The Hidden Cost of Trading Stocks
Under federal trading rules, brokers must provide “best execution,” which usually means finding the best stock prices for clients who pay them to buy and sell shares. But the rules also recognize that for some trades, getting the best price is only one part of best execution; the speed, size and cost of a trade must also be considered.
Research presented at the Senate hearing showed that under the guise of making subjective judgments about best execution, brokers were routinely sending orders to venues that paid the highest rebates.
.. The HFT’s use 40+ special “order types” which hide the mechanisms in the trading systems to direct or front-run the trades. Patterson and Lewis mention this, but don’t really focus on it. Janet Yellen just mentioned them in a low key reference, but if the SEC looked into this it’s the stake in the heart of the Vampire. An order type has to be approved and accepted by each exchange, or it can’t be used.