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$34 Billion Asset Manager Says Market Prices Are Manipulated, Accuses NYSE Of Intellectual Property Theft, Debunks HFT "Liquidity Provider" Lies

Tyler Durden's picture




 

As part of the SEC's process to fix the broken market, it is currently soliciting public feedback on a variety of issues. Why it is doing so, we don't know - after all anything that does not conform to the SEC's preconception of what the most lucrative market to the SEC's recent batch of clients (see earlier news about an SEC director going to HFT specialist Getco) is, just ends up in the shredder anyway. At this point to believe that the SEC will do anything remotely in the interest of investors instead of millisecond speculators, is naive beyond compare. Nonetheless, while combing through some of the recent public responses on the topic of market structure, we came across the following presentation by $34 billion Southeastern Asset Management (SAM), titled "Comment & Analysis on Equity Market Structure" which must be brought to the attention of all those who have the temerity to defend HFT as an altruistic source of liquidity provisioning. SAM's 4 points are simple, and laid out very easily so that even the mildly retarded  public, pardon, GETCO servants at the SEC can understand it: "1) The intent of the Securities Exchange Act of 1934 as provided for in its preamble is being twisted and abused for the benefit of gamblers and to the detriment of investors. 2) The markets are not "fair and honest", 3) Securities prices are presently "susceptible to manipulation and control, and the dissemination of such prices gives rise to excessive speculation, resulting in sudden and unreasonable fluctuations in the prices of securities. 4) The preceding three issues are fixable by the SEC." Let's dig in.

Before we get into the meat of the complaint, one of SAM's primary concerns, is that the US stock market has become the functional equivalent of China: trading intellectual property is routinely abused, stolen and used against its very creator.

  • The US equity markets are meant to facilitate investors' allocation of capital to businesses, thus expanding production and improving the quality of life in America.
  • The markets have strayed from this social purpose, and presently resemble casinos more than orderly markets. As a result, the economy is hindered, fewer jobs are created, and reasonable returns for true investors (not traders) are compromised.
  • The property rights of creators of intellectual capital are being systematically and openly ignored by the exchanges and certain market participants. The order originator's hard work, ingenuity, and prospective returns are being taken and sold by those who did not create it.
  • Whereas trading was once a means with which to match long-term buyers and sellers of businesses, trading has now become an end in and of itself.

And while these are rather philosophical concepts which will stump the SEC for years, and even then Mary Schapiro's lack of brain trust will still say evidence is inconclusive and the IP theft, as established, will continue indefinitely, SAM's disclosure about the true nature of HFT should be read by everyone, especially by the industry increasingly more conflicted defenders (why else would a firm like Getco go out and hire a pathologically "confused" person from the SEC if not for the fringe benefits of regulatory capture):

The traditional defense that HFT provides "liquidity" was completely disproven on May 6. Yet for those who still believe this naive argument, here is a more extended analysis.

and more:

Some undisputed facts for the novices in the HFT arena, such as the SEC:

As to what SAM requests of the SEC in order to take the first proper steps of correcting the busted market, here is the summary:

Forbid and prosecute the theft of trading decisions, which represent the actionable cumulative
value of a manager's intellectual property by stating that:

  • The creator of trading information is the owner of such information.
  • Brokers have a fiduciary obligation to protect such information of their clients.
  • Exchanges cannot repurpose such information for their own benefit without the express consent of the information's originator.
  • Exchanges and brokers must furnish the information that is released regarding an order to the order's originator.
  • Investors may opt to relinquish this intellectual property right, but, the default would be in favor of protecting information. No market participants can discriminate based on another party's elections.

Mandate that all investors receive the same market data at the same time by:

  • Amending Regulation NMS Rule 603 to prohibit "single exchange data feed[s]" and require an exchange or national securities association to provide any quotation or last sale data for an NMS stock to any investor only as part of a consolidated display of all quotation data and all last sale data from all markets.
  • Banning an exchange or national securities association from providing "Order 10" or any other identifying market data that allows participants to determine whether specific quotes or executions are linked.

Mandate that any order on an exchange or national securities association have a minimum duration of 1 second prior to any cancelations/ amendments taking effect. Alternatively, institute 1 second duration auctions during which all exchange transactions must occur.

Eliminate maker/ taker pricing rebates by:

 

  • Expanding the ban on excessive access fees in Regulation NMS Rule 610 to ban a trading center from offering rebates as they provide perverse incentives when order routing.
  • In light of the events of May 6, SAM provides the following very useful cheat sheet for the SEC on what Fat Tail events are, and what the proper questions to ask of those who derelicted their duties to preserve and orderly market structure:

    In statistics, fat tails (kurtosis) describe how often "outlier" events occur. The cliche "a once-in-a-lifetime catastrophe seems to occur every other week," is a commonplace reference to fat tails - extraordinary, unexpected events occurring more often than predicted.

    Fat tails are important in the financial markets as investors and regulators calibrate systems and expectations for the steady, normal state. When the abnormal occurs, most participants are caught off guard and find themselves in peril.

    After most fat tail events, a review of the contributing factors results in culpable parties explaining how their models could not have predicted what actually did happen.

    • 1987 Black Monday, portfolio insurance
    • 2007 Subprime Mortgage Crisis, exceptional default rates
    • May 6, 2010, DJIA temporarily falls nearly 1000 points, what was high-frequency trading's role?

    Questions for market regulators, legislators, and participants:

    1. Is the current market structure robust and resilient? Or,
    2. Do market regulators permit too many "tricks" amongst market participants?
    3. At the macro level, in a normal environment, do these "tricks" go unnoticed? But,
    4. In a fat tail event, will these "tricks" effect catastrophic outcomes?
    5. Are we wholly confident that the odds we place on extraordinary events - market shocks - are correct?
    6. Are market participants being consistently and effectively regulated, and are those strategic, tactical, and systemic risks being understood?

    Yet most interestingly is the direct attack at exchanges who provide enough information to those willing to pay millions of dollars for what in any other practice would be considered an unfair advantage. SAM provides an overview of just the kind of unfair advantage HFT's get when paying for preferential treatment by exchanges. Armed with the following information even computers with half a blown CPU will be able to legally front-run the entire market and make a killing. And people wonder why Goldman never loses money any more...

    In the regard, we were very happy to learn that SAM has sent a letter to our old, opaque friends at the NYSE, which has recently been losing gobs of revenue to dark venues and as such has taken the war against dark pools into the open, even as it itself allegedly engages in precisely the type of IP theft defined above. To wit:

    We hope that now that SAM's response has received far more public scrutiny, the SEC will no longer hide behind the "we didn't see it, so it doesn't exist excuse" - the invesros of America are disgusted with how the SEC has allowed what was once an efficient market to degenrate into a manipulated, broken and inefficient casino, which only generates benefits for a select few, and in which "trading has now become an end in and of itself" but is only profitable for those who, through kickbacks, are part of the "captured" regulatory club that knows the SEC will never touch them for endless market frontrunning and manipulation.

    In conclusion it is almost with shame that one has to be reminded about the very charter of the Securities Exchange Act of 1934, which described the requirement for regulation, and which was the very bedrock of what was once supposed to be an agency serving the public, and instead is now as worthless as US Treasuries will be in a few years:

    For the reasons hereinafter enumerated, transactions in securities as
    commonly conducted upon securities exchanges and over-the-counter
    markets are affected with a national public interest which makes it
    necessary to provide for regulation and control of such transactions
    and of practices and matters related thereto, including transactions by
    officers, directors, and principal security holders, to require
    appropriate reports to remove impediments to and perfect the mechanisms
    of a national market system for securities and a national system for
    the clearance and settlement of securities transactions and the
    safeguarding of securities and funds related thereto, and to impose
    requirements necessary to make such regulation and control reasonably
    complete and effective, in order to protect interstate commerce, the
    national credit, the Federal taxing power, to protect and make more
    effective the national banking system and Federal Reserve System, and
    to insure the maintenance of fair and honest markets in such
    transactions:

    Frequently the prices of securities on such
    exchanges and markets are susceptible to manipulation and control, and
    the dissemination of such prices gives rise to excessive speculation,
    resulting in sudden and unreasonable fluctuations in the prices of
    securities
    which (a) cause alternately unreasonable expansion and
    unreasonable contraction of the volume of credit available for trade,
    transportation, and industry in interstate commerce, (b) hinder the
    proper appraisal of the value of securities and thus prevent a fair
    calculation of taxes owing to the United States and to the several
    States by owners, buyers, and sellers of securities, and (c) prevent
    the fair valuation of collateral for bank loans and/or obstruct the
    effective operation of the national banking system and Federal Reserve
    System.

    Appendix: in order to demonstrate conclusively the false liquidity argument, SAM provides this additional Addendum which explains why "counter to the argument that investors save money by paying smaller spreads, true investors actually lose money because they are front-run" and also how retail investors keep getting consistently ripped off: "Retail investors once displayed the smallest public bids and offers. Unfortunately, retail investors have not changed their tactics to account for HFT rovers and are now displaying larger orders relative to other market participants on average."

     

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    Fri, 06/11/2010 - 17:30 | 408953 mynhair
    mynhair's picture

    Hilarious!  If the SEC is as trashed as me, they got lost in the first two sentences!

    Truth is ignored by this admin.

    Fri, 06/11/2010 - 20:30 | 409202 DeeDeeTwo
    DeeDeeTwo's picture

    We are all on the same side, baby, we want old fashioned rules strictly enforced... and all forms of market manipulation eliminated. So OK:

    (1) You cannot be "front-run" unless you Play the Mook... and penny jump the penny jumper. And you cannot be spoofed... unless you dance to the spoofer's tune and pay more. I trade a universe of 300 stocks. I hold my ground with Limit Orders. If I'm being manipulated... I just go buy something similar. Or I turn the tables on the spoofer... if I can be bothered.

    (2) Why should we care about a $33 billion whale having "liquidity problems"? There is a reason 100 ton animals are extinct.

