Stay Off My Street Corner
By now, we all know that exchanges will stop at nothing to attract high frequency traders. They have demonstrated in the past that even if they think they are doing something which may disadvantage one class of investor over another, if it helps their bottom line, then they will do it. Evidence of this appeared back in 2009 when two exchanges rolled out a technology known as “flash orders”. These exchanges later removed the flash orders after political pressure mounted concerning the fairness of these order types. In fact, Nasdaq even admitted that it “reluctantly” began offering flash orders since DirectEdge was already offering them Read more here
Two years later and they are still at it. This time the issue is with data centers. According to Reuters:
“Swedish regulators have raided U.S.-owned bourse operator Nasdaq OMX Group in a competition probe likely to raise questions over exchanges’ efforts to woo controversial high-frequency traders. The raid, carried out last month, was prompted by a complaint by new Nordic marketplace Burgundy. Burgundy said it was denied space for its computers alongside those of clients, such as banks, in a data center owned by U.S. telecoms company Verizon. The court documents said KKV, the competition authority, wanted to investigate whether OMX had applied pressure on Verizon or threatened to punish Verizon if the telecoms company made an agreement with one of its competitors.” Read Reuters article here
Sounds like Nasdaq thinks they own that street corner and do not want any other dealers invading their turf. The exchange business and the HFT “race to zero” is extremely competitive. Every microsecond could mean billions to both the HFT firms and their arms merchants, the exchanges. This situation should be a reminder to all investors that the main goal of the for-profit exchanges is their own profitability. Investor protection falls in somewhere lower on the list.