Colocation: The Root of All High-Frequency Trading Evil?

By Geoffrey Rogow

Trading firms, from Wall Street banks to high-frequency hedge funds and market makers, spend millions each year to place their trading models right on exchange servers. It’s a big revenue generator for both traders and the exchanges, but is it right?

That’s one of the central questions being discussed today on Capitol Hill, where high-frequency experts have once again been called to speak, this time in front of the Senate Committee on Banking, Housing and Urban Affairs. While there are several other issues at play on Thursday, where politicians are hoping to get a grasp on how to prevent another Knight Capital KCG -4.76% snafu or another “Flash Crash,” collocation is as good as any place to start.

Most investors rely on feeds that consolidate prices throughout the market. Through computer hook-ups that connect exchanges in New York, Chicago and other cities, an average trader will see one consolidated tape of prices.

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About yocijourney

God does not play dice
This entry was posted in Breaking News, Business, Dark Pools, Finance, Flash Crash, High Frequency Trading, SEC, U.S. Economy and tagged , , , , , , , , , , , , , , , , . Bookmark the permalink.

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