[rramdin]

Michael Lewis and Brad Katsuyama misuse the term "front running," either willfully to stir people up or out out of ignorance. Front-running refers to the practice of a broker holding customer orders, but trading for their own accounts at a better price before executing their client's orders (i.e. using privileged information for their benefit). Katsuyama's uses "front running" to describe a practice where if an HFT sees a price change happening (i.e. trades are being reported or a level is going away), they quickly go and remove liquidity before others have gotten a chance to react to this new information. An HFT with faster technology will beat an institutional trader in this race (even though all market participants must always send bona fide orders that they intend to have filled). IEX solves this problem by slowing down incoming orders to give special orders on the exchange (D-pegs, which automatically change prices as the prevailing market price changes) an opportunity to reprice. The HFT has put millions of dollars into fast technology, whereas the institutional investment firms have presumably put millions of dollars into long term research. IEX allows institutional investors to outsource this technology investment to the exchange, which puts an artificial delay to give its matching engine time to reprice special orders during market moves.