    (3) A retail investor accumulating a diversified retirement portfolio of ETFs using Limit Orders has 90% lower transaction and slippage costs then 15 years ago. Unless some idiot is trying to scalp the Dog of the Week against Bots... HFT has no effect on a small trader with a functioning brain. 

    (4) So it's harder for Pro Traders in 2010. Big Deal. Adapt or die.

    (5) The "Good Old Days" was your dad paying a 9.5% front end load for a "mutual fund" shilled on "Wall Street Week" by slimy con men. Good times.

     

    Fri, 06/11/2010 - 20:52 | 409225 Hephasteus
    Hephasteus's picture

    I can't do that.

    1. I don't have a pack of mentos.

    2. I'm not psychotic and able to pretend hard enough.

    3. The last time someone gave me a fake buck up soldier speech. I stapled his tongue to his chin.

    Sat, 06/12/2010 - 08:20 | 409550 chumbawamba
    chumbawamba's picture

    What?  You don't have Mentos?  Mentos is the freshmaker, dude!  Get with the fucking program.

    I am Chumbawamba.

    Fri, 06/11/2010 - 22:52 | 409311 Al Gorerhythm
    Al Gorerhythm's picture

    Your philosophical position is....? And the small trader is unaffected by HFT, you have got to be shitting me. I gave up trading in the mafia owned pits. The trading pits are where you have the Gambino family offering various trades of shares they don't own (have stolen or counterfeited), whilst the Lucchese's oversee the trades making sure all is above board.

    I'm happy for you in your successes in those pits but I have to say that the average guy, pulling in his weekly cheque and salting some away in a retirement fund, has no chance of avoiding the effects of market manipulations.

    I have many friends and aquaintances who have had to defer their retirements because of the types running the show. Fucking thiefs, milking the little guy, supported by mental midgets who can't tell right from wrong.

    Your pond is wide old cock, but only 1" deep.

    Sat, 06/12/2010 - 02:46 | 409452 Mactheknife
    Mactheknife's picture

    It is really a quite simple proposition. The HFTs would have us believe that they are just the new and improved version of specialists and market makers. However, the facts reveal something that looks like a comparison between a two bit conman on a bicycle and Jessie James in a top fuel funny car. Actually, that is not even close. There is no comparison.

    Sat, 06/12/2010 - 11:40 | 409657 Dr o love
    Dr o love's picture

    Your post belies what a true novice you are.  Trading on longer time frames doesn't protect you from the bots that take advantage of you.  You should stick to your day job at McDonald's and leave the trading to the adults.

    Sat, 06/12/2010 - 11:49 | 409663 Marc45
    Marc45's picture

    How did your limit orders fare during the "HFT" plunge last month?

    Sun, 06/13/2010 - 16:04 | 410816 hbjork1
    hbjork1's picture

    DeeDeeTwo:

    +10

    Sun, 06/13/2010 - 18:46 | 411215 hbjork1
    hbjork1's picture

    DeeDeeTwo:

    +10

    Sat, 06/12/2010 - 00:58 | 409404 JW n FL
    JW n FL's picture
    by mynhair
    on Fri, 06/11/2010 - 16:30

    ***** "Truth is ignored by this admin." *****

     

    Government is a “Tool” of the “Lobby”…

    The Lobby is a “Tool” of whoever wields the “Lobby”

    The “Lobby” today is used my Big Business (AAA rated Corps. / Banks) to ensure market share or more accurately that those businesses do not lose Market Share and hopefully they are able to grow their foot print thru legislation.

    Our economy is not dependant on innovation… it is dependent on Lobby who survives on dollars from “AAA” Rated Corporations… Maintaining Market Share and thusly the circle is complete.

     

    Regardless of who is elected the Lobby will continue to sway legislation; there are no exceptions for this rule.

     

    Control the Lobby and you control the Government.

     

    Kill the Lobby and the Voters are back in control of the Lobby (save the contributors?!).

     

    How many layers can well come up with of legalized corruption? Lobby? Layered Campaign Contribution? Pac Monies? Fund raisers? And on… and on.

    http://www.opensecrets.org/orgs/indivs.php

     

    So, Obama? Who was cutting the Lobby off at the door of the white house?

    http://www.google.com/#hl=en&source=hp&q=obama+anti+lobby&aq=f&aqi=&aql=&oq=&gs_rfai=&fp=a73b11f867dbecea

    ***Cough*** “Bullshit” ***Cough***

     

    http://www.opensecrets.org/industries/mems.php

     

    The President can do nothing without Congress… or the Senate… support.

     

    So who controls the Government? And who control the Lobby? And who used Tarp Monies / Fed Window 0% rates to pay for the death of innovation in favor of the fight for middle market share maintenance, growth or control. Free market only works if you can afford to Lobby vigorously.

     

    Behind The Sentiment Disparity: Main Street Vs. Wall Street

    http://www.dailymarkets.com/economy/2010/03/15/behind-the-sentiment-disparity-main-street-vs-wall-street/

     

    Anyone who says Obama is a Socialist? Or that Bush was not? or maybe that there is a difference between the two?

    http://www.opposingviews.com/i/torture-under-obama-looks-a-lot-like-bush

    Just for the fun of it…

    http://wiki.answers.com/Q/Is_obama_related_to_bush

     

    There will be “NO!” fundamental changes due to the Lobby and until all of the fractured weirdo groups pool resources and get on the same fucking page… nothing will change. To many chiefs and not enough Indians… that all want the bull pulpit for personal reasons which over shadows any good that could potential come from their speaking publicly.

     

    Or so that would be my personal view and I am happy to go tit for tat with anyone who sees it differently. Vernacular aside, the position is bullet proof.

     

    The Banks are using profits to pay for their Lobby? not the 0% Fed Window?

    http://www.wired.com/threatlevel/2009/08/bank-lobbyists/


    **** "In the first three months of 2009, the financial sector spent $104.7 million to lobby Congress and the administration, down 8% from the same period last year" ****

    http://online.wsj.com/article/SB124640640747376775.html

    So that I am clear... 2008 was a vintage year for Banks? they made soooooooooooooooooooooo much money on 2008 that in the first 3 months of 2009... they could drop $104.7 MILLION DOLLARS?

    http://en.wikipedia.org/wiki/Emergency_Economic_Stabilization_Act_of_2008

     

    But the failure was brought on by Bush pumping and then de-stabilizing the Federal dollars (really tax payer dollars) that where assumed to be safe by Bear, Lehman and so on... Don't get me wrong, Barney is an idiot Lobby whore just like Bush... but there is no difference between Barney, Bush, Obama, Clinton and so on... they are all moved by Lobby dollars... the song and dance is strictly for the public's entertainment.

     

    Obama is Bush part duex.. he is not a commie, he has taken every Bush program and ran with it... not run from it. Dont get caught up in the public spin machine.

     

    I offer... http://www.opensecrets.org/ see who owns your favorite representatives and then for fun look at the dem's side who should be against the reps push... and see how the dollars move the votes, not the party affiliations.

     

    John Mcsame spent all of a whole 10 minutes yesterday grilling Goldman, and said he was very disappointed in Goldmans behavior... he spoke less that the girl in Levin's ear...

    Top Industries

    John McCain

    http://www.opensecrets.org/politicians/industries.php?cycle=Career&cid=N00006424&type=I

    Finance, Insurance & Real Estate

           $33,457,679

      $745,772

        $32,711,907

     

               

    Lawyers & Lobbyists

          $13,170,368

       $307,508

         $12,862,860

     

                       

    Other

          $42,122,454

         $8,400

           $42,114,054

     

    John McSame spent 100 times less times talking about how we all have been screwed by Goldman for around 10 times more money than the other committee members where Bribed... Oops, I mean Lobbied with.

     

    There is no difference between the two parties, the lobby has bought and paid for all the whores inside the beltway, don’t think because of the cute sound bite you like hearing that the two parties are any different.

     

    Sat, 06/12/2010 - 03:21 | 409465 Mactheknife
    Mactheknife's picture

    >There is no difference between the two parties, the lobby has bought and paid for all the whores inside the beltway, don’t think because of the cute sound bite you like hearing that the two parties are any different.

    Ahhh, a great truth! Two wings of the same bird of prey.

    Two words. TERM LIMITS

    Sat, 06/12/2010 - 06:02 | 409514 Jendrzejczyk
    Jendrzejczyk's picture

    Look into who owns the "homes" in the neighborhoods close to the DNC and RNC headquarters. New Jersey Ave. SE is a great place to start researching.

    Millions spent to renovate/decorate houses that sit mostly vacant so our elected officials can drop in and have brunch before some important bill is passed.

    Sat, 06/12/2010 - 14:03 | 409764 eccitante
    eccitante's picture

    And then there is foreign policy and the wars (and all the other scams)...the sooner all this collapses the better, then we can just start over. In the meantime get out of the country if you can (wish I could), figure out a way to preserve what assets you have left & hopefully maintain some kind of standard of living, and if you are smart, make a few bucks from the action in the markets as the collapse/melt up gains steam.

    Fri, 06/11/2010 - 17:29 | 408961 stickyfingers
    stickyfingers's picture

    NYSE rule - Know your client. Do they ever!

    Fri, 06/11/2010 - 17:29 | 408962 wolfsonite
    wolfsonite's picture

    Nice find, TD. The HFT Misconceptions slide says it all ... one huge, rigged market.

    Fri, 06/11/2010 - 19:00 | 409091 I need more asshats
    I need more asshats's picture

    Agreed. There should be one exchange for blackbox trading and another one for humans. I heard that one of these rogue algorithms bought a $11 million dollar estate in South Hampton last week! Fucking machines!

    Fri, 06/11/2010 - 17:31 | 408963 Let them all fail
    Let them all fail's picture

    For those who have seen "Office Space" - HFT is the equivalent of their scheme to steal the rounded cents, less than a penny at a time that quickly adds up to hundreds of thousands, just on a much larger scale.  That's all this shit is, just a program designed to steal money.

