid them to promote their company giving 5 or 10 cents a share to the brokers to hype their stock for every stock they sell to their prospects or clients. I suggest there be some sort of statement put out by the SEC telling them not to go over board

    hawking a stock with unrealistic predictions facilities they have etc, Then a hungry broker calls their clients relaying that info and low and behold as so many stocks do as expected these clients loose money while the brokers cash in. Thanks for your blogs,, Howard

      Dr. Howard Rutman Manhattan Capital Group

    323. 931. 3923 * Office 

    No calls before 7:30AM Pct or after 7:30PM Pct DISCLAIMER:  Sender is not a United States Securities Dealer nor Broker nor US Investment Adviser.  Sender is a Consultant and Advisor, and in some instances a Private Investor.  This E-mail letter and the attached related documents are never to be considered a solicitation for any purpose in any form or content.

    ________________________________

    Comment by Howard Rutman -

  38. Are stringent or lax laws within international governments not taken into consideration when considering risk in those markets? Wouldn’t insider trading law in foreign markets be absorbed into this normal risk due diligence?

    Comment by Adam Clark (@clarka12) -

  39. I’m always amazed that people get upset with others expressing their opinions. Yes, the SEC wastes a huge amount of time and money that the Justice Department already is working on. Its just another case of the crossover that we see with other government agencies getting paid to do duplicate duties.

    Unfortunately, these “watchdog” agencies often have the idea that everyone is guilty and runs with a knee jerk reaction instead of reviewing things and trying to make a case out of something that amounts to nothing in most cases. Their abuse of power to enforce things and waste of tax payer money is something that they should be held accountable for like the public is. If an organization or company can’t manage its budget and funds in an effective manner, they they go out of business or are out of a job. Its a travesty that our government agencies aren’t held to the same standard.

    Too many times they want to ask for money and take credit when things go well for them, but point the finger to someone else or pass the buck and blame other things when they are proven wrong. If our country continues to give these organizations more money and a blank check to do things, its going to flush our country down the toilet faster then it is already headed.

    Comment by Scott Carson -

  40. Talking about it is doing something about it? Not really. I can talk about becoming a millionaire all day long

    Comment by Chris Hinton (@Chrishinton15) -

  41. Consider this my application to spearhead the canvassing of America movement.

    Comment by hypocrisyrealized -

  42. You should invest money in hiring people to canvas america and educate people of how the government wastes our money on frivolous things. Then we can unite with one voice as the melting pot of a nation we are and say we dont want the government wasting our money anymore! No! We want to be free to waste it ourselves on mcdonalds and chevy trucks like a true red blooded ‘mericans ‘posed to do. God bless America

    Comment by hypocrisyrealized -

  43. Couldn’t agree with you more, but it’s not just the SEC. The majority of Government agencies have been co-opted and corrupted. Something needs to change, and it starts with respected public figures speaking out where they can. Keep fighting the good fight!

    Comment by StartupBros -

  44. As far as Ponzi schemes go, it took a decade and a half for the SEC to catch on to Madoff.

    Comment by Matt Barrett -

  45. I am a former options market maker, and I would argue the Sec does not care about insider trading themselves. Part of the job was to sell puts to people on the closing bell minutes before surprise news was deleased. In my career I filed dozens of unusual activity reports and never heard anything back on trades that were obviously in violation. Also, when trading went mostly screen based, i can tell you many very experienced market makers were rejected from compliance jobs with the sec in favor of lawyers with no experience and ability to understand the markets they were tasked with regulating.

    As far as Lewis goes, front running has been around since the ticker tape was invented, however now its a technology game rather than driven by order flow itself. The torch passed from jocks to nerds, and now the Alpha Beta’s are complaining about it? Who cares?

    Comment by jimgoose -

  46. All government agencies charged with enforcing laws and regulations must exercise some judgment as to how much emphasis to place on particular laws and regulations – generally we refer to “prosecutorial discretion” but it is fundamentally an issue of resource allocation. For a police department it may involve deciding whether to focus on enforcing traffic laws vs. more emphasis on crimes like robbery or vandalism.
    All you are saying is that the SEC is devoting too much attention to insider trading and not enough to other issues. Based on my limited knowledge and perspective, I agree with you.

