How "Sub-Pennying" In Dark Pools Ignores SEC Rule 612, Makes A Mockery Of The NBBO, And Is Another Illicit Source Of Billions For Wall Street

Tyler Durden's picture

One of the key "market integrity" (actually, much more appropriately said, lack thereof) topics that has not been touched at all by the Mainstream Media is the issue of Sub-Pennying, or the process of stepping in in front of displayed orders in blatant violation of NBBO rules as determined by Rule 612, in which broker-dealers profit to the tune of billions of dollars from "playing inside the spread" and in the process compromising the NBBO, having stocks being propped up by passive limit orders, pushing legitimate liquidity providers out of the market (after all,who wants to be constantly front run by block sniffing algos) and in general hurts the price discovery process. With regular exchanges predominantly used by schmucks and market small-timers, who trade in small volumes as the bulk of block order traffic has moved to various ATS and dark pools (primarily that of Goldman Sachs' Sigma X) leave it to the pros to find a way to make a mockery out of the market. Of course, as long as everyone is buying (with the taxpayer selling involuntarily) nobody has much reason to complain. However, when the ponzi ends and the rush to offload hits a fever pitch, the spirit of friendly thievery may turn sour very, very fast. Also, anyone who has any illusions they can trade fairly in dark pools (or the broader market), you have our condolences. We present a great guide on the dangers to market integrity from Sub-Pennying as presented by Dennis Dick of Bright Trading.

 

Recently, Dennis met with the SEC and presented the following list of publicly filed concerns with equity market structure, which we are confident Mary Schapiro will skim through, promptly forget, then revert to encouraging her employees never do any work and scour for pornography all day long. Hey Mary, what happened to Flash trading? Don't worry - we are launching a weekly reminder campaign which with the benefit of 8 million monthly page views will make sure you don't forget about it this time.