    Fri, 06/11/2010 - 17:41 | 408979 -Michelle-
    -Michelle-'s picture

    I'm amused to find there is an actual term for this: salami slicing.

    http://en.wikipedia.org/wiki/Salami_slicing

    Fri, 06/11/2010 - 18:54 | 409087 SilverIsKing
    SilverIsKing's picture

    To be honest, when I first looked at your post, I winced.

    Thanks for the link though.  I feel much better.

     

    BTW, no bank failures yet.

    Fri, 06/11/2010 - 19:29 | 409123 I need more asshats
    I need more asshats's picture

    Yea I read that. The definition for Salami Attack is in there too. Salami Attack, hehhehe.

    Fri, 06/11/2010 - 23:19 | 409352 tom a taxpayer
    tom a taxpayer's picture

    No matter how Wall Street slices it, it is still baloney.

    Sun, 06/13/2010 - 02:32 | 410309 Mentaliusanything
    Mentaliusanything's picture

    The answer is simple - AXE meet OPTIC FIBRE. Shazam 

    Fri, 06/11/2010 - 17:34 | 408970 OutLookingIn
    OutLookingIn's picture

    "will these 'tricks' effect catastrophic outcomes?"

    So we axed Trixy down on toidy toid and toid avenoo, an she said... okay nevah mine what she said.. da point is... what was da qweshun agin? Gotta go. Late fer woik at da ssseeecee. Seeeyuooz latta.  

    Fri, 06/11/2010 - 17:37 | 408975 sysin3
    sysin3's picture

    We got these new-fangled things called "computers" now.  Seems like them boxes could be forced to display a consolidated, coordinated best bid/offer and last trade ..... of any security, anywhere in the world.

    Dark pools are bullshit.  Post your bid or offer, which gets displayed on the *one* trading venue for that security.  You either get hit or you do not.  Live with it.

    One tape to rule them all, and in the darkness bind them.

    Fri, 06/11/2010 - 17:41 | 408978 Kali
    Kali's picture

    They are starting to eat their own.  People always worry about what us peons will do, but watch out when the big hyenas start fighting amongst themselves!

    Fri, 06/11/2010 - 17:43 | 408981 chinaguy
    chinaguy's picture

    "we didn't see it, so it doesn't exist excuse"

    ....nope more like:

    "we couldn't understand it, so it doesn't exist excuse"

     

    Fri, 06/11/2010 - 17:46 | 408984 Mitchman
    Mitchman's picture

    Bravo TD!!!  And Bravo to SAM!  Enough of this bullshit!

    Interesting the way the NYSE is dodging the question.  It's obviously going to take yet another lawsuit to bring some transparency to this den of thieves.

    Fri, 06/11/2010 - 17:52 | 409006 peterpeter
    peterpeter's picture

    How are they dodging the question when they post the protocol on their website: http://www.nyxdata.com/doc/5970

     

    Fri, 06/11/2010 - 18:06 | 409020 AccreditedEYE
    AccreditedEYE's picture

    What Megabank hole did you crawl out of Peter? Why don't you go back to it? multi-million dollar bonuses don't get paid to Managing Directors that aren't giving their full attention to F-ing the already broken system....

    Fri, 06/11/2010 - 17:46 | 408990 ReallySparky
    ReallySparky's picture

    Thank you Zerohedge. 

    Fri, 06/11/2010 - 17:50 | 409002 peterpeter
    peterpeter's picture

    Writing a letter to the NYSE to ask what is in the data feed and having it published on ZH, seems much less effective than just going to the NYSE website and reading the document: http://www.nyxdata.com/doc/5970

    It is there for all to read...  It doesn't take millions of dollars to get this feed, just $5000/mo (http://www.nyxdata.com/openbook/#1288)

    Now, if they are pissed that they are leaking information about their hidden orders (and I'm going to go out on a limb and say that they are big proponents of dark pools if they dont like the information leakage from executed hidden orders on lit exchanges), then there is a simple solution:

    Post multiple hidden orders with different order reference numbers.

    If their broker-dealer can't do that for them, then I would suggest that they stop spending time writing letters, and look for a better BD to execute for them.

    The time period that orders are on average on the books is a function of the minimum price tick (1 penny for stocks trading over $1), which is now substantially more granular than when we were trading in fractions.

    A 1/16th move was more than 6 times a 1 penny move.

    If they can't connect the dots and figure that the frequent changes in price are caused by the change in the size of price increments, well - then they really shouldn't be writing long diatribes about market structure.

    A much more informative graph would have looked at pre-decimalization price changes as against the most closely related buckets of decimals (i.e. a 6 penny move would be equivalent roughly to a 1/16th move).

    If they don't like the granular and frequent price changes, then I'm sure someone would be happy to trade with them in quotes that are expressed in the nearest 1/16th fraction, where a data feed is provided that will shield SAM from the more accurate and more rapidly changing prices and make things just like they liked them in the old days.

     

    Fri, 06/11/2010 - 18:13 | 409026 Captain Willard
    Captain Willard's picture

    Bullshit.

    We built a great country and a great stock market on the old NYSE rules of "public/time priority and precedence" of customer orders.

    Please explain to us how these HFT assholes are helping long-term investors and companies reduce the cost of investment capital and build a better country (and world).

    Fri, 06/11/2010 - 18:14 | 409030 peterpeter
    peterpeter's picture

    If you traded 10 years ago, did you not pay more per share in commissions with a much higher spread?

    Did you think that reduction in costs and tighter spreads was from the stock market fairy?

     

    Fri, 06/11/2010 - 18:29 | 409054 Let them all fail
    Let them all fail's picture

    Any reduction in costs is more than made up by the additional costs of being front-run and increased market inefficiency, not to mention the general disintegration of trust in our markets.  The long-run implications of this HFT-driven systems are highly destructuve for our markets and economy regardless of your assessment of these small short-term benefits you propose.

    Even, hypothetically, if HFT reduced spreads and commissions as you suggest, it does not mean that this method of "trading" should be legal.  Maybe its a matter of opinion, but our markets need to restored to a system driven by prospects in the underlying investments and economic conditions driven by intrinsic valuations rather than trades executed in milliseconds which take advantage of refunds and "lots and lots of pennies" - there is no investing involved in HFT - the market seemed just fine before HFT come into play, lower spreads can be beneficial to investors, but commissions are irrelevant to this conversation despite you bringing it up. 

    Fri, 06/11/2010 - 18:43 | 409070 KidDynamite
    KidDynamite's picture

    Let Them all Fail:  I think a lot of people mis-assign the "disingegration of trust in our markets" that you mention.  There is no doubt that it's a very difficult time to traverse our markets - but that's because government policies are totally fucking up asset prices and making it hard for investors to make "logical" choices - not because Hal 9000 is running wild and manipulating the markets.  After all - assuming we fix the stupid rules about canceling trades, wouldn't you guys like a flash crash every day?  I would -  Other traders doing stupid irrational things is nothing but OPPORTUNITY for everyone else to make money.  Do you think HFT algos are driving stock prices  up too high?  Eureka!  you can short stocks!  You think HFT algos are driving stock prices down too low?  BUY!  other market participants' irrational actions are EXACTLY how you make money.

     

    Contrast that to market access issues - it's impossible to argue that the retail investor doesn't have an easier and cheaper time trading now than they did ten years ago.  Where you used to pay your Merrill broker $149 a trade and a 25c spread, and then a few years later your Schwab broker $39.99 and a teeny spread, while accessing 20 minute delayed quotes,  today you can pay any number of brokers $9 or less, lift offers and hit bids for a penny spread, and get real time data.  Yes - your real time data is 50 milliseconds slower than the colocated real time data, but that shouldn't matter to you INVESTING decisions anyway, and again, the time delay has been closed from 20 minutes to fractions of a second.

    HFT traders compete with other traders.  yes - they make it harder for Joey Baggadonuts Day Trader to scalp CSCO in SOES.  That's a different issue from saying that retail investors are getting hosed.  after all - where do you draw the line?  it's ok for Joey Baggadonuts to "trade" with his tools that Jane Retail doesn't have, but it's not ok for HFT Harry to do Joey Baggadonuts's job better than Joey can?  unless we're just going to ban all "trading" and require anyone who wants to buy a stock to submit a proposal to the SEC showing that they've done their research, and petitioning as to why they should be allowed to buy the stock as an investment... but i don't think that's the way to go...

    Fri, 06/11/2010 - 19:07 | 409099 Let them all fail
    Let them all fail's picture

    Very true that gov't is much to blame given their management of our economy, understand your points, but as a matter opinion don't feel that computer alogrithms being executed in milliseconds should be allowed to trade.  Computers are good for placing and executing trades, but not for building programs designed to exploit other traders.  If they make money regardless of market action, these funds are literally decreasing the profits (long or short) which are possible to be made for other traders, investors, etc. and more important decreasing market efficiency as a result - Aside from limit orders, etc., people need to be responsible for initiating trades rather than computer programs.

    You don't have to do research, your reason for buying is irrelevant...thats a stupid comment, its not about having a reason.

    So you feel that HFT is solely responsible for decreasing online transaction commissions?

    Fri, 06/11/2010 - 19:27 | 409122 KidDynamite
    KidDynamite's picture

    the reason i made the comment about "reason for buying" is because you made a comment about intrinsic valuations. I was trying to point out that you can't decide which "Traders" you want to ban - in my opinion, and say that one trader has a right to trade for a profit while another doesn't.  Look - INVESTORS deduce what they think the value of a stock is.  If you're an investor, you want as many traders as possible in the marketplace.  More traders can only mean more people to sell you your good at your price.  yes - liquidity.   It also means more people to do crazy irrational things like sell ACN down to a penny so you can rationally scoop it and profit.  That's a GOOD thing, not a bad thing.

