I am not an expert on equities law or order flow trading, but I believe that the fiduciary duty extends to the order flow purchaser (or at least the broker maintains the liability).
I know for a fact that order flow purchasers are required to conform to the NBBO prices, so in theory they can't adversely impact the price of the security.
The problem with your broader definition of front running is that it undermines basic market mechanics. If a participant expresses a desire before entering the market that desire needs to be taken into account for accurate pricing. This is true of buying cars, houses, and cheeseburgers. Why shouldn't it be true of equities?
The problem with your broader definition of front running is that it undermines basic market mechanics. If a participant expresses a desire before entering the market that desire needs to be taken into account for accurate pricing. This is true of buying cars, houses, and cheeseburgers. Why shouldn't it be true of equities?
I think it makes a large difference how that desire is expressed. If you go to a price comparison website, and click on the link that takes you to the seller's website for the item that is priced $100 less than all others, you've expressed some desire to purchase the item. If the comparison website were to sell their real time click flow to the seller, who then raised their price in the milliseconds before servicing your web page request, you'd probably feel duped. Even if there was no breach of fiduciary duty, it would probably be classified as false advertising.
Still, that's not quite parallel. I think a closer example might be domain names. You go to a site to search for whether a $10 domain name is available. It is, but you aren't ready to buy. The search site sells the search information to an HFT who buys the domain for $10 (or better, just reserves it for a month without paying anyone), and then offers to sell it to you for $100. Have they have increased market liquidity in much the same manner as the HFT for a similar degree of public benefit?
What more positive parallel story do see for cars, houses, and cheeseburgers?
"The search site sells the search information to an HFT who buys the domain for $10 (or better, just reserves it for a month without paying anyone), and then offers to sell it to you for $100. Have they have increased market liquidity in much the same manner as the HFT for a similar degree of public benefit?"
In general, I don't like speaking in analogies about HFT as it is a highly technical area that depends on details. That said, this is a particularly bad analogy because unlike equity shares, domain names are not in any way fungible. pets.com is worth way more than akjalfdj89898afdsfyyy834u384734.sexy and there is only 1 pets.com, so if a market participant makes pets.com harder to acquire they are certainly not providing liquidity.
If you really want a stretched analogy, lets assume that McDonalds has contracted with a purchasing company, to secure enough beef to support their SUPER SAD SEPT SALE of cheeseburgers where they will need an extra amount of beef. If that purchasing agent then tells his brother to go out and buy all the beef he can, and they then collude to defraud McDonalds that is probably out of bounds. Conversely, if the purchasing agent finds that the average price of beef on the market is $1 a lb, but he himself has bought some for $.90 a lb, most people would view him selling it to his client for the market rate as fair. If the purchasing agents brother has some $.93 a lb beef and pays the purchasing agent $.02 a lb to sell to McDonals for $.98 we also usually don't have a problem. Further, if the purchasing agent stocks up on Coke because he assumes the sale will drive up the price of sugar water for his other clients, that also doesn't seem out of bounds to most people. Finally, in our super stretched analogy, no one would expect a savvy farmer who notices the purchasing agent buying up all the beef around to not raise his prices.
I know for a fact that order flow purchasers are required to conform to the NBBO prices, so in theory they can't adversely impact the price of the security.
The problem with your broader definition of front running is that it undermines basic market mechanics. If a participant expresses a desire before entering the market that desire needs to be taken into account for accurate pricing. This is true of buying cars, houses, and cheeseburgers. Why shouldn't it be true of equities?