Help is finally on the way for institutional investors in their losing battle for profits against high-frequency traders, and it's not coming from regulators.
In March Credit Suisse is planning to launch Light Pool, a new stock-trading market that will block orders from high-frequency traders when they cross a certain level, Barron's reports.
Since high-frequency traders are usually co-located at exchanges, they're able to outmaneuver slower moving investors, forcing them to pay more for buys and sell stocks for less than they could have. But Credit Suisse's new venue will also slow down executions, leveling the playing field.
Credit Suisse in March will launch what it calls the Light Pool, a trading venue for mutual funds and institutional investors that purposely puts high-frequency traders at a disadvantage. This is revolutionary.As the Senior Editor of Advanced Trading, Justin Grant plays a key role in steering the magazine's coverage of the latest issues affecting the buy-side trading community. Since joining Advanced Trading in 2010, Grant's news analysis has touched on everything from the latest ... View Full Bio
High-frequency traders are courted by the 13 major stock exchanges because they deliver trading volume and pay big bucks for concierge services, like the direct data feeds from the exchanges that give them a crucial informational head start of several milliseconds.
Dan Mathisson, managing director of Credit Suisse's advanced-execution services, says the trading firms will have to route trades to the Light Pool through an outside stock exchange. "That extra hop could add 100-to-200 milliseconds to a trade, enough time to be very discouraging to high-frequency traders," he says.