Citadel Securities, Bloomberg Radio, SEC discussed on Bloomberg Law


Is Bloomberg law with June grosso from Bloomberg radio It's a battle over 350 microseconds You know is there a point where speed is actually detrimental Should we think about slowing things down And we introduced an amount of time that's absolutely so infinitesimally small It's irrelevant to the majority of traditional participants But it's absolutely critical to certain people that have bought advantages in the market It may be infinitesimally small as Brad katsuyama CEO of IEX group says but the stock exchange operator made famous by flash boys is in court defending those microseconds The electronic trading firm Citadel securities is suing the Securities and Exchange Commission to thwart the new order type known as D limit which was approved by the federal regulator last year In arguments before the D.C. circuit Court of Appeals a lawyer for IEX Catherine stetson said the D limit helps blunt the edge of high frequency traders What we are talking about is evidence of a huge amount of trading going on in the couple few microseconds before a price changes I just happen to blink my eyes That blink is about 200 times longer than the couple microseconds that we're talking about But the lawyer for Citadel Jeffrey wall criticized the D limit order But this is just a sloppy order It takes data It misreads the stats It assumes away all the costs If you look at both the order and their brief to this court it reads like it's all roses and no thorns It doesn't have any consideration of the call on retail or routing My guest is an expert in securities law James Cox a professor at duke law school Jim explained the D limit or discretionary limit that was introduced by IX This is part of their branding which when they came on the stage initially and Michael Lewis wrote about them big time It was putting in a speed bump The individuals that are in the high 5 of the market have been yelling for some time they have they are being disadvantaged and not just the price discovery process but disadvantage in getting a good price by all kinds of mechanisms like colocation et cetera and what the exchange is initially which is install a speed bump to take away the edge that the algorithmic electronic colocated traders have been making a lot of money on The great thing right now is that we have a chairman of the SEC joins a list of a lot of former very experienced knowledgeable individuals with chairman of the SEC But this chairman knows market he came out of the market He didn't come out of the securities markets but as a derivatives market which are actually better insights about how markets operate are ought to operate And these committed to the idea of bringing change to the markets So the complaint is being made against these exchange about this feedback It's going to fall on deaf ears at the SEC and should in the courts as well What's IX's argument before the circuit court This is a legitimate practice of saying look we have a market Here's our protocols Nobody's going to get an advantage because their computers are located closer to the exchange Everybody's going to be the same level playing field And to the extent of that the roads and advantage that some of these market participants have had Well so be it It's better to have individuals in the buy side finally hearing their voices raised and having an exchange where they can go What I find interesting here is whether this changes things enough so that other exchanges will develop and find that could be competitive that they're going to have to have a speed bump as well Citadel securities is suing the SEC What's the cause of action What are they alleging Alleging that the SEC has approving a practice that is according to them inherently anti competitive is an artificial device that is going to slow down trading and price recovery and therefore the argument would be that you're disadvantaging the public interest because you're slowing down price movements and what we should be doing is trying to facilitate competing up price movements That's the argument The attorney for Citadel says that the order type interferes with the natural course of the market the display price isn't real it's phantom How would you address that I think it's hard to say that as anthem because the orders are all coming in and what is actually happening is Citadel is wanting to start off three feet ahead in the race to the 5th line to determine what the price is going to be So essentially what the exchange is doing here is saying the starting line is the same for everybody So let's put everybody on the same plane whereas as I read the argument so that says no now we're ahead of the starting line and we want to preserve that position And by doing that we can get to the price first It's not clear to me that the price is going to be any different If everybody starts off at the same point then it is presently with Citadel starting off earlier And so we're still going to have the same sort of pricing that goes on It's just a question about who gets that price first And so the current arrangements where you have colocations and other devices that suited element and a few other market traders Give themselves a competitive advantage over others and they want to preserve that competitive advantage The exchange is proposal the one that's being challenged is the exchange of saying no we want to get everybody a chance to get the price And by doing that if you make the market pure fairer it'll be more individuals wanting to get that price and will have a deeper market and better price discovery.

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