rF Response to Predatory Trading – Updated 11 June 2014

With the recent release of “Flash Boys” by Michael Lewis and subsequent media attention, we have have become aware of and increasingly disturbed by events on Wall Street and other trading exchanges.  Practices now known as “Predatory Trading” have/are taking place that makes the financial markets (however small the individual infractions are) unfair for the average investor.  Please read below for further information and resources to understand these practices:

1) Read “Flash Boys” by Michael Lewis:

• Order the hardback online or download the audio book.

2) Watch a snippet from the 60 Minutes Special that aired on March 28, 2014:

3) Visit IEX’s website and watch their informative video on Predatory Trading.

4)Visit the website I am an Investor:

• Iamaninvestor.org and/or Watch their video below:

5) Read this very informative article from Forbes:

We view this activity as fraud and have taken the following actions to protect our clients and voice our dissent to regulatory and law enforcement authorities:

1)  We have asked our primary Broker Dealer to route our clients’ trades through IEX.

• Click here to see a copy of our memo to TD Ameritrade.
  • 5 May 2014 – Our contact at TD Ameritrade has informed us that IEX is not an available trading venue through their platform and they have not been able to provide us with any tangible information to assure us that our clients are being protected from Predatory Trading.  We have indicated our extreme displeasure with this and have indicated our willingness to place our business elsewhere if we cannot come up with a suitable resolution.  However, we very much like TD Ameritrade and do believe they try to represent the best interests of Investors & RIAs and that it isn’t easy to change a large bureaucracy quickly.  In that spirit, we are giving them until the end of the year to find a solution to assure us that our trades are protected from Predatory Trading or we will be forced to begin the process to switch to another Broker Dealer that will.

 

2)  We have asked our largest Retirement provider partners, TIAA CREF and Fidelity, whether their managers place their trades through IEX or take other measures to protect shareholders against predatory Trading:

Fidelity:

Please read their response below:

• 30 April 2014 – Our contact at Fidelity has confirmed that National Financial Services, which is Fidelity’s Broker, has signed on with IEX and does take other measures to protect themselves and their mutual fund customers from predatory trading.  Understandably, due to some of the proprietary nature of their trading, they could not give specifics but we feel their response was very timely and adequate.  We appreciate the fact that they are looking out for our clients best interests and are willing to be open about this subject when most of Wall Street and the regulators have had little to say.

 

TIAA CREF

Please read their response below:

• 6 May 2014 – Our contact at TIAA CREF has confirmed that TIAA CREF does take measures to protect itself and its annuity/mutual fund clients from predatory trading through the following steps:
  • It has a sophisticated network of Broker Dealers (B/Ds) that it utilizes to place its trades and systems in place to monitor trading behavior.
  • They have software that actively searches for and tracks malicious trading activities.  This software helps TIAA CREF try to avoid being victimized or (at least) to identify in which situations they were too late so they can work to reverse the questionable trades.
  • TIAA CREF has directed many of their B/Ds to direct some of their trades through IEX and while it is now only a small proportion of their trades, they say that they support IEX and what they represent.
• We are very pleased with TIAA CREF’s response and are happy that they continue to stand on the side of investors over big $$$.

 

3) We have written the Department of Justice:

• Click to download a copy of our memo to the Attorney General, Eric Holder.

4)  We have written the FBI:

• Click to download a copy of our memo to the director of the FBI, James Corney.

5) We have written the SEC:

• Click to download a copy of our memo to the Chair of the SEC, Mary Jo White.
• We received this generic response on 7 May 2014:
  • Dear Mr. Ratcliff:
    
    This is to confirm receipt of your recent correspondence to Securities and Exchange Commission (SEC) Chair Mary Jo White, concerning high frequency electronic trading.  Your letter has been forwarded to the SEC’s Office of Investor Education and Advocacy (OIEA) for consideration and response.
    
    OIEA processes many comments from individual investors and others. We keep records of the correspondence we receive in a searchable database that SEC staff may make use of in inspections, examinations, investigations, as well as in rulemaking.  In addition, some correspondence received by OIEA is referred directly to other SEC offices and divisions for their review.  If they have any questions or wish to respond directly to your comments, they will contact you.
    
    If you have any further questions, please contact David Powers, an OIEA staff member, at(202) 551-6332.
    
    Sincerely,
    Gloria Smith-Hill
    Branch Chief
• Read the address by Mary Jo White that she gave at the “Global Exchange and Brokerage Conference” on 5 June 2014.
  • While we do believe this is a great speech and gets to the heart of the matter.  There were no specific actions or timelines mentioned which means that it will probably be just “words” and the SEC will again bow to big money instead of restoring fairness and equity to our system.  We need punishment and restitution, not just reform.