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Asness Schools Noah Smith

Clifford S. Asness, Bloomberg View, Why I Love High-Speed Trading, here. Helps to know definitions.

Smith’s lead point is that I claim HFTs don’t front-run because I used an outdated definition of the term. That is, I take “front-running” to mean using information you’ve been entrusted with and promised not to use to the disadvantage of whoever entrusted that information to you (usually a paying client). Smith says the definition must be broadened to encompass “order anticipation with speed advantages.” Therefore, he says, it is legitimate to say that HFTs engage in front-running.

He’s wrong. First, you can’t just change the definition of a word used to describe a crime and apply it to something that’s both legal and ethical. Perhaps all of us should have used the more straightforward term “guessing,” because that is all “order anticipation” means. Traders have always made educated guesses about who is going to buy and sell what, and they’ve always tried to do it faster than the other guy. They did this long before HFT. In fact, what are traders doing if not trying to make educated guesses about who plans to buy and sell what and then act before other traders? If these traders — HFT or not — are using legal, public information, this is exactly what they’re supposed to be doing. To say “we’ll call that front-running as we’ve broadened the term” is ridiculous.

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