I suspect some clever people lobbied for certain things to be legal.
Plus, smart opportunist probably got legal opinions from law firms.
But, sometimes there is a thin line between certain activity being legal or not.
Likewise, it might not be reasonable assume all operators involved are on the right side of the law with their activities. Even the people (that I have seen interviewed) that made the most staunch rebukes of the book and the allegations recognize there could be some operators that have blurred the lines a bit.
Then there is also the accountabilty and responsiblity to act fairly in those markets to customers. If certain exchanges (by that I mean the entry to exit mechanism for trades) are completely fair, then what is the controversy about?
If the front-running method is legal, it probably will be made illegal soon... or at least clarifications made about what is acceptable and what is not in light of the way it is allegedly being exploited.
But, that will not stop the law suits, if individuals and legal entities (pension funds, mutual funds, etc) believe they have been harmed by unfair practices... especially if they were not informed of the potential hazard.
At issue will be the fact that many of those financial insitutions bear a degree of responsiblity in exchange (no pun intended) for being allow to operate those types of businesses.
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