Rigged U.S. Stock Market.... 60 Minutes Exposes Insider High-Speed Traders Who Jump The Line on You? [View all]

[tomm2thumbs]

A must-see for those who missed 60 Minutes this past week. Michael Lewis gives an interview to "60 Minutes" alleging that the stock market is rigged by a cabal of high frequency traders, stock exchanges, and Wall Street firms. He notes that a curious trader from the Royal Bank of Canada, Brad Katsuyama, wondered why trades appeared to be predicted by others, and did a large measure of investigation to find out why. He figured it out and wanted to combat potential abuses perpetrated against the investing community.

Lewis notes in his interview that high frequency traders are able to front run orders, which means they are able to buy in front of you and sell them back to you when you want to buy, or even after you have begun the process to buy. And that it is somehow considered to be legal in the rules that are currently established for the exchanges. It is likened to someone who wants to buy tickets to a concert online... you click to purchase 4 seats at 20 dollars each, and in the fraction of the second it takes to place your order, someone else learns of the desire for your purchase and jumps in ahead of you to purchase a portion of the seats and then place them back on the market for 25 dollars instead, giving you a higher price and themselves a tidy profit. Thus, the cut-in-front-of-the-line aspect of the trading scenario.

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Brad Katsuyama, who discovered the reason his Canadian customers seemed to be getting shaved of profits by the system, was then encouraged by others to set up a stock exchange, IEX, to thwart this apparent rigging of the U.S. stock markets against common investors. Many would view this exchange as a type of Credit Union of trading. If you watch the clip, you will likely get a sense that this guy is genuine in his desire to create a fair system for all vs. insider profits for those with proprietary access and speed to outrun other investors.

If this doesn't shake-up the current system, I don't imagine much will.




< back up clip -- basically same as above >