Forensics Journal - Stevenson University 2012 | Page 22

STEVENSON UNIVERSITY

to take advantage of that price change by using their superior speed
to market. Predictive strategies are legitimate practices because they
are executed having the same information available to others in the
market (Angel & McCabe, 2010, 10). However, due to their faster
access to the market HFT firms can capitalize on the anticipated price
ahead of their competitors, thus upsetting market equilibrium.

outside the Nasdaq Best Bid” (5). The traders “knowingly and intentionally” engaged in this activity to “create an appearance of substantial pending sell orders in the security for the purpose of inducing the
sale of his limit order,” according to violation 3 (5). They repeated
this pattern at least 46,152 times, resulting in profits of approximately
$575,765 (6).

THE NEED FOR SPEED

On July 14, 2010, Trillium and eleven of its employees accepted several sanctions without either admitting or denying the findings; standard language for an AWC. Trillium accepted a fine of $1,000,000
and agreed to pay disgorgement (to pull back ill-gotten gains) of
an additional $173,357. 49. In addition to the corporate sanctions,
eleven employees were fined between $12,500 and $220,000 with
one receiving no fine due to a demonstrated inability to pay. The
employees also agreed to pay disgorgement ranging from zero dollars
up to $78,244. 84. Additionally, they agreed to suspensions ranging
from six months to two years. The total sanctions for these violations
were $1,802,500 in fines, $465,300 in disgorgement, and 14 years
and eight months total suspension time (FINRA Letter of Acceptance
– Trillium 11-2).

One of the most significant keys to HFT’s success is speed. HFT
firms need information quickly. They must process it rapidly, submit
quotes, and execute transactions faster than their competition. There
are a few ways firms generate speed. The first is through computer
technology and fastest processors. Another way is to pay for the
best, quickest, data feeds. A third is through collocation. Collocation is a new twist on an old concept. Collocation involves an HFT
firm placing their computer