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- Title
FLASH TRADING: ETHICAL CONSIDERATIONS AND INVESTOR PROTECTION.
- Authors
D'Souza, Frank; Fairchild, Lisa
- Abstract
Technology has revolutionized the way in which stocks are traded. It has not only reduced the need for human decision making in the order execution process for financial securities, but it has also dramatically increased the speed at which transactions occur. One of the results of the technological advances within financial markets is the increase in high frequency trading (HFT) strategies carried out by algorithms originating in large financial institutions. One of the most controversial and often mentioned of these HFT strategies is flash trading, wherein market participants who can afford to subscribe to direct data feeds from exchanges are given a glimpse of the price and supply and demand information for a particular stock in advance of the information being released to the broader market. This practice, known as flash trading, is controversial because the market participants who can afford to pay for this informational advantage are able to profit at the expense of those participants who do not have the same information advantage. We analyze the ethical implications of flash trading and conclude that the practice has unethical outcomes driven by various factors that create profit incentives for exchanges as well as for those market participants that pay for informational advantages. We also conclude that the self-regulatory efforts of exchanges are likely insufficient due to exchanges' profit motives.
- Publication
Journal of Business & Behavioral Sciences, 2021, Vol 33, Issue 1, p21
- ISSN
1099-5374
- Publication type
Academic Journal