Bloomberg reports that a study highlights another way that high frequency traders appear to be taking advantage of slower market players. The SEC's EDGAR system receives companies' required filings electronically. There are some participants that pay to receive this service directly while most can access it for free online.
The study indicates that the documents are received between 0 seconds and up to one minute earlier by those who pay compared to when the documents are made available online to all others, 10 seconds earlier on average. The study also shows that in cases where the filing availability was made earlier to paying market participants, abnormal volume and price moves began on average 30 seconds before availability to the general public. The study does not tie the early availability to these moves, stating that the cause is unknown.
While there are many reasons that some are concerned about high frequency traders making money at the expense of slower moving investors, this has not been heard of before by us. While the article states that this is most likely unintentional, as high frequency traders did not exist when the system was initiated in the 1990s, it does seem to highlight another way that certain market players keep ahead of the regulators and the rest of the market. Ironically the system replaced a much longer availability time discrepancy when reports were not available electronically at all. The SEC has been reviewing the situation at least since June.
We will need to await the SEC's review to assess market impacts and the potential for a new set of "market rigging" lawsuits.
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