Earlier this month the SEC announced the appointment of MIT Professor Haoxiang Zhu as the new Director of Trading and Markets.  While we personally don’t know Professor Zhu, we think his appointment is an excellent choice based on some his past research on equity market structure topics.  One paper from 2017 that stands out to us was “Back-Running: Seeking and Hiding Fundamental Information in Order Flows”. Here is the conclusion from that paper: “Back-runners start with no innate trading motive but observe past order flow information of fundamental investors (or equivalently, noise traders). Order flow information allows back-runners to partly (more…)

The SEC just charged two defendants in a wash trading scheme that was devised based on maker-taker pricing model. The scheme was hatched after one of the defendants (“Gu”) was watching the February 18th US House Financial Services Committee “Meme Stock” hearing and he heard the CEO of “Broker-dealer B” (Vlad Tenev, Robinhood) testify that broker-dealer B “pioneered commission free and zero contract fee options trading”. The scheme basically came down to this: “If I could trade options for free through one broker and collect a rebate from another broker, then I may have created a money machine”. Gu realized (more…)