The Securities and Exchange Commission voted for a proposal that would require brokerages that rent out their access to the markets to have rules in place to protect against potential mishaps from unlicensed traders.
In the practice known as "sponsored" access, brokerages that have been approved to trade on an exchange rent their access to traders, who are then able to shave milliseconds from the time it takes to access the markets.
In "naked sponsored" access, also called "unfiltered" access, the brokers do not screen orders en route to markets, making electronic trading even faster.
So what the hell is naked access? Naked Access allows traders to see what is happening on the exchanges themselves. This gives them a 30 millisecond window (yes trading is performed by sophisticated computer algorithms in the microseconds), to view trades before being executed. Thus, those with the technology, such as Goldman Sachs can execute high frequency and fast trades.....before the rest of investors see the various stock exchange orders.
Naked access gives trading firms, using brokers' licenses, unfetted access to stock markets. The firms, usually high-frequency traders, are then able to shave microseconds from the time it takes to trade.
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