If someone puts a system on C2 with the intent to frontrun it would that be a violation of any regulatory rules? Would it violate any C2 rules?
It’s completely illegal and therefore violates C2 rules as well as the law.
This is a very interesting question.
If someone uses a way of order entry that leads to execution, while at the same time sending signals to C2. (E.g., if I understand correctly some people are using systems that are automatically traded and send these signals also to C2 - or there are order entry approaches that mirror what one enters to IB and posts this to C2 as signals)
Is this front running in this sense?
The system offerer trades will be slightly faster at the exchange (albeit perhaps only a few fractions of seconds) as they are more directly routed.
Would this then be illegal / against C2 rules (as it seems it is done quite often)?
Thanks
Klaus
Sure, it’s “interesting” in the same way that it’s interesting to envision complex jewel heists or art museum thefts. But just like those two colorful mainstays of movies, the actual truth is pretty boring, and the crime extremely unlikely.
In the first place, C2 is the tiniest of tiny gnats in the world of finance. Even our most-subscribed systems, when compared to the number of traders out there, is quite small. Further, and more important, the liquidity of the instruments traded here is very vast. Systems on C2 trade stocks, exchange-traded futures contracts, and foreign exchange. We’re generally not talking about exotic instruments with no trading volume. The volume required to remove all market liquidity, and thus move the price, is probably outside the realm of what a site like C2 can do.
So, in short, while it’s interesting to think about in an intellectual sense, it’s not something I’d like to spend much time dwelling upon, because it doesn’t seem like a realistic concern. There are much more obvious and easy ways to lose money when choosing a trading system. I’m not sure vendor front-running is the most likely one we’ll see.
There is an interesting system called CEFA. Please keep in mind that I am not accusing the vendor of front running because I don’t know what his motives are for putting it on C2. The system is free! It trades thinnly traded closed-end mutual funds. It trades very frequently, about eight times a day, often at small profits. The vendor does not give his name and says he is not inclined to answer any questions. At least he says “You get what you pay for, caveat emptor”.
What possibly could be the motive of the vendor? It would be nice to get opinions not only from Matthew but from other forum participants.
