>Can you explain the mechanics of this "skimming" and explain how a transaction tax would prevent it? Detailed mechanics please, not vague talking points or mea

>Can you explain the mechanics of this "skimming" and explain how a transaction tax would prevent it? Detailed mechanics please, not vague talking points or meaningless nanex graphs. Here: A classic aggressive strategy involves hunting and trapping “whales.” It is a good example of aggressive HFT strategy. It is initiated by a “pinging” operation. This involves placing multiple orders designed to detect the presence of a market participant with a large position that it is in the process of accumulating or liquidating. “High frequency traders employ pattern recognition software to detect large institutional orders sitting in dark pools or other liquidity venues.”41 When it pings, the algorithmic trader places orders to buy and/or sell in an array of prices inside the bid/ask spread. If the potential target market participant starts walking through the orders, it becomes clear that a large position is in play that could consume all of the liquidity on one side of the market (bid or ask). Traders sometimes refer to the potential target as a “whale.” Often, a whale intends to buy or sell a large block for structural reasons and is relatively less sensitive to price than other buyers and sellers. If the trader’s order strategy reveals price insensitivity, the whale becomes a target. For example, an investment fund might have experienced large redemptions from its investors that require liquidation of investments under the terms of the fund. The fund is compelled to sell promptly and is relatively insensitive to price. It is a properly motivated whale. Once a whale is sighted and its price insensitivity is confirmed, it becomes clear that dominating the other side of the market will give the algorithmic trader control of the bid/ask pricing mechanism. In our example, the algorithmic trader would meet the offers of all of the bidders for the shares that the whale seeks to sell, becoming the sole and dominant purchaser in the marketplace. The algorithmic trader establishes a narrow band of absolute market power controlling the particular securities or derivatives that the whale seeks to buy or sell. The whale will be compelled to either abandon the market or transact at the price demanded by the algorithmic trader. In an instant, the algorithmic trader cancels all “pinging” orders and buys the market in order to extract as much value as possible. It will also likely flood the trading venue with orders to create congestion and slow other market participants who are also watching and might intervene. The whale must transact at the price required by the algorithmic trader to accumulate or liquidate the position, as appropriate. When the transaction with the whale is accomplished, the quote stuffing orders are all cancelled. In the final step, the algorithmic trader liquidates the position acquired from the whale immediately, but at a new bid/ask spread reestablished at market levels that are more competitive. The algorithmic trader intends that its profit from moving the bid/ask spread to take advantage of the whale’s price insensitive motivation will exceed the potential loss from the operation if the whale detects that it is being taken advantage of. For this reason, the strategy is most useful if all of the steps can be executed quickly, before detection is possible. By displacing the entire side of a bid/ask spread, the HFT eliminates all meaningful depth of buying or selling interest for a short time period. As a result, the observed spread in the market is meaningless. Various studies that examine the narrowing of bid ask spreads in the modern marketplace miss the crucial point that HFT tactics like the one described are missing the point that the narrowing is an illusion.42 If the study draws the conclusion that HFT narrows spreads, it is simply misleading. (From: http://www.nakedcapitalism.com/2013/03/yes-virginia-hft-and-liquidity-are-not-all-they-are-cracked-up-to-be.html http://www.nakedcapitalism.com/2013/03/yes-virginia-hft-and-...) N.B. Price insensitivity in this context means "not knowing" what the price should be. Not "not caring". The deleterious effect on the market should nonetheless be obvious.