What is in a Flash Trade?

“The problem I see with flash is not in the theory behind it but rather that it is flawed in its execution. One important point that is continuously misrepresented is that flash is an order type; it is not, it is an exchange process to expose an order to their market participants.  Orders that are subjected to a flashing period are flashed not at the customer’s instruction — there is no “opt-in”, and this is significant — you have a plain vanilla order being held up instead of routing to the best price destination, but without any guarantee that the flashed order will get an execution at the best price.  There is no contra “guarantee order” or obligation to the flash audience to do anything. Our concern is flash results in delaying an execution that is rightly owed to the customer and further, puts that execution itself at risk.  Therefore the customer could be, and I’m not saying they are, but they could be disadvantaged to have their order flashed, particularly without their consent. I think the debate that’s out there is a very good one. It’s with the SEC, and they are really looking into it. We’re providing them considerable data and I know that a number of the other exchanges are as well. I think as a result of the vigorous conversation we are all having that flash, at least in its current form, will probably be changed. There will perhaps be a mechanism that accomplishes what flash does but under a different methodology than what’s used today.”

Via Allie Zendrian interviewing Ed Boyle, head of U.S. options at NYSE Euronext.

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2 Responses

  1. I guess I don’t understand the difference between high-frequency and flash, when flash are being made by computers.

  2. Via Facebook from John Bezpiaty:

    I wrote an editorial on flash trading for Yahoo’s “Third Party and Independents” page, and, at least by my lights, flash trading is actually a process where traders are purchasing previously unvalued stock. As computers are making the actual decisions to purchase these previously valueless commodities, but at cybernetic speed and without the ability to judge the issuing company’s profitability, the process seems very likely to promote market inflation, a.k.a. the dread “bubble.”

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