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SDS (Seductive Dividend Stocks)
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Sorry I hide my true identity but I'm a physicist/engineer, native contrarian and idea generator. I am an eclectic dividend investor with motto "In God We Trust, All Others Pay Cash" applied to companies I invest in. I like to read /and read a lot - did you look on my SA photo 8-)? / including... More
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  • Do HFT firms violate "wash sales" and "settlement time" rules? 0 comments
    Oct 20, 2010 6:42 PM

    High frequency trading (HFT) became popular on Wall street, where big firms buy/sell shares in few microsecons (see nice book "All About High-Frequency Trading" by M. Durbin). The name HFT is funny for me because I handle 1 nanosecond pulses (1us=1000ns) at my work.... but  I have two not so funny concerns:

    Do HFT firms violate "wash sales"  and "settlement time" rules?

    As you know wash sale is a buying identical stock after sell of initial stock with some losses early than 30 days ofter the sale, while settlement time rule forbid to use money prior a stock trade date plus 3 business days. 

    How can SEC and IRS be sure that HFT firm not violate wash sale rules while executing a hundred trades a second? Aren't they have any losses?

    I did see few years ago an academic paper (probably writtten before HFT) analyzed profitability of (as far as I remember) mutual funds (or other big traders) due to "3 days" rule  violation in so-called "special situations".

    I think that this "3 days" rule should be changed. I hardly imagine that in modern computer network world a settlement time exceeds 1 minute. But until this rule is  modified all small and big traders/investors must be treated equally.

    Any comments?

    Disclosure: No positions

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