    TRADERS on the other hand, hate HFT, because they are getting out-traded.  Why does one (slow) trader have a right to make money in the marketplace but  another (fast) trader doesn't?  if you want HFT banned, where do you draw the line?  Why is it ok for some non-hft guy to sit there at his desk daytrading to try to make money?  why does he have any more right to those profits than the HFT guy?  answer: he doesn't. as long as everyone has equal opportunity to be one of the HFT guys.  As far as i know, everyone does.  And an article today said they're trying to further level this playing field: 

    http://dealbook.blogs.nytimes.com/2010/06/11/opening-up-the-market-for-i...

    I don't really understand why they say the market needs to be opened up - i think it's already open, but hey - open it more - great. nothing wrong with that.

    in other words, you don't need to be "GS" or "GETCO" to get this data - anyone who wants to pay the fees can do it. I think PeterPeter said it's $5k a month.  That's not prohibitive.    it shouldn't be free. If you think you can make money off it, pay the price, develop the system, and go for it.  That's how any business works. You have to invest in it first.

    side example:  Tyler has been talking all week here at ZH about the EURJPH vs ESU0 convergence trade.  Is that "fair" ? most people can't do that trade at home.  I can't do it.  That doesn't mean that no one else should be able to do it.

     

    as for commissions:  commissions absolutely decreased as a result of increasing volumes and competitiveness of access - which has been helped by all market participants, of which HFT plays no small part.

     

    Fri, 06/11/2010 - 22:54 | 409334 Implicit simplicit
    Implicit simplicit's picture

    The rules of the game simply are not fair to the average trader and /or investor. The HFTs are ruining the game because of the amount of capital they are able to deploy, and the sophisticsted algorithms used to deploy the capital.The majority can not  afford the equipment and capital; thus the rules either need to be reset for the majority to play fairly in the game, or the game should just be played by the HFTs with each other.

    Its like one rich team playing a sport with all the high tech equipment to protect them taking advantage of the poor opposing team wearing leather helmets. The playing field should be leveled.

    Sat, 06/12/2010 - 08:16 | 409547 KidDynamite
    KidDynamite's picture

    your comment illustrates many of the misconceptions about high frequency trading.  Capital is a totally different issue.  and yes - CAPITAL is what moves stock prices, not computers.

     

    because an algorithm is sophisticated and takes work to write, that means that it shouldn't be allowed?  wow. i'm not going to debate you on that one, Implicit - if  you believe that, you're living under a different set of beliefs than I am.

     

    i also won't argue with you about a "level playing field."  as i said - the important thing is that everyone has the opportunity to succeed - not that everyone succeeds... It's no different from any other business.  The field is open for you - hire a programmer and get some co-lo space. it doesn't cost millions of dollars.

    Sat, 06/12/2010 - 08:42 | 409558 Implicit simplicit
    Implicit simplicit's picture

    Kd, my point was not that algorithms should not be part of trading, but that the combination of volume, algos and capital deployed by the wealthy create an unfair advantage. Do you believe that there is no need for change? What would be wrong with setting time/volume limit breakers to level the playing field for those that are not as rich as the algo manipulators?

    Sat, 06/12/2010 - 09:18 | 409571 KidDynamite
    KidDynamite's picture

    but i answered this above already.  how do you say that HFT Harry can't do his trading, but Day Trading Danny can do his job?  they're the same job, but one guy does it better, with more technology... or that only little guys can use algos?  it makes no sense. 

    The solution is to make the access EASIER for everyone - which is precisely what it happening, according to the NYT Dealbook article i linked.

    i absolutely positively believe that times have never been better (from a market structure point of view, that is) for the retail investor, and i think that is the important thing.   Contrast this to saying that now is an easy time to invest - it's not - but that's not because of HFT - as i said in my first comment - it's because of government intervention and bastardization of asset prices.

    Everyone needs to distiguish retail investor from small day trader.  The goal is to protect retail investors, not to protect small day traders who are having their lunch eaten by faster more sophisticated traders.

    Sat, 06/12/2010 - 09:36 | 409582 Implicit simplicit
    Implicit simplicit's picture

    The article offers a good solution, however the debate centers around the advantage of the "deep pocketed". The location issue in the distance variable of speed would still give the advantage to the wealthy. Those are the only ones who could afford to rent/buy space as proposed by the article. I don't think the disagreement we have is not lack of knowledge on my part as much as it is an ideological difference of opinion about how to level the playing field (volume/time breakers) even further than making everything  dark pool. I am always willing to learn and change my opinion. Thanks for the response.

    Sat, 06/12/2010 - 09:59 | 409599 KidDynamite
    KidDynamite's picture

    thanks for the reasonable dicussion.  i'll close by repeating that it's not just the wealthy that can buy colocated server space and fast data feeds - that's a fallacy, and it's a key point.  like any business, however, of course there are costs.

    Sun, 06/13/2010 - 12:26 | 410562 dcb
    dcb's picture

    Tell me kid.

    What is the purpose of the market?you design a system for the purpose you want to acheive. If the purpose of the market is an attempt to match buyers and sellers of goods for better capitial allocation then hft is bad.

    if the purpose of HFT is to make the markets function for the max benefit of traders then HFT is good.

    I do have huge issues with rebates from exchanges. big mistake. I think the best way to deal with it is via a transaction tax. the only people hurt will be the HFT is structured low enough. the other problem with HFT is that it is anmomentum designed thing that functions on charts and little else. it desabilizes the market. Why should someone who looks at cash flow etc. invest in a computer driven trend following, trend ine dominated market.

    A market is a function of the dominant way people trade on it. Hence that is what our current market is.

    in regards to the retail investor as long as spreads are reaonable they don't matter becuause by their very nature they don't trade that much. so that argument isn't valid.

    At this point there is so much information out there from respected folks like King and haldane this shouldn't be an issue. it remains an issue because of only one reasn the banks want it for profits. It is kind of like the efficient market theory. dead for years but retained because it is a theory that justifies max profits for the industry.

     

    You ever notice the theory these folks adopt always is the one that gives them ma profits, never the one that limits them. That alone should cause you to be critical. they didn't adopt hft because they made less money they or helped us. they adopted it because they made more money then they make up the reasons it is good later.

     

    Can I day trade using hft on a macd 10 minute cycle on spy and make money almost every time. yes. that isn't they way I want to trade. But since I can make the most money that way that means that it is how the market functions.  But at least these firms should be paying like I do for the trade and not getting rebates. this is a huge distortion to the market. the fact that most hft groups don't hold positions whould tell you something. it means fundamentals play no role in investing, only trading, hence it destroys the purpose of why markets were invented in the first place. 

     

    To be honest I have seen you write on this topic for a while and you are a lost cause. no matter how much evidence, or philosophical approach discussion one presents you never alter your view. kind of like the insisting on creationsim instead of evolution or the earth is flat.

    If it is about asking to protect the retail investor why not let them decide. But we know that isn't going to be allowd to happen. same as financial reform letting people vote on the issue. If it is better for me, and I don't want it it should be my choice, not hedge funds, goldman, etc. yet they are the one's saying how something I don't want helps me. It isn't my choice. Later if I want it back I can revote. You relly think the retail investor (buy and hold type) thinks HFT is good.

    Sat, 06/12/2010 - 09:21 | 409572 Implicit simplicit
    Implicit simplicit's picture

    By the way KD, you make some valid points and your comments regarding "one giant dark pool" seem worth consideration.

    Sat, 06/12/2010 - 11:23 | 409650 KidDynamite
    KidDynamite's picture

    the dark pool concept is too philosophical for most people, but it's really not complicated.

    basically, trading is by nature, predatory.  The point of traders is to look at market information and deduce where stocks are going to go.  If you know there is a buyer of 100,000 shares of XYZ, that tilts your expectations to the upside.  You may think this sucks - if you do, i understand.  I happen to have been a trader, so i don't think it sucks, i think it's the point of trading (contrast that with investing, though, which is different of course).   it's why i find so much of what the Themis guys write hypocritical - they are trying to use their smarts to figure out where stocks are going.  Good for them.  the "machines" are doing the same thing - but they're doing it faster and better than humans can.  it's a consequence of capitalism.

     

      Some HFT algos do a very fine, fast version of this trading - and the way to prevent it, if you don't like it, is to remove the information, by making markets dark.  don't show bids/offers, and no one can "prey" on them.

    Fri, 06/11/2010 - 19:34 | 409135 KidDynamite
    KidDynamite's picture

    but let's not lose sight of the key point:  you referred to "the cost of being frontrun."  You have 1c spreads now.  You can lift the offer and pay that 1c spread.  That cost has NEVER been lower.  It's not my opinion - i don't understand how anyone can debate it - it's a fact. 

    Yes - there are now many very smart market participants (like HFT traders) who can crunch millions of data points a second and deduce that if you bid $45.05 for 500 shares then the stock has .005694% more likelihood of eventually trading at $45.06 than if you had never bid $45.05.  So that HFT algo might bid $45.06.  Without getting into an inane debate about how that is absolutely positively NOT frontrunning, you can simply avoid the  whole issue by paying the 1c spread. 

    There is always going to be a cost of trading.  The cost now is lower by many magnitudes than it has ever been.  There is a remedy for this, by the way, and that's to consolidate the market into one big dark pool where bids and offers aren't shown, so no one can trade off of the informational value contained in such bids and offers.  Somehow, indescribably, though, the same voices on this blog who have voiced anti-HFT sentiments have voiced anti-dark pool sentiments, which makes very very little sense.  Dark pools are the antidote to HFT's information processing advantage.

     

    Sat, 06/12/2010 - 02:27 | 409444 Cheeky Bastard
    Cheeky Bastard's picture

    If you are the same KidDynamite who often frequents SSA blog and the same KidDynamite of Kid Dynamites World; I would just want to say i really enjoy your writings. Keep up the good work son, not that I need to tell you that.

    Sat, 06/12/2010 - 09:52 | 409595 Eally Ucked
    Eally Ucked's picture

    As I can see you are briliant trader, making money left and right, buy, sell, short, long whatever.

