By Jon Najarian
Some want to focus on "legacy" issues as to why the Nasdaq asked for that trading halt yesterday. This implies that the Nasdaq simply can't keep up with the pace of technology, or is forced to used "old pipes" to distribute its market data.
While both could be part of the problem to some small extent, they are not the root cause. The real issue is something no exchange wants to discuss and, in fact, may be legally unable to discuss under non-disclosure agreements. Whatever the case, it has resulted in the Rube Goldberg system that keeps dollars flowing into exchange coffers via tape revenue while catering to high-frequency trading firms (HFTs) that enhance volumes.
An unfair market
Note that I said enhance volumes, not liquidity. Higher liquidity has been the argument that the exchanges use to justify systems that benefit HFTs. To wit, who among you would think that there should be three tapes (NYSE is Tape A, Amex is Tape B, and Nasdaq is Tape C) to deliver "live quotes" to market participants? Who, other than Rube Goldberg himself, would design a system that shares a portion of the revenue derived from the sales of this data with HFTs? Who would have thought that it's a good idea to let HFTs clog these data pipes with bids, offers, and canceled orders in millionths of a second in an attempt to get paid for providing liquidity rather than taking liquidity?
Keep reading: Blame the High-Frequency Traders for Yesterday’s Nasdaq Mess | The Exchange – Yahoo! Finance.
