In the Australian Stock Exchange’s Sydney data room, which is about the large room, These are the row of servers installed by high frequency traders.
They are positiones against the wall opposite the ASX servers and each is connected directly into the host by a fat fibre optic pipe. Each cable is the same length by arangement with the ASX so that none gets an advantage; if one server is closer to the input, its cable is looped around to make it longer one less metre of optic fibre carrying data at 299.8 million metres per second would give one share trader an unfair advantage over the others.Well pretty fast is going on.
The question is whether it’s fair to the rest of us; whether those parasites with their suckers fastened directly into the heart of the ASX should be allowed to get away with it.
The ASX is no longer a regulator, just a business, so it says that if the practice is legal and it pays a fee, as well as rent space – stop them if you can?...Australia can before it is too late!.
For rest of the world it maybe too late: high-frequency trading accounts for as much as 70 per cent of the volume on American stock exchanges, including the NYSE; the time to control it was ten years ago.
What do the computers and their algorithms do? Well, these servers monitor order flow into the ASX servers and "the sophisticated programs can pick up patterns that indicate when a reasonably large order has been placed. What they then do, in effect, is “front-run” – that is, they buy ahead of the order and make a small spread selling into it". operating at incrediable speed "they can “feel” a buy order coming and can dart in front of them and ensure that the buyers pay a little bit more than they were going to, without noticing a thing"...says Alan Kohler.