    The only problem, despite all those savings we get from you and HFT, is that when we dummies leave the market how your brilliance will bring you money? I bet that you are able to rip off computers and Goldman will have 100% negative results for their trading days. Where all those trading gains for major banks are coming from, if they trading against each other some of them have to have losses, isn't it valid point? So if all of them have trading gains then their data is bullshit or the market has to go up thanks to their trading.

    Sat, 06/12/2010 - 10:02 | 409600 KidDynamite
    KidDynamite's picture

    i'm not sure if you're talking to me, but i'm a retail trader - i trade maybe 100-150 times a year.  and i'm well aware enough to understand that it's never been better for me.  pay the penny spread and get instant execution in whatever I want.  tremendous.

     

    there is no reason for the dummies to leave the market - that is the ENTIRE point. it's all fear and misinformation.

     

    as for your typical confused rhetoric about 100% profit trading days, you should note that the vast majority of those profits come from Fixed Income markets, which again, are a result of government manipulated asset prices, and have nothing to do with HFT in equity markets.

    Sat, 06/12/2010 - 13:40 | 409743 Hephasteus
    Hephasteus's picture

    You are a big fat stupid liar. You're so full of shit that if you caught fire you'd burn till christmas.

    Sat, 06/12/2010 - 16:03 | 409819 Rick64
    Rick64's picture

    LOL. Can we use him for a new energy source? Brown shoots?

    Sat, 06/12/2010 - 18:07 | 409882 KidDynamite
    KidDynamite's picture

    heheh. i'll indulge you - i don't know why, but i will.  Dude - i live in the woods in New Hampshire.  I'm more interested in preventing the green cabbage worms from eating my garden than i am in writing a computer program (or paying someone to write a computer program) to scalp millipennies. I am not a high frequency trader, a day trader, or any other type of trader.  I was formerly on one of the largest progrtam trading desks on the Street - but we didn't have any HFT strategies at that time.  If i went back to my old job, it would be SIGNIFICANTLY more difficult with the HFT algos competing with me - but that doesn't mean they should be banned. 

     

    But i do trade occasionally in my personal account, and I was in the business for long enough to understand that retail investors (like me) have never had it better than they have it right now.  The last thing i want is for people to turn back the clock to the NYSE Old Boy's Specialist Club scalping quarters off each order.

    Sat, 06/12/2010 - 22:13 | 410062 Hephasteus
    Hephasteus's picture

    Ya ya. You probably work at the pittsburg supercomputer facillity with a buggout bag and ingrained ability to find north at the drop of a canadian maple leaf. Canada really needs to mine their border.

    Sat, 06/12/2010 - 10:04 | 409597 Rick64
    Rick64's picture

      KD

      You bring up some interesting points. Do you think GS and others should be allowed to be market makers while also trading. Doesn't this represent a conflict of interest and potential to game the market with unfair advantages, then on top of that they have accesss to the FED window (unlimited capital). 

       You talk about shorting the stocks that are overvalued, but when you have these unfair advantages by liquidity providers/traders to keep running them up to ridiculous highs day after day, month after month, you will not make money shorting them. These fundamentals don't work when all these advantages are in place for liquidity providers/traders.

       Another point about flash crashes, who actually took advantage of those? The liquidity providers are there to add stability and to keep these types of events from happening. They shut down during the time when they are needed? Stocks dropping to a penny from $41 and back up. Many of the trades during this flash crash were cancelled. So exactly how would you take advantage of this unless you engineered it? Who could of engineered a crash like this? The same institution that is supposed to guard against it.

     I don't think the answer is to ban HFT, but these conflicts of interest should be eliminated. Flash crashes shouldn't happen if they do then the system isn't working.

      Evidence of what I am saying is the trading results of GS and others that had a no loss trading quarter. Are you fucking kidding me? Is this possible without those advantages?

     

    Sat, 06/12/2010 - 13:57 | 409754 Brett in Manhattan
    Brett in Manhattan's picture

    This is the real issue. You have one set of market participants that can see another set's hole cards.

    This is what determines the big swings.

    HFT is just the modern day version of thousands of brokers fighting over pennies, nickels and dimes.

    Sat, 06/12/2010 - 14:23 | 409778 JR
    JR's picture

    A really good example of the obfuscation of the manipulation is the 1000-point drop. It was days and days and yet no logical explanation as to how it occurred came forth.  If outsiders can’t explain what happened in that instance, how can they explain the effects of HFT?  And, now, they’re so sure about HFT, the effects, the advantages, the wonder—yet here was a clear dramatic event and all they could say was it may never be known exactly what happened.  The truth is, there are people who do know what happened, and who do know exactly what the effect of HFT is, and who do know exactly how to game the system—their system…  But they ain’t tellin’.

    Sat, 06/12/2010 - 17:46 | 409872 KidDynamite
    KidDynamite's picture

    brett - absolutely - HFT is the modern day version of brokers, specialists and traders fighting to capture a portion of the spread. now they're fighting over FRACTIONS of pennies. that's a good thing for investors, not a bad thing.

    Sat, 06/12/2010 - 18:01 | 409877 KidDynamite
    KidDynamite's picture

    Rick, (And JR below) - markets crash regardless of who is intermediating them.  Note that in 1987, there were bona fide human specialists in the middle, and while you didn't see stocks trade down to a penny, the end result was a bigger decline than the May 6th 2010 flash crash. So not only did 1987 have a bigger negative result, but it also offered no opportunity for savvy investors to capitalize on the crazy irrational trading, like 5/6/10 did.  I absolutely agree that if we had specialists and ONE MARKET CENTER, we wouldn't have seen ACN trade at a penny.  

     

      How would you take advantage of the flash crash?  have limit orders outstanding to buy stocks at attractive prices.  i only wish i had them may 6th... i do now - i hope it happens again... i've already written at length about the travesty of canceling trades - but rest assured it was done to protect retail schmucks who got plugged on market orders and stop loss orders.  canceling orders actually makes things worse - because some of the smartest market participants deliberately avoiding buying stocks, out of fear that their buy orders would later be canceled after they'd hedged their positions, and they'd be left hooked on a short position.

     

    the whole "they only provide liquidity when they want to" argument is a giant red herring.  1) the point of saying HFT "provides liquidity" is to explain the potential benefits of their behavior, which many market participants hate.  THEN, then the HFT guys turn off their machines, they have no evil impact - so there's nothing to complain about... it's a circular red herring argument.  But it's moot anyway, because markets crash regardless of who is providing liquidity. You can never force market makers to stand there and get run over. they just don't do it. 

     

    as for valuations:  HFT shops that trade largely without accumulating inventory are not the reason the market rallies 90% off its low.  You can keep repeating it, but it doesn't make it true.  I know that it's hard to reconcile stock valuations - i think the rally is/was crazy too - but it's are a result of real capital buying stocks - not computers trading them back and forth at progressively higher prices.  it's mathematically impossible for these guys to trade stock back and forth at higher prices, not accumulate positions, and make money.  There are real incremental buyers - no matter how irrational that seems.  again - blame it on ZIRP. blame it on bailouts.. but it's not the fault of high speed algos.

     

    as for banks (GS for example) perfect trading quarters - i already answered this above, but 75%+ of those profits were from non-equity markets. And another half of the equity profits were commissions.  I don't think i'm exaggerating when i say that equity high frequency trading was not the driving factor for any of the banks' perfect trading quarters.  Government manipulated fixed income valuations were (like the Fed buying 1.25TRILLION in MBS)

    Sat, 06/12/2010 - 19:18 | 409920 Rick64
    Rick64's picture

    How would you take advantage of the flash crash?  have limit orders outstanding to buy stocks at attractive prices. 

     Ok so ACN was trading in the 41.00 range. What limit order would I put in if I didn't know there was going to be a crash to .01 ? Maybe 30.00 so I get filled and it drops to a penny. Most people would panic and sell, and loose money this happened in a short time. Or would you put in a limit order for .10 when it is at 41.00 knowing that this would be like winning the lotto. Maybe while it is freefalling you would say ok I'm gonna step in here and buy some of this, not knowing if there is some info about the company that you are not privy to that could be the reason for it falling.

    the whole "they only provide liquidity when they want to" argument is a giant red herring. 

     Why would they stop? How would they get run over if they kept the bid/ask tight. Isn't this one of the purposes of a MM? I know markets are going to have crashes, but not like that to one penny and no apparent weakness in the stock. If the stock fell on bad news or for some other reason then I could understand, but even then not to a fucking penny and then right back up. The stock didn't gradually fall, it free fell to a penny. 

    as for valuations:  HFT shops that trade largely without accumulating inventory are not the reason the market rallies 90% off its low. 

     I agree with this. OTH just for a hypothetical argument lets say there was an institution that was a MM which also traded securities, investment banking, well lets just say they did almost everything. If they are providing liquidity to the market well that presents a problem because they also trade securities which should be a conflict of interest.  It would be like me being the Prosecuter and Judge in a trial. I would not ban HFT, but would make MM accountable for their actions in the market flash crashes. Also they should not be in any conflicting business arrangements. As far as driving prices up if you control the orders that get filled this is quite easy to do and very lucrative if your trading securities and also selling shorts which get taken out. The temptation to do this would be huge if you were a liquidity provider and traded securities.

    as for banks (GS for example) perfect trading quarters - i already answered this above,

     Without looking at their accounts in detail it is impossible to verify this. With thecreative accounting going on these days it is very easy to obscure results. How do we know that the combination of providing liquidity & trading securities didn't have a desired impact on their other areas of investment? Just for arguments sake lets say you are right for a minute (thats the limit I can pretend) . How many trades in securities did they have in a quarter? All of these were winners? I guess it could happen but the odds have to be up there, why are they so successful on their own trades but can't seem to even come close to those odds with their clients?

     My problem isn't with HFT, but with the manipulation of it in combination with the conflicts of interest. MM, bank (FED window access), investment bank, prop trading, consulting, its too long to list but you get the idea. Too many advantages with no accountability.

