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When a large order touches one exchange first, high-frequency traders detect it and race ahead on faster connections to buy the same stock on other exchanges before the original order arrives, then sell it back at a higher price. The profit comes purely from being microseconds faster, not from any prediction about the company's value.
Financial systems become deliberately incomprehensible because opacity is profitable — when no one understands how order routing, fee structures, or exchange mechanics actually work, intermediaries can extract value invisibly. The defense against this is not regulation but designing a system simple enough that its fairness can be verified by anyone.
IEX routed all incoming orders through about 38 miles of coiled fibre, adding a 350-microsecond delay. This meant no participant could react to information on other exchanges faster than IEX itself could update its prices. Instead of trying to win the speed race, the design removed the payoff from being fastest, protecting slower investors by structure rather than by rule enforcement.
Regulation NMS and the proliferation of dozens of exchanges and dark pools scattered one stock's liquidity across many venues. This produced tiny timing gaps between what the public consolidated feed showed and what fast traders with direct feeds and co-located servers could see. Whoever was fastest could detect an investor's intent at one venue and trade ahead of it at others, skimming a small toll from ordinary investors on nearly every trade.
At RBC around 2007–2008, Brad Katsuyama found that whenever he sent a buy order, the shares shown on his screens disappeared and prices moved against him the moment his order reached the first exchange. His team worked out that the orders arrived at the various exchanges at slightly different times, so high-frequency traders who saw the order hit the nearest venue could race ahead to the others. They built a router, later named Thor, that staggered sends so the order reached every exchange at the same instant, and once they did, the full displayed liquidity could be filled.
Spread Networks spent roughly $300 million laying a secret fibre-optic line that ran as straight as possible from Chicago to northern New Jersey, boring through mountains and avoiding the routes of existing rail rights-of-way. This cut the round trip from about 14.65 to about 13 milliseconds, and leases for early access were reportedly sold at around $10.6 million each. The episode shows that milliseconds of speed advantage were valuable enough to justify massive infrastructure spending that did nothing for price discovery.