Latency Arbitrage: The Real Power Behind Predatory High Frequency Trading
A new white paper out of Themis Trading analyses the impact of predatory algos comprising various HFT strategies. In Themis' view: predatory HFT generates $1.5-$3 billion in profit. Themis concludes with the following three market integrity questions:
1. Instead of belittling the impact of latency arbitrage, and representing it as a gloriously naive $0.01-$0.02, does the regulators' thinking change if that impact is as high as $3 billion a year?
2. In a quid-pro-quo worlds, are market centers merely charging HFTs a higher fee in exchange for an advance look at the NBBO? Market centers should be protecting all participants equally.
3. The most critical question: "When a market center provides an HFT the ability to out-maneuver institutional orders, is not the exchange putting institutions and their brokers in breach of their fiduciary responsibilities, especially those institutions managing pension funds governed by ERISA?"