     

    Sat, 06/12/2010 - 19:52 | 409929 KidDynamite
    KidDynamite's picture

    re: ACN:  rick - you act like you think you have some right to buy the bottom tick. if you think ACN is worth $40, then yes - put in a limit order to buy it at $30. if someone fucks up and enters a whole lot of market sell orders without understanding what "market" means, and drives the price down thru your limit, filling you, congrats. you got lucky. you win. if you panic and sell it, that's no one's fault but your own.  are you telling me that you'd be upset if that morning of may 6th you had existing limit orders to buy stocks at value prices, which you later found out got filled (and that the stocks traded down to 1c, and all the way back up) ?  of course not - you'd be ecstatic.

     

    re: market makers:  you asked "Why would they stop? How would they get run over if they kept the bid/ask tight. Isn't this one of the purposes of a MM?"  they get run over when a mass of sellers comes in. it's got nothing to do with the tightness of the spread - it's about the balance of the orders. and it's exactly what happened on may 6th. its' no mystery - there were sell orders and no buy orders. that's what happens. if you enter a market order, you can destroy an order book with no bids on it.

     

    the bank perfect trading quarters data is public information. it's not some crazy theory of mine. it's fact. i already wrote about this too. i think their fixed income profits are a travesty engineered by the Fed - but it's not relevant to this discussion.

     

    since you already said you're problem isn't with HFT, let's just end this now - because i'm not talking about all the other things you're complaining about -  i agree that GS/MS shouldn't have Fed discount window access.  have a good night.

    Sat, 06/12/2010 - 20:49 | 409972 Rick64
    Rick64's picture

    re: ACN:  rick - you act like you think you have some right to buy the bottom tick.

     No I don't think that. I also would be estatic if it filled and came back up, providing I wasn't watching it. This is a ridiculous argument because if any normal person got filled at 30 and watched it freefall to a penny I think they would panic.

    I promise to stay on topic.

     it's about the balance of the orders. and it's exactly what happened on may 6th. its' no mystery - there were sell orders and no buy orders. that's what happens. if you enter a market order, you can destroy an order book with no bids on it.

     Funny thing no buys all sells, weird how everybody decided to sell and nobody would buy this stock with a P/E of 16  EPS of 2.34   dividend .75.  Yes I could see how everybody would decide to sell this piece of shit and nobody would buy. Oh but wait then everybody suddenly got interested again and bought into it.  Yes this argument makes sense.

    1:00 CT    High 41.78    Low .01      Close: 40.71      Volume 1,980,450

    2:00 CT    High 41.22    Low  40.43     Close 41.11     Volume 2,142,403

     

    On 08/31/09  High 34.09   Low  33.00   Close 33.00    Volume 67,461,322

    On this day for some reason there was huge volume and it only fluctuated a 1.09. I know it must have been pretty equal buying and selling.

     Still didn't answer the question about them being the perfect traders for a quarter, but lost their clients money on 7 out of 9 trades. It baffles the mind. I hope you don't take any of this personal, I view this as an opportunity to either make my argument stronger or invalid.

     

    Sat, 06/12/2010 - 14:17 | 409770 eccitante
    eccitante's picture

    I agree it creates opportunity for those savvy enough to exploit the opportunities created by the reality of the markets...

    Fri, 06/11/2010 - 19:15 | 409109 Implicit simplicit
    Implicit simplicit's picture

    Good rebuttal. I totally agree

    Fri, 06/11/2010 - 18:13 | 409028 Solarman
    Solarman's picture

    You sound like your an HFT trader.

    Fri, 06/11/2010 - 19:08 | 409100 Implicit simplicit
    Implicit simplicit's picture

    Why not just slow everything down some for large individual sequential orders. Simple breakers would prevent the rampant time-volume manipulation.

    Fri, 06/11/2010 - 17:51 | 409004 Duuude
    Duuude's picture

     

    "Tha business of America is business."

     

    Bullshit.

     

    Tha world sees that tha business of America is Financial Theft.

    Fri, 06/11/2010 - 19:56 | 409159 RicardoM from T...
    RicardoM from Temecula CA's picture

    Duuude, that really hurts. I'm telling on you.

    Lloyd, someone thinks that Doing God's Work is financial theft.

    Duuude, you are going to go to Hell for saying that.

    Fri, 06/11/2010 - 21:35 | 409263 Kali
    Kali's picture

    The sad thing is, you are probably right.  I am sure we, on this site, have already been tagged as belligerents and are on some round up list somewhere.  I can guarantee that whereever they take us will be hell.

    Sat, 06/12/2010 - 08:44 | 409521 Hephasteus
    Hephasteus's picture

    God's a mathematician and a gang banger. 100 beligerants and the beligerants have a problem. 3 billion beligerants and god has a problem.

    God is in some serious shit. Very few people are trying to get through the pearly gates. They are all trying to shut them and lock them and bar them and beat the crap out of anyone who dares come out.

    People even in this thread are not getting the big picture. HFT is about giving pricing power to a bunch of worthless stocks by giving people the perception that they are wanted by other market participants. But those other market participants are just computers desperately collapsing or expanding spreads to try to force everyone to buy at the biggest idiots offer. It's no longer sufficient to steal from the greater fool. They got to put a musolini mustache on the biggest fool and turn him into an idiotic dictation machine.

    For fucks sake get rid of this stupid ebay meme.

    http://meowcheese.com/2008/04/y-u-outbid-me

    Sat, 06/12/2010 - 15:35 | 409812 Cursive
    Cursive's picture

    @Hephasteus

    People even in this thread are not getting the big picture. HFT is about giving pricing power to a bunch of worthless stocks by giving people the perception that they are wanted by other market participants. But those other market participants are just computers desperately collapsing or expanding spreads to try to force everyone to buy at the biggest idiots offer. It's no longer sufficient to steal from the greater fool. They got to put a musolini mustache on the biggest fool and turn him into an idiotic dictation machine.

    A long way down in this post, but you hit the nail squarely on the head.  Let Kid Dynamite buy these "efficiently" priced stocks.  Don't own Shittybank yet?  Go for it!

    Fri, 06/11/2010 - 17:54 | 409007 You Cant Handle...
    You Cant Handle the Truth's picture

    Here's what you have to do: assume nothing will be done to fix this. Assume it will only get more worse and corrupt. Then plan accordingly.

    NOTHING will be done to fix this problem. You'd need honest people in Washington DC to fix this. Nothing in 2010 or 2012 for that matter -- NOTHING -- will fix this.

    We're looking at the complete destruction of the American markets for the benefit of an elite few, who no doubt are using their newly acquired wealth to buy assets of real value to weather the storm they have created.

    At this point, forget changing the system. Forget making money off the system. Just figure out how to protect yourself and your loved ones from the shitstorm that all the crooks are way ahead of you in preparing to survive.

    Fri, 06/11/2010 - 18:58 | 409090 Implicit simplicit
    Implicit simplicit's picture

    It wouldn't suprise me to find out the CIA or SS has contacted some HFT companies to work with them in the name of national security to jack the markets.

    Fri, 06/11/2010 - 19:30 | 409127 buzzsaw99
    buzzsaw99's picture

    +1

    Fri, 06/11/2010 - 17:55 | 409008 Rick64
    Rick64's picture

    The SEC is probably soliciting public feedback to find out how the public views these problems and using the info to learn how to hide the obvious frontrunning and other issues rather than using it to change things for the better.

     Why are these entities allowed to be MM, Securities Brokers, Investment Banks, HFT ect.. when it is an obvious conflict of interest.

     Great Post

    Fri, 06/11/2010 - 18:46 | 409074 Implicit simplicit
    Implicit simplicit's picture

    Perhaps large trades, that are not from small trades being bundled together, over a certain number (say 10,000 shares) should have a set time limit between trades- like 20 seconds.

    Fri, 06/11/2010 - 22:01 | 409285 Rick64
    Rick64's picture

    I don't know the answer because they are always one step ahead and will find a way to game the system. I am sure HFT sounded like a good idea when it originated, but look what they did with it.  If I could come up with one fix for every problem it would be to have accountability in everything. They are not afraid of any consequences because there are none.

    Fri, 06/11/2010 - 17:59 | 409015 Let them all fail
    Let them all fail's picture

    They should just pay this guy $20M salary to run the SEC, would be the best $20M taxpayers ever spent

    Fri, 06/11/2010 - 18:06 | 409021 jal
    jal's picture

     

    I’m waiting to see the headlines in MSM ...

     

    “INSTITUTIONAL INVESTORS ARE AT THE MERCY OF THE HIGH FREQUENCY TRADING COMPANIES”.

    and

    “THE STOCK MARKET IS MANIPULATED BY A FEW HFT”

     

    jal


     

    Fri, 06/11/2010 - 18:09 | 409023 moneymutt
    moneymutt's picture

    I agree fire everyone at SEC, if someone is good and honest and has been buried there, let them re-apply...and then put SAM guy in charge. And hey, pay the head of SEC handsomely, but expect mega good results, and zero corruption.

    This is not difficult.

     

     

    Thanks TD, good,very good stuff.

    Fri, 06/11/2010 - 18:49 | 409077 Rainman
    Rainman's picture

    You are right Mutt.....FDR hired Joe Kennedy to run the SEC because Joe already knew the cons and probably invented many himself.

    The SEC, with a relatively measly billion dollar budget and a small army of asswipes out of law school fighting these behemoths , is a David and Goliath story if there ever was one. Serious jail time for a dozen of these creeps will clean a lot of it up fast.....but that all needs a GO from Big O. Good luck wit dat. 

    Fri, 06/11/2010 - 21:00 | 409233 Clycntct
    Clycntct's picture

    http://www.nytimes.com/2010/06/12/us/politics/12leak.html?hp

    We be pushing on a string, no more hopeeeee here.

