Why is that legal? Isn't that essentially the same as insider knowledge — you use information for trading purposes, before that information has reached all traders?

Counter argument: does me having a better internet connection and better computer then you, allowing me to trade before you do, constitute an insider trading? Everybody is using the same database, they just have more direct access that is guaranteed fast response. If you paid the same money you can have it too...

Pretty much, yes it would. To reduce that, they could make every transaction last a minute and the system would be already less rigged.

@gerrit no not really, the length of the transaction is irrelevant, they still react to the transaction faster then you and start it faster then you, who is using the free/low cost access. Don't forget that exchanges are privately owned, even if regulated (some places more then others) and insider trading constitutes of you having information you shouldn't have access to. I perfectly agree it is not fair that they get to react faster, but they pay for fast access to publicly accessible database, not to access the information before it goes public...

@gerrit insider trading is using knowledge that you shouldn’t know. There’s nothing about using knowledge prior to it reaching other people due to speed of light delays. You’d also have to define “All traders” - what about if one has a slow connection? Should that delay all trades? How do you measure this?

@Tim You are right that this would have to be defined if the system is to be reformed. I don't have all answers, but building infrastructure with the sole purpose of knowing the price 1 ms ahead of the competition is wasteful and a clear counterexample to so-called efficiency of free markets. Also illustrated here by SMBC in a humorous way.

@mishan the key argument to me is "if you paid as much money as they did, you could have it too". There's nothing stopping you from asking the stock exchange if you can put a server rack in their basement. In fact I think this is where stock exchanges get a good chunk of their income - selling direct fiber connections to server rack space in their basements!

@gerrit I don't see the way to get rid of this without a unified world government running central exchange giving everyone equal access and making it harder for the big players to monopolize the connection with an overwhelming amount of requests. Even that is only going to eliminate the direct faster access for companies with money and not the way they will build hyperoptimized trading systems...

@mishan I believe economists have made various proposals that would reduce high frequency trading or its impact, maybe not world-wide but at least regionally. I don't have the financial expertise to tell what could or couldn't work, or what the (negative) side effects of such proposals to society would be.

@FlorianCastelain Yup. Not business jets, but small (1/2 person, gliders, ultralights,..) planes. It was his hobby as far as I know. Also to specify a bit more - he was an older guy with an established career finishing his Ph.D. and teaching us for fun - and probably to recruit promising people)

“sitting in the building next door to an exchange” — Only next-door?  I think some exchanges let you pay lots of money to put your server in the exchange building!

@gerrit "insider trading", at least the kind that's illegal, has a particular legal definition. It's stuff like using information you gain from being an employee of a company to make profitable trades in that company's stock. Simply having special knowledge that isn't available to the public isn't enough to be illegal.

@Acccumulation AFAIK, it means you have information that the general public can't get. For example, if you go down and look at the company's office building, and it's a dump in the poorest part of town, so you sell their stock, that's fine - even if nobody else thought to go and look at their building.

@user253751 If I pay for exclusive access to pricing information 1 ms before others, then, by definition, the general public cannot get this information during this 1 ms.

@gerrit Do you pay for exclusive access, though, or do you just pay for access?

@gerrit As far as I know, they are not paying to access the data 1ms before everyone else, they pay for separate access with fewer restrictions and then use technology to leverage it. The result is they access the data 1 - 1000ms before the "non-paying" users...It is a thin distinction, but an important one.

@user253751 lol, I'm just imagining a bunch of SE users emailing the New York Stock Exchange now.

@gerrit NY AG Schneiderman took on this specific issue in 2014: enterpriseai.news/2014/03/21/… . It was settled and it would seem some rules did up changing around co-location of servers to make it more equitable: jdsupra.com/post/… . The practice still continues in some form ( nasdaq.com/solutions/nasdaq-co-location ) though it would seem there are a lot more rules about it than there was in the early mid 2010's.