Nearly a quarter of U.S. equity trades may not be executed at the best price available in the market, costing investors at least $2 billion a year, according to a new study funded by the U.S. government.
The study provides new evidence of momentary pricing discrepancies that researchers say can be exploited by high-speed traders looking to make a quick profit.
The Departments of Defense and Homeland Security provided about $1.25 million for the study to better understand how U.S. markets might respond to a cyberattack, according to spokespeople for the agencies’ research arms. The Wall Street Journal first reported in 2017 that Pentagon researchers have been studying the issue.
Researchers examined all trades for stocks in the Russell 3000 index during 2016 and found that nearly 24% of them were executed during times when better prices may have been available. That equated to about 1.1 billion trades that might have been off by pennies a share from better prices available elsewhere in the fragmented U.S. stock market, the authors found. The market includes 13 different exchanges and dozens of off-exchange trading venues known as dark pools.
An expanded version of this story appears on WSJ.com