Subject: File No. 265-29
From: Kermit R Kubitz
Affiliation: attorney, California

February 13, 2018

A Wall Street Journal report today says that high speed traders are exploiting a loophole to front run ordinary investors. See Wall Street Journal story of Osipovich below excerpt.

High-Speed Traders Profit From Return of Loophole at CME
Tiny gap between private trade confirmations and public data feed can be exploited to detect market moves, critics say
By Alexander Osipovich
Feb. 12, 2018 5:30 a.m. ET

"Five years ago, the worlds largest exchange operator vowed to fix a flaw in its systems that allowed high-speed traders to infer the direction of the futures market a fraction of a second before everyone else."

The SEC must investigate, and the Equity Market Structure Advisory Committee should discuss, the factors including co-location, latency, algorithmic trading, and other related factors which allow some traders to front run the market, harming both individual investors like myself, and institutions and portfolios, such as retirement plans, by obtaining better execution or lower or higher prices than other investors because of effectively inside information about the trades and pricing of investors submitted through electronic means. I have not seen any noticed meetings of the Equity Market Structure Advisory Committee, but this issue is serious enough that a meeting should be called to address the issue of front running the market electronically. Investor confidence is at stake.

Apparently there are two different streams of trade notices, and one becomes available before the other. Persons with access to the first electronic trade notification stream can see where the market is going and jump ahead of other traders. This flaw should be addressed either by delaying the first notice or expediting the second, in a way that
nullifies any advantage of receiving one stream of data over the other.