Is high-frequency trading insider trading?

I don’t know much about the stock market, but there was an interesting interview on CBC this morning on high-frequency trading and how it probably gives an unfair advantage to some middlemen.
http://www.cbc.ca/thecurrent/episode/business/2014/04/09/michael-lewis-flash-boys/

Brad Katsuyama never aspired to be on Wall St. but ended up as a Wall St. trader for RBC. Disturbed by the undeclared advantages of high-frequency trading, he refused to join in the secrecy and has now become a revolutionary in the world of high finance. Micheal Lewis shares Brad Katsuyama's excellent adventure and what should be done to undo the rigged market.
http://www.cbc.ca/news/business/brad-katsuyama-says-his-aim-is-to-make-trading-fair-1.2597414
“I realized around 2007 that the prices and the quotes that were displayed on my screen [weren’t] actually what I could buy or sell in any particular stock," he said. When he investigated, he found that his orders travelled along fibre-optic lines and hit the closest exchange first, where high-frequency traders would use their speed advantage to buy the shares he wanted and then sell them to him at a slightly higher price — all in milliseconds.

I feel the answer is yes. The function of the stock market seemed to be to allow people to invest in companies which they thought would be successful and return funds on their investment. Both insider trading and high-frequency electronic trading is designed, not to do this, but to screw the other investors.
A possible solution (which lobbyists would never allow) would be to require that all purchases and sales must include a one day holding on each end. Thus, even if a h-f trader wanted to buy a stock, s/he would have to put in the order, and rather than getting it almost instantaneously, would get it a day later, it would stop this rip-off.
Occam

I can see how a lot of big players would hate that, from what I understand a lot of trading nowadays does depend on computers running sophisticated algorithms that make trading almost impossible for the average person to understand.
I like your way better, less chance of fraud or another big collapse.

It is a funny question.
Our laws are based on the concept of what PEOPLE know. But high speed trading must be done so fast that it does not involve people. Only computers can do it and computers do not really KNOW anything. They just follow algorithms to manipulate symbols.
Cybernetic epistemology.
psik

I don't know much about the stock market, but there was an interesting interview on CBC this morning on high-frequency trading and how it probably gives an unfair advantage to some middlemen. http://www.cbc.ca/thecurrent/episode/business/2014/04/09/michael-lewis-flash-boys/
Brad Katsuyama never aspired to be on Wall St. but ended up as a Wall St. trader for RBC. Disturbed by the undeclared advantages of high-frequency trading, he refused to join in the secrecy and has now become a revolutionary in the world of high finance. Micheal Lewis shares Brad Katsuyama's excellent adventure and what should be done to undo the rigged market.
http://www.cbc.ca/news/business/brad-katsuyama-says-his-aim-is-to-make-trading-fair-1.2597414
“I realized around 2007 that the prices and the quotes that were displayed on my screen [weren’t] actually what I could buy or sell in any particular stock," he said. When he investigated, he found that his orders travelled along fibre-optic lines and hit the closest exchange first, where high-frequency traders would use their speed advantage to buy the shares he wanted and then sell them to him at a slightly higher price — all in milliseconds.
Here's another interesting interview http://www.centerforinquiry.net/forums/viewthread/17027/
The Rand Paul thread reminded me of last night's Fresh Air interview, it was quite interesting examination of the mentality that seems to be running this country. I don't listen to the program near as much as I used to, so it was nice to see she's hanging on to her title as America's best investigative interviewer… er, in my humble opinion :cheese:
On A 'Rigged' Wall Street, Milliseconds Make All The Difference http://www.npr.org/2014/04/01/297686724/on-a-rigged-wall-street-milliseconds-make-all-the-difference "The stock market is rigged," Michael Lewis tells Fresh Air's Terry Gross. "It's rigged for the benefit for really a handful of insiders. It's rigged to ... maximize the take of Wall Street, of banks, the exchanges and the high-frequency traders at the expense of ordinary investors." Lewis is the author of several books about the world of finance, including Liar's Poker and The Big Short. His new book Flash Boys is about the form of computerized transactions known as high-frequency trading, in which the fastest computers with the highest connection speeds get the information first, and make the trade before anyone else can. A millisecond — even a nanosecond — can make all the difference between how much money is made or lost on any transaction. You'd be surprised to hear what investment banks do to get that nanosecond edge, and how they often use it in ways Lewis describes as predatory. ...

No. I don’t think that is insider trading. Insider trading is when you know something about a company that is still not officially published. As soon as it is published, the one that reacts fastest might win. The one reading the news paper is last. The one with the glass fibre close to the source the first.