    Sat, 06/12/2010 - 00:38 | 409258 RoRoTrader
    RoRoTrader's picture

    another way to put it maybe; Obumer........too bad the talent will take the blame , but GS designed it that way.

    on another subject, nice looking curves up ahead though......dr. nookie makes housecalls.

    Fri, 06/11/2010 - 18:27 | 409035 Mark McGoldrick
    Mark McGoldrick's picture

    Why would anyone care if the financial markets are manipulated?  There are far more important issues confronting this country.  

    Front page of MSN.com right now reads "Burger King Out of Ribs."  I'm not joking. 

    http://www.msn.com/

    http://articles.moneycentral.msn.com/Investing/top-stocks/blog.aspx?post...

    Tyler--If you want to gain viewers, I would suggest you focus less on the financial markets, and more on the mysterious (yet brilliant) presence of pickles on the McRib. This is an often over-looked edge that McDonald's has on Burger King. The sauce on the McRib is scrumptious, but adding pickles sends it out of this world!  

    No one is listening to you, Tyler.  We just want our fucking McRibs. 

    Fri, 06/11/2010 - 22:05 | 409288 Rick64
    Rick64's picture

    Why junk this? Its funny. Its a fucking joke.

    Sat, 06/12/2010 - 00:01 | 409380 Mark McGoldrick
    Mark McGoldrick's picture

    Holy cowa'bunga!  I can't believe people actually took my post seriously. 

     

    Sat, 06/12/2010 - 00:45 | 409397 merehuman
    merehuman's picture

    it is a financial site. Some of those reading are the ding alings still buying stuck (er.. 'stock"). Poor fools think their opinion matters. 

    My darling sheep i love you in all your glorious innocense. Vote for me on american idol would ya please and remember me in your will. 

    Thanks for the funny.

    Sat, 06/12/2010 - 05:57 | 409510 OldTrooper
    OldTrooper's picture

    Of course they took it seriously.  PICKLES on the McRIB!  How can you not take that seriously?

    Sat, 06/12/2010 - 07:05 | 409532 BumpSkool
    BumpSkool's picture

    ...that's because too many sanctimonious little fags reside here who have no sense of humor

    Sat, 06/12/2010 - 11:49 | 409664 PeterSchump
    PeterSchump's picture

    There is a segment of readership on this blog that is cognitively challenged.  They normally do not post, but junk instead.

    Sat, 06/12/2010 - 00:53 | 409403 RoRoTrader
    RoRoTrader's picture

    my initial thought is that we are all salivating Pavlovian dogs at some level, myself included, amongst the retarded masses.

    i know i want mine.

    Fri, 06/11/2010 - 18:25 | 409044 Sudden Debt
    Sudden Debt's picture

    and presently resemble casinos more than orderly markets

    I PUT 20K ON BLACK AND 20K ON NUMBER 32!

    Daddy needs some new wheels!

    Sat, 06/12/2010 - 00:46 | 409400 merehuman
    merehuman's picture

    Yea ha, i am bringing the drinks.

    Fri, 06/11/2010 - 18:25 | 409045 Sudden Debt
    Sudden Debt's picture

    and presently resemble casinos more than orderly markets

    I PUT 20K ON BLACK AND 20K ON NUMBER 32!

    Daddy needs some new wheels!

    Fri, 06/11/2010 - 18:28 | 409051 Rainman
    Rainman's picture

    Just like I thought would happen eventually. The computer geeks have been silently working the back room unseen with an obscure plan to destroy the world's fair market structure. Now we are forced to redefine " fair "......like it's up for debate. Frontrunning, no matter how it is done, is criminal. Only for entertainment should an amateur retail investor dabble in this netherworld.....and you will need to accept being slaughtered and eaten.

    Lloyd wouldn't know the first fucking thing about how to construct programming that could so deviously pocket a fortune for him and the other boyz in such an off radar way.

    Kudos to all within this organized crime syndicate for technicnal innovation and brazen disregard for morality. Special recognition for keeping the con going so long.  

     

     

    Fri, 06/11/2010 - 21:23 | 409250 Mr Lennon Hendrix
    Mr Lennon Hendrix's picture

    "What is it that you do?"  "I run this town!"  "That isn't what I asked Llyod."  "Are you questioning me?  Go get me a cup of coffee."  "Lloyd, we're cutting you off."  "You can't cut me off, do you know who I am."  Rainman gives a blank stare before saying, "Then create your own programs, but do it on someone else's dollar."

    Fri, 06/11/2010 - 21:38 | 409268 Kali
    Kali's picture

    Too funny.

    Fri, 06/11/2010 - 18:45 | 409071 tlil5774
    tlil5774's picture

    And the sad fact is that nothing will be done to fix this until we experience a massive market meltdown (assuming there's not an immediately following meltup), after which there will be 3 years of unproductive congress hearings among incompetents producing nothing useful......F*** knows...but I'll just buy some physical gold rather than stocks and store it in some vault in Switzerland while we all wait for this to play out.

    Fri, 06/11/2010 - 19:03 | 409097 Remington IV
    Remington IV's picture

    I know a NYSE specialist , IQ = 10 , makes a fortune ..... rigged ????

     

    Tell me about it

    Fri, 06/11/2010 - 19:18 | 409110 Double down
    Double down's picture

    Do not know enough about this, but what worries me is that the illusion of liquidity feeds into an investment decision.  You can no longer trust there will be an exit should you need one.  I can understand that liquidity can dry up; it is the mean rate of change I can no longer trust.   

    Fri, 06/11/2010 - 19:44 | 409143 imapopulistnow
    imapopulistnow's picture

    The best way to make money in the market is to ask yourself each day, "OK, if I were Goldman Sachs, how would i fuck over the average investor today?"

    Fri, 06/11/2010 - 19:44 | 409144 Joe Shmoe
    Joe Shmoe's picture

    Maybe we're all just pissing up a rope here (I don't really know what that means but I like the sound of it).  The Administration is trying to manage the economy through the recession, using every tool it can think of.  So, maybe they'll manage it all until the economy does in fact have fundamental growth.  And they did what they meant to.  And we never see the collapse we all expect...  

    Fri, 06/11/2010 - 20:06 | 409175 RicardoM from T...
    RicardoM from Temecula CA's picture

    As a fellow American. I am soooo...furious that the Securities and Exchange Commission is just a bunch of ninnies. However, isn't the Fed guilty of market manipulation when they raise and lower interest rates? buy Treasury securities on the open market? buy worthless mortgage backed securities from TBTF banks? etc., etc., etc.

    You know what? I don't think that the SEC is capable of dealing with all the corruption and they don't pass litigation, er, I mean legislation. But, I sure wish they were more active prosecutors than the New York Attorney General.

    Speaking of the New York Attorney General, where the hell is he in all this? I used to and still do hate Elliot Spitzer. But, now we are talking legitimate crimes here. Why the heck isn't he involved? OHHHHH! I know. The government is involved. Forgot. The government is exempt from criminal statutes and other regulations.

    Fri, 06/11/2010 - 20:08 | 409177 litoralkey
    litoralkey's picture

    I'm becoming less amused with each post of NYSE datacenter HFT due to the fact all of this has been the talk of the town in info-management trade mags for over 2 years.

    Here is a several thousand word article that explains the nuts and bolts of the NYSE EuroNEXT colocation data center business strategy in the coming years.

    http://www.tradersmagazine.com/issues/23_308/buttonwood-nyse-mahwah-nyfi...

    Jefferies Execution Services, the NYSE member agency broker arm of Jefferies & Co.,is buying rack space on spec, and selling colocation services to small shops for some small markup price.  Two or three other firms will be doing the same by the time the new data centers are online.

    The entire original post is a pretty coherent rant, however there is no solution BUT the complete collapse of the market due to Algo trading.  The faster it occurs, the faster the paradigm shift will occur, where all stakeholders will be able to fight ovr the concepts of a "fair and just" system of equity, options and bond transactions.

     

    Until then, welcome to the worst casino in the history of the world.

    EDIT: typos

    Fri, 06/11/2010 - 20:11 | 409184 Oquities
    Oquities's picture

    there are many taxable accounts with  50% gains who get a break by selling before the end of the year.  they will.  high tax bracket holders own most of the stock outside of qualified (retirement) plans. they will see their cap gain tax rise 33.3% on 1/1/11.  they will see their qualified dividends tax raised from 15% to up to 39% on 1/1/11 (160%).  if they're smart they'll sell.

    if they're smart, they'll die.  right now, estate tax is zero.  on 1/1/11 you'll be taxed halfish over 1 million.  if you're a billionaire, take a world tour and stay away from your children until you see congress pass a last minute change.

    infuckingsanity.

     

    Fri, 06/11/2010 - 20:31 | 409207 exportbank
    exportbank's picture

    It's just a casino - everybody knows that - OK, maybe the the little people don't but the players sure do. You can't possibly think we'll ever go back to  "investing" or "buy and hold". The entire idea of the market is to take your money (or even easier - just grab it from the stupid pension fund managers) and turn it into theirs - seems like human nature at its most basic level. 

    Fri, 06/11/2010 - 20:45 | 409223 Kina
    Kina's picture

    Srsly the investment banks, regulators and the Fed should be seen and thought of as one large criminal gang. That is  the only way to look at this as that is the way they function.

     

    The SEC and CTFC and others are not blind or ignorant, they are there mostly for the purpose of enabling crime, to stop others from becoming spoilers.

     

    The should simply disband the regulators as their existence gives the impression there is some sort of oversight when there is not. Hand it all to others, the FBI, States and so forth.

     

    By the way whatever happened in the case of the whistleblower they tried to murder?

    Fri, 06/11/2010 - 20:57 | 409228 tony bonn
    tony bonn's picture

    "Debunks HFT "Liquidity Provider"

    finally someone explodes the very epicenter of the web of lies woven by gs...liquidity provider my fat ass....the only liquidity gs provides is liquidity for its ginormous bonus program....

    gs - go fuck yourself...

