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Stock Exchange Trade Types and Front Running: Laws to Pass Fixes

Stock exchange trade types are the different ways that traders can buy or sell securities on a stock exchange, such as market orders, limit orders, stop orders, or algorithmic orders. Each trade type has its own advantages and disadvantages, depending on the trader’s objectives, preferences, and strategies.

However, some trade types can also create problems for the market and other participants, especially when they are used for abusive or manipulative purposes. One of the most notorious examples of such practices is front running, which is the illegal act of trading on advance non-public information about a large pending transaction that will affect the price of a security.

Front running is considered a form of market manipulation and insider trading, as it exploits information asymmetry and violates fair trading rules. Front running can harm other investors who are unaware of the pending transaction and lose money due to the price movement caused by the front runner. Front running can also distort prices and signals, create false liquidity or volatility, and undermine market integrity and confidence.

Front running is not a new phenomenon. It has been around for decades, since the era when stock market trades were executed via paper carried by hand between trading desks. However, front running has become more prevalent and sophisticated with the advent of electronic trading and high-frequency trading (HFT), which use powerful computers and programs to execute orders in fractions of a second.

HFT firms can use their superior technology and speed to detect large orders from other traders and trade ahead of them, driving up or down the prices and making quick profits. HFT firms can also use various trade types to create artificial supply or demand or induce false reactions from other traders, such as spoofing, layering, or quote stuffing. These practices are also known as evil trade types, as they manipulate the market and harm other investors.

To address these problems, there is a need for laws to pass fixes that can prevent or deter front running and evil trade types. Some of the possible laws are:

  • Strengthening the definition and regulation of front running and evil trade types. The laws should clearly specify what constitutes front running and evil trade types, how they can be detected and measured, and what are the penalties or sanctions for violations. The laws should also cover all types of securities and markets, as well as all types of traders and intermediaries.
  • Enhancing the transparency and accountability of trading activities. The laws should require all traders and intermediaries to disclose their orders, quotes, trades, and identities to the regulators and exchanges. The laws should also require all exchanges to provide real-time data feeds and audit trails to the regulators and the public. The laws should also enable regulators to access and analyze high-frequency data and identify anomalous patterns or behaviors.
  • Increasing the resources and capacity of regulators and enforcement agencies. The laws should provide adequate funding and staffing for regulators and enforcement agencies to effectively monitor and investigate trading activities. The laws should also provide them with advanced tools and methods to detect and prevent front running and evil trade types. The laws should also empower them to impose appropriate sanctions or penalties for violations.
  • Promoting international cooperation and coordination among regulators and exchanges. The laws should encourage regulators and exchanges to share information and best practices on front running and evil trade types. The laws should also harmonize standards and rules across different jurisdictions and markets. The laws should also foster collaboration among regulators, exchanges, traders, academics, media, and other stakeholders to combat front running and evil trade types.

These are some of the laws that could pass fixes for the problems of stock exchange trade types and front running. By implementing these laws, we can ensure that the stock market is fair, transparent, efficient, and stable for all participants.