I feel the answer is yes. The function of the stock market seemed to be to allow people to invest in companies which they thought would be successful and return funds on their investment.
That is what I once thought too...
A possible solution (which lobbyists would never allow) would be to require that all purchases and sales must include a one day holding on each end. Thus, even if a h-f trader wanted to buy a stock, s/he would have to put in the order, and rather than getting it almost instantaneously, would get it a day later, it would stop this rip-off.
I would rather think about a year or more... In the end, if you have stocks you partially own the company. Can you responsibly own a company, when you give up your ownership already after a day? How would you get companies that look at long term interest? Maybe by extending ownership to 10 years or so? Then you must do something with your ownership, i.e. help making good decisions on the long term in your own interest. Of course there is already another idea in your line: Tobin tax].
No. I don't think that is insider trading. Insider trading is when you know something about a company that is still not officially published. As soon as it is published, the one that reacts fastest might win. The one reading the news paper is last. The one with the glass fibre close to the source the first.
That is my point. This depends on computers reacting so fast that humans KNOWING is irrelevant. Of course that does not mean it is fair. psik

High frequency trading may not be insider trading in the strict sense of the phrase, but it is only available to high rollers, so it has the same unfair effect as insider trading. It creates an uneven playing field and is as unfair to the average trader as insider trading is. It gives an advantage to select people and a disadvantage to ordinary investors. IMO, it should be stopped–by whatever means necessary.
Lois

Lois very clearly understood and stated what I meant by saying “yes”. While it’s a different technique, it accomplishes a similar result - screwing the average investor recognizing that just about everyone who has an IRA, 401K, or pension plan has it administered by some company or investment group, so just about everyone is getting screwed by these people.
Occam

I agree, it basically ends up being an unofficial tax collected by trading insiders who do have an advantage not available to general investors.
It looks like the guy that helped identify the situation has set up his own exchange that aims to neutralize this advantage.
http://www.bloomberg.com/news/2014-04-09/iex-gains-momentum-as-upstart-stock-market-tops-some-incumbents.html

IEX, started by the heroes of Michael Lewis’s book “Flash Boys," handled 23.9 million shares yesterday, up 27 percent from the daily average in March. While IEX accounts for less than 1 percent of total U.S. volume, the five-month-old platform has more trading than four of the 13 American exchanges, including IntercontinentalExchange Group Inc.’s NYSE MKT. Gathering users is one of the challenges faced by Brad Katsuyama’s alternative venue, which uses time delays to cordon itself off from strategies it deems exploitative. Brian Barish, a money manager at Cambiar Investors LLC, says markets like IEX are the future of equity trading.

Now this is funny:
https://www.youtube.com/watch?v=iKwuAVzBap0
psik

Now this is funny: https://www.youtube.com/watch?v=iKwuAVzBap0 psik
Not if it actually happened.

A hostile AI emerging from trading computers isn’t that far fetched.
http://io9.com/the-unexpected-ways-that-artificial-intelligence-might-1355337058

Nowhere does that question seem more urgent than in the realm of financial trading systems, where algorithms that buy and sell are able to conduct transactions in the fraction of a second. That leads to bizarre, emergent forms of behavior like the 2010 "flash crash," when massive numbers of micro-second transactions caused an unexpected, destructive dip in stock prices. What if the next unexpected behavior to explode out of financial trading systems were a form of superintelligence? We still don't quite understand how the flash crash happened, so what hope do we have of understanding the sentience behind it?

I think that for AI to emerge, a system will need various sensory and behavioral capacities. I really don’t see how this could somehow happen by chance out of the relatively rudimentary algorhytms of hi freq trading.
But stepping back out of the twilight zone for a moment, (don’t get me wrong, I love the twilight zone, for entertainment purposes), my thoughts on hi freq trading is that it seems pretty shady, in that, if I understand correctly, there is some cash trading hands that apparently results in some persons getting an unfair advantage.
As to who it hurts, I am primarily concerned if it hurts small investors. Many say that the process is good for the market, as it provides liquidity. I guess so, but still, is it fair? Some say that it is unlikely to harm small investors who only invest in mutual funds and who are long term investors, but that it could very well hurt active small investors who try to manage their own stock trading.

Yeah, but even the most of the mutual funds are involved in selling less functioning stock and buying stock that looks as if it’s going to appreciate. Each time they do that, the flash traders get to skim off a bit, so even the long term investors who are in mutual funds still get screwed.
Occam

Yeah, but even the most of the mutual funds are involved in selling less functioning stock and buying stock that looks as if it's going to appreciate. Each time they do that, the flash traders get to skim off a bit, so even the long term investors who are in mutual funds still get screwed. Occam
Ok, I had to think it thru, but I get what you're saying. Hmmm.... Seems strange that hi freq trading still seems to be an issue that "warrants further study" if you look at some articles in the Wall St Journal and other sources that you would think would know better.

When you consider that the high frequency traders are all extremely wealthy, they can lobby legislators and push for biased articles in the WSJ. And one of the best ways of avoiding bringing corrective actions is to claim that it “warrants further study”.
Occam