    Fri, 06/11/2010 - 21:00 | 409230 Zina
    Zina's picture

    "4) The preceding three issues are fixable by the SEC."

    Who needs government regulation??

    Who needs SEC regulating the markets?

    Completely unregulated markets are efficient!

    Say no to any government regulation! SEC should never intervene in the markets to prevent any "manipulation"! It's COMMUNIST bullshit. Long live unregulated free markets!

    [teabagger mode off]

    Fri, 06/11/2010 - 21:18 | 409248 Mr Lennon Hendrix
    Mr Lennon Hendrix's picture

    I didn't, but you are sooo getting junked for that!

    The 14th amendment stole your wallet, and it's coming back around for your shorts.  Run away, and shoot it if it gets close.  Don't like guns?  Then eye guage the shit out of it!

    Fri, 06/11/2010 - 23:17 | 409349 Al Gorerhythm
    Al Gorerhythm's picture

    Let me be the first then. He's a fucking idiot with nothing substantial to post on any thread.

    <No sarcasm at all>

    Fri, 06/11/2010 - 23:27 | 409358 homersimpson
    homersimpson's picture

    That's not what the tea party is about. You're just another liberal loon who feeds off what Keith Olbermann and Jon Stewart tell you to think.

     

    Sat, 06/12/2010 - 11:59 | 409669 PeterSchump
    PeterSchump's picture

    Yes, an SEC that is in the pocket of the IB club is better.  Therein lies the danger.  Who is watching the watchers.  It is supposed to be us.  It is unfortunate that our fellow citizens are preoccupied with McRibs.

    Sat, 06/12/2010 - 12:43 | 409683 Mark McGoldrick
    Mark McGoldrick's picture

    lol.  

    I truly do think that the McRib--while undeniably delicious--is the harbinger of death to this country. It's like human cat-nip.  While everyone is going nuts over the McRib, the rats are McRobing our money!

    http://www.questionsleep.com/mindspill/wp-content/uploads/2010/03/mcrib2...

    For the record, the "Burger King" story was removed from the MSN.com front page sometime last night.  Perhaps the "How to survive swimsuit shopping" story was getting more hits.

    I tell you what, this country is royally fucking rogered.   

    Sat, 06/12/2010 - 00:59 | 409239 RoRoTrader
    RoRoTrader's picture

    "the mildly retarded  public"........sort of sums it all up, although mildly may be being generous.

    please, let me put that into context so there is absolutely no misunderstanding; i am mildly retarded, probably from sniffing glue. the public is completely retarded.......and politicans are perversely retarded.

    ZH has a nice feel to it. i feel like i might belong here. time will tell i guess and it is a tough neighborhood.

    real story - tried 3x to short $10M GBP at 1.4715 last night asking why isn't this trade filling? did not realize it was transmitting at $10M.........and rejecting at the same. a decent technical and fundamental call and very profitable 12H trade with proper postion sizing assuming of course the required margin was in place.......if.

    interesting experience and learn something everyday, but recovered and did scalp 2 trades on the NZ dollar soon afterwards.

     

     

    Fri, 06/11/2010 - 21:09 | 409240 Apocalypse Now
    Apocalypse Now's picture

    Bravo Tyler, excellent piece.

    Pulling away from the trees, I would LOVE to see a cash flow of funds map on the market.

    Over the last 11 years the markets have been flat while HFT and market makers have been pocketing billions of dollars.  I don't think Congress understands the difference between regular industry that produces products and services and the black hole that is the market since it is a ZERO SUM GAME.  The story that tells it all is the scorpion and the frog, the scorpion (Market Banking Industry) just can't help itself it will continue stinging the frog (middle class) and both will drown along with Congress if steps are not taken to stop the crisis of confidence. 

    The industry is ridiculously short sighted in their lobbying - there will be nothing left if structural changes to restore trust are not made.  HFT creates volatility not liquidity and structurally the market is broken.  The only individuals that want HFT to remain as it is are the individuals gaming the system. 

    It was nice to see the main premise of the Securities Exchange Act of 1934:

    "To ensure the maintenance of fair and honest markets in such transactions:

    Frequently the prices of securities on such exchanges and markets are susceptible to manipulation and control, and the dissemination of such prices gives rise to excessive speculation, resulting in sudden and unreasonable fluctuations in the prices of securities"

     


    Fri, 06/11/2010 - 22:20 | 409300 Strider
    Strider's picture

    Nice homily there APO-Now. Everyone shold ask themselves "is the stock market good enough for my 401k ? or is this all a plan to get the brokers kids through college and leave my kids with the cover charge to get in their games at my expense?" I dont think anyone that does their own thinking is telling their parents to put their life savings in the Stink Market but they should be taking control , dont leave your money up to brokers to decide what to do with it is step 1. Take your money back! Its not theirs to play with its yours to protect!

    Sat, 06/12/2010 - 04:48 | 409490 John_Coltrane
    John_Coltrane's picture

    "there will be nothing left if structural changes to restore trust are not made."

    Yes, this is indeed the reason to make changes.  In the old days (80s and 90s), liquidity and  bid/ask spreads were completely irrelevant.  I think I bought and held four or five stocks for an entire decade and I don't remember even checking on entry prices.  So, things have really changed as I've only held high dividend stocks like KMP for longer than two years recently.

    An amusing new rule would be to only allow trading of equities that pay a dividend on real exchanges.  This would certainly rule out fly-by-night companies with shady accounting practices.  No real cash flow = no dividend = no secondary trading market.  Other companies would have to obtain equity from venture capitol only.

    Sat, 06/12/2010 - 10:32 | 409610 Cistercian
    Cistercian's picture

     I agree with you, but I think there is no way the wealth transfer will stop.The goal seems to be serfdom for the masses who are ruled over by a tiny group of powerful people.

       This used to be tinfoil hat theory...but look at the results.It is the direction it is going.

     Unless the the gang at the top is removed, their hired guns like GS are irrelevant.You could destroy GS...and another group would take their place.These are evil times indeed.

     Consider how much has been stolen already.Even if we stopped the wall st thugs today how would we recover the stolen capital?The US is done, stick a fork in it.

     The threat we face now is existential.And the sooner we treat this as a threat to national security, the better.We don't need to be at war overseas...when the enemy is raping and pillaging right here, right now.

      For the love of God, won't someone with ethics that has some power do something already?Do we really have to take to the streets with pitchforks and torches?With all the horror that entails?

     Just do the right thing you fools, before there is nothing left to save!

     

    Fri, 06/11/2010 - 21:24 | 409245 Mr Lennon Hendrix
    Mr Lennon Hendrix's picture

    The computer in the machine....

    Fri, 06/11/2010 - 21:54 | 409278 zen0
    zen0's picture

    The lesson the public-at-large is learning today is one that old-school American gangster Lucky Luciano learned after spending a day on the floor of the New York Stock Exchange, an eye-opening lesson that allegedly induced him to comment: “I realized I’d joined the wrong mob.”

    Fri, 06/11/2010 - 22:35 | 409313 jkruffin
    jkruffin's picture

    Easy enough to find all the HFT culprits, enact a ban on HFT all the way around and which ever companies come whining like babies, there you have the companies who are guilty of the massive fraud enacted every trading day.  If someone complain, they have alot to lose, namely profits of the millions of small trades thrown thru the system.  This is exactly why the DTCC is as useless as the SEC/FINRA now, because they have no clue what shares are where and who owes who what anymore.

    Fri, 06/11/2010 - 22:40 | 409315 sheep92
    sheep92's picture

    So the general idea of the rant against hft is that somehow they have an 'unfair' advantage.

    The barrier to entry of a colo server at an electronic brokerage is a million dollar account and two hundred bucks a month in rack fees.  Of course you get to write some software to connect your machine to theirs.  The exchange fees for BATS, INET and ARCA are about nothing these days.  So if you are some sort of an institution and feel down trodden by some crap offering by goldman, or merrill, or lehman or whoever, write some software and get over it. 

    Like it was stated above, if the algos go wild and vaporize a stock for no reason, then stand in there and buy it.  Don't trade with stops at the xxx fib moving avg retracement line in the sand and be pissed off that you got taken out cause someone wrote some algo that out gamed you.  If you are a small investor there is nothing better than wild volatility.  You can actually trade small quantities and get stuff off at crazy prices where institutions have no chance.

    I work in a tiny little shop with two partners and no clients.  We are no one, yet we can compete with anyone.  The barrier to entry is very very low.  Going backwards to markets run by nyse specialists front running everyone and anyone is hardly the way to go.

     

     

    Sat, 06/12/2010 - 09:45 | 409590 New_Meat
    New_Meat's picture

    Goldman's complaint against that Russian kid who "stole" the code was that his having it would give him an "unfair advantage."

    - Ned

    Sat, 06/12/2010 - 00:13 | 409387 RockyRacoon
    RockyRacoon's picture

    There was a bunch of jabbering at the beginning of the comments about the nuts and bolts of these transactions (and I use the word loosely).  That is the proverbial rearranging of the deck chairs.  The point is that the whole operation is working as smoothly as TPTB want it to.  Object:  Fortify the banks.   That is being done.  Gov't money is fueling the operation.  It is a lot less obvious to allow this to go on unobstructed than outright cut checks to the banks to bolster their balance sheets.   All is going according to plan.  Not much chance that any of this will change in the near future.  It will end badly, of course, but that is some day down the road.  Just not today, Lordy, not today.

    Sat, 06/12/2010 - 01:05 | 409405 RoRoTrader
    RoRoTrader's picture

    Obuma, where art thou?........subtle shift in the lexus for the overlooking crowd about to be sideswiped with a sharp shift in the art of public discourse.

    Sat, 06/12/2010 - 01:29 | 409423 JLee2027
    JLee2027's picture

    He's out golfing or reading a teleprompter somewhere...

    Sat, 06/12/2010 - 01:58 | 409429 williambanzai7
    williambanzai7's picture

    Wow! This guys presentation skills almost rival Reggies!

    The