SOES Bandits
Categories: Ethics/Morals
See: Small Order Execution System (SOES).
The Small Order Execution System is a process within the NASDAQ that conducts the smaller, routine trades for retail investors. The bandits are a group of guys who found a way to game the system to earn some cash.
It's 1989. Madonna's "Like A Prayer" is blasting out of radios everywhere. Milli Vanilli are a thing. The original Batman is wowing movie fans. And the SOES bandits are making their move.
A group of guys working for a company called Datek securities created a computer program that tapped into the SOES. SOES had a flaw: its price quotes updated slowly. As such, the software was able to swoop in and make trades quickly...buying and selling within seconds, taking advantage of the slow quote updates to scalp a little profit from each trade. Each transaction led to a tiny profit, but thanks to the software, they were running a large volume of trades. Those little profits added up.
Datek and what they were able to accomplish as SOES bandits helped prompt the advent of the high-frequency trading revolution. Over the next few decades, computer-driven trading became central to how Wall Street did business.
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