The problem, he says, is in the plumbing of the stock market. In the most interesting part of the interview, they showed a moving diagram of an order that leaves downtown New York and goes to the BATS exchange servers in Weehawken, N.J. Because the exchanges all connect to each other, the order then goes to the servers of the New York Stock Exchange, which is a few miles away in Mahwah, N.J."
According to Lewis, that's where the alleged front running occurs: in this example, they imply that the existence of high-priced fiber optic lines connecting the exchanges allow traders to get from Weehawken to Mahwah faster than the "public lines" that are provided to those who don't pay the higher fees for the faster lines, allowing these traders to profit from the knowledge of the prices in the slower feeds.
Should they be allowed to do this? When pressed, Mr. Lewis reluctantly admitted that this was perfectly legal, and so it wasn't front running, which was illegal. He then took to calling it "legal front running."
IEX has proposed that outgoing messages arrive at all exchanges at the same time and incoming messages go through a "speed box" that slows them down, so everything arrives everywhere at the same time. This is a simple solution to the problem.
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