Years and years later, after the original Zerohedge piece on Flash Trading and the subsequent plethora of pieces written by Tyler, Nanex, Dennis Dick, Themis Trading, and I, the SEC has seemed to have been awaken from its slumber.  Deciding only a mere three years after the Flash Crash of 2010 to finally start cracking down on exchanges is a welcomed step but one that is damped by the myriad of transgressions executed by the exchanges.  Ready for this list of winners?

Courtesy of WSJ:

From NYSE providing data to top customers before everyone else, to Direct Edge’s special order-types, to NASDAQ claim that no one could have foreseen the Facebook IPO disaster, exchanges and the SEC have shown this new fragmented business model that caters to HFT isn’t working nor is it in the best interest of the United States.  For months and years, in the face of heavy industry push back, people like Haim Bodek have put their reputations and well-being on the line to publicly levy complaints against exchanges far in advance of the SEC.  Haim was in the Wall Street Journal and on CNBC discussing Queue Jumping and Hide-Not-Slide order-types, resulting in a very frustrated industry.  Not surprising that nearly a year after Haim was in WSJ talking order-types HFT firms were reporting incredible revenue collapses, such as GETCO’s nearly 90% loss in revenue.

WSJ also touches on the settlement between NYSE and SEC over NYSE’s use of primary data feeds designed to get data faster to the big paying, heavy volume, heavy handed HFT firms.  NYSE argued the data feed benefit wasn’t purposeful which I find to be fraudulent because someone laid the line, pumped it with special data, and showed the benefiting firms where to link up, so for it to be an accident is garbage.  I will do what I can to avoid trading at NYSE, not that any of the other venues are any more legit.

This gets better folks, that was just the equity exchanges.  Remember the Honorable Jon Corzine?  CME Group is taking heat from CFTC over the most ridiculous scenario yet to come out of 2011, which is the blatant commingling of client funds by MF Global and Jon Corzine’s continual freedom and his expected complete avoidance of prosecution because of his connections to the Obama Administration (Economic Adviser in 2008), his prior government positions (Senator and Governor of New Jersey), and his prior private industry position (Co-head with Hank Paulson at Goldman Sachs).  Read moe about this great American hero here.

Further, the CFTC also sued CME this year over accusations that CME employees were sharing details of clients’ trading with a commodities broker.  With all this scamming and skirting of the rules between our national, for-profit exchanges, is it any surprise that Bloomberg snooped on Terminal user activity?  Data leakage is a serious problem and for years many of us have addressed it and Sang Lucci is offering a special series (In The Kitchen) from an industry pro, Haim Bodek, to help our clients and friends.

It is refreshing to see the SEC and CFTC finally get up and get some work done but their efforts will be dampened by the infamous line used by all financial firms identified as legal persons which is “neither admit nor deny”.  So, if you’re NYSE, Nasdaq, CME, CBOE, Direct Edge, or BATS and you’ve broken the law and skirted the integrity of American financial markets, you don’t have to admit it or deny it, just pay up.  Make a donation to the SEC/CFTC and you may go back to your business of catering to high-volume players seeking to tilt the field in their advantage.  We’ll patiently wait for the day we hear about charges coming to Jon Corzine.