    Comment by Patrick Pine -

  47. Well said Mark!! It’s so easy to spend other peoples money …no accountability= delusion

    de·lu·sion diˈlo͞oZHən/ noun noun: delusion; plural noun: delusions 1. an idiosyncratic belief or impression that is firmly maintained despite being contradicted by what is generally accepted as reality or rational argument, typically a symptom of mental disorder. “the delusion of being watched” synonyms: misapprehension,misconception,misunderstanding, mistake,error, misinterpretation,misconstruction, misbelief;More

    Tim Kasberger

    web : http://www.colorincprolab.com Unlimited free cloud storage: http://www.unitprints.com facebook : http://www.facebook.com/lovecolorinc twitter: http://www.twitter.com/colorinc inc: http://www.inc.com/inc5000/profile/colorinc

    Sent from my iPhone

    >

    Comment by Tim Kasberger -

  48. Isn’t by him writing this post and exposing the SEC to his readers “doing something” about it? He may have a bias about bringing it up, but that does not negate the realities. Government entities need to focus on true problems and coming up with solutions instead of going after headline grabbers.

    Comment by Thomas -

  49. Well written. I would be more concerned that investing in stock (or movements of such) has nothing to do anymore with real values of a company or product. It is all the game of who thinks that who buys because they think that the one who told based on hearsay and analysis of somebody who has been right before or at least says he was …. and timing thereof.
    Another example – Rating Agencies put a tag on companies, countries….. that rating has a huge impact on the stockmarket…and who exactly is rating/controlling those ‘independent’ rating agencies?

    Comment by Sascha Schoenholzer -

  50. Force all orders to be valid for 2 seconds. Also, all orders must be backed with capital so the order can execute in those 2 seconds. Do those two things and there is no such thing as a HFT problem .

    Comment by Troder (@Troder) -

  51. SEC officials always miss the obvious big problems. How about all the millionaires who got fleeced by the Ponzi scheme of Bernie Madoff? How could you NOT have any audit of the books after years of major holdings? The major traders that own the super computer networks hot wired to the exchange to get in ahead of orders is NOT an unfair advantage? Why are the high frequency trader a special class of investor allowed to make a profit on every trade of mutual funds and pension plans? What is their connection to SEC?

    Comment by hoboduke -

  52. “The enforcement authority given by Congress allows the SEC to bring civil enforcement actions against individuals or companies alleged to have committed accounting fraud, provided false information, or engaged in insider trading or other violations of the securities law.” If we can just trim a little bit off of the Securities Exchange Act of 1934 then things could go different. So are you saying that the SEC should just provide their findings and that the Justice Department should do the actual enforcement?

    Comment by Jason Weir (@Geekican) -

  53. Actually one thing that is totally addressed still is government insider trading. Congress and staff can trade ahead of key regulatory decisions that can affect entire industries. This is actually a much more powerful insider trading issue to tackle that individual stock companies because it affects sectors of the economy and the money that can be made are significantly larger.

    Comment by Stephen Aniston -

  54. I’m not sure what you are trying to get at exactly. You believe that the system and the law is wrong, ok then change it. Lots of laws aren’t right but as citizens we are expected to abide by them. Imagine a world where everyone said “that law is stupid, doesn’t make sense, I’m not following it”. Can’t do it. Follow the process and change things.

    Seems to me that all you are doing is trying to a) justify your own actions b) convince everyone that the SEC just wastes our money. Ok, if B is true then do something about it. Don’t bother wasting our time with A.

    Comment by Chris Hinton (@Chrishinton15) -

  55. I recently read an SEC research on this topic. Only 50% of investors think conflict of interest is an issue. SEC really needs to focus on getting rid of pure arbitrage which is what some of HFT is. The fact of the matter is if you inside trade, the insiders don’t know how the market will react. The market is comprised of millions of decision makers and for one guy to think he can game that even with inside information is highly unrealistic. Obviously there are ponzi schemes and the like that take advantage of limited issue plays where a few people can game the price, but with highly liquid issues inside information doesn’t give anybody much of an edge. The general consensus is that insider buys and sells are terrible predictor for stock price movements. The fact is any investment is speculative. However, there are pure-arbitrage plays out there where there is no risk on investment, and that is what the SEC should make illegal and go after.

    Comment by Stephen Aniston -

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