How the NYSE Gives a Head Start to the Highest Bidder

2 | By Shah Gilani

Five million dollars. That’s what the SEC just fined The New York Stock Exchange’s parent NYSE Euronext for cheating the public.

Of course, “cheating” is my word. The Exchange is not really guilty of anything anyway, according to the SEC.

We’re talking about “alleged” stuff happening, which proves that settling the matter without admitting or denying any guilt (isn’t that a Mission Impossible kind of line, like disavowing all knowledge, of anything, that might be the truth?) is proof positive once again that regulatory regurgitation is alive and well and sickening, you guessed it, the public.

If you didn’t hear, don’t feel bad. The news came out like lamb, and nobody notices a $5 million fine, anyway. Like I said, the Big Board paid a pittance for not doing anything wrong anyway, but the SEC needed some lunch money for pizza Friday, and lo and behold, the news came out on Friday, just before lunchtime.

What news, you’re still asking? Really, if you don’t know, you’re going to be mad at me for wasting your time even bringing this alleged activity up, because it didn’t really affect anybody anyway (and I have a little bridge I want to sell you).

The NYSE, by accident, of course, disadvantaged a few odd public investors when they inadvertently sent data, minor stuff, mind you, from their servers to high-paying traders at a faster pace than the public was getting the same information.

I know, what’s the big deal, right?

Just because some customers who buy data on unimportant stuff from the Exchange – stuff like what the bids and asks are for every stock at every price, and what orders are lined up behind those, and what volume of shares are being bid for or offered at, unimportant stuff – pay more money for those feeds, doesn’t mean they were supposed to get data faster. That’s what the SEC came out and said. Thank goodness for them.

Like I care if high frequency traders and big institutional trading desks and a few hundred hedge funds, and everybody else who is a professional, for that matter, gets the same data faster than me, or you… who cares?

Apparently, nobody at the Exchange noticed this. So you can imagine what a surprise it was to find this out. That’s because there were no “compliance” people in any of the meetings when technology issues were being discussed about who would get what data at what speed.

Look, it’s not that complicated; it’s just boring.

All I really have to say on this subject (you can tell I was rambling, can’t you?) is that now that the Exchange paid some lunch money to the SEC and promised to not let cheetah-speed data race to insiders (that’s what I call the pros) while turtle traders (yeah, that’s the public) get the data from the “consolidated tape,” everything is back to normal.

The NYSE will make sure that the data, no matter what you pay, will all leave the pipe at the same time.

Thank you! Was that so hard?

Now we can get on with playing on a level playing field.

Oh, wait. You knew this was coming, didn’t you?

Can you hear me getting sick, because I am doing just that…

Nothing will change as a result of this slap on the wrist. That’s because once all the same information comes out of the same pipe on its way to everyone, there is a big difference in how everyone gets it. It takes time to travel the distances between servers, theirs and yours.

But if you’re an insider, and you pay a lot of money to “collocate” your servers (the ones that are right there where the data comes out of that big pipe), you get data a lot sooner than the other not-so-instantly gratified traders and investors.

You see, there’s NOTHING in the settlement that talks about collocating servers at the giant, and I mean GIANT, warehouse that the NYSE built so a LOT of insiders can collocate their servers next to the pipes that the NYSE operates over in New Jersey. That whole speed thing, the one where the public “may be” disadvantaged, it’s systemic.

The NYSE makes a business out of renting advantage to the highest bidders. That ain’t in the settlement; that ain’t gonna change.

So, that $5 million, I call it “peeing” into the wind, and it makes me sick to my stomach.

By the way, here’s something that doesn’t make me sick (for once).

I want to give a shout out to my friend and colleague Bill Patalon. You see, Bill has a great little service called Private Briefing, where you give him a few dollars a month and he gives you expert stock picks to make great money on every day of the week. You can click here or follow the link at the top of this email if you want to learn more.

Why am I giving him a shout? Not because he gives great recommendations, and has one of the best track records in the business, and not because you’d be foolish not to follow him, but because Bill’s an idiot. I can say that because he’s my friend and I know he reads all my stuff. So I’ll say it publicly: Bill, you’re an idiot for selling your service for, what, $7 a month? You’re an idiot, raise the price!

I’ll be back with you Thursday.

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