Remember When I Wrote that High Frequency Trading was Front-Running?

Well, Yves Smith has found a whistleblower video that is a must watch: (Background on front-running here):



Yes, it's almost an hour long but the short version:

Mr. Bodek had been using common “limit orders,” which specify a price limit at which to buy or sell. Mr. Davidovich, according to Mr. Bodek, suggested that he instead use an order type called Hide Not Slide, which Direct Edge had introduced in early 2009, about the same time Trading Machines’ performance started to suffer.

Mr. Bodek says Mr. Davidovich told him Direct Edge had created this order type—which lets traders avoid having their orders displayed to the rest of the market—to attract high-frequency trading firms…

Mr. Bodek says he realized the orders he was using were disadvantaged, compared with Hide Not Slide orders. He says he found that in certain situations, the fact that a Hide Not Slide order was hidden allowed it to slip in ahead of some one-day limit orders that had been entered earlier. He also learned that other stock exchanges had order types somewhat like Hide Not Slide, with different twists.

“Man I feel like an idiot. Never grasped the full negative alpha embedded in a normal day limit,” Mr. Bodek emailed Mr.

We really need to start prosecuting these rat-f%$#s.