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COMPUTERIZED FRONT RUNNING: ANOTHER GOLDMAN-DOMINATED FRAUD

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That is what proponents contend, but a tiny tax might not actually be enough to kill HFT. Consider Denninger's example, in which the high-frequency trader was making not just a few pennies but a full 29 cents per trade and had an opportunity to make this sum on 99,500 shares (100,000 shares less 5 100-lot trades at lesser sums). That's a $28,855 profit on a $2.63 million trade, not bad for a few milliseconds of work. Imposing a .1% Tobin tax on the $2.63 million would reduce the profit to $26,225, but that's still a nice return for a trade that takes less time than blinking.

The ideal solution would fix the problem at its source -- the price-setting mechanism itself. Keiser says this could be done by banning HFT and installing his VST computer program in its original design in all the exchanges. The true market price would then be established automatically, foreclosing both human and electronic manipulation. He notes that the shareholders of his former firm have a good claim for voiding out the sale to Cantor Fitzgerald and retrieving the program, since the deal was never consummated and the investors in HSX Holdings have never received a penny for the sale.

There is just one problem with their legal claim: the paperwork proving it was shipped to Cantor Fitzgerald's offices in the World Trade Center several months before September 2001. Like free market capitalism itself, it seems, the evidence has gone up in smoke.

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Ellen Brown is an attorney, president of the Public Banking Institute, author of 12 books including WEB OF DEBT and THE PUBLIC BANK SOLUTION, and a candidate for California treasurer running on a state bank platform. See (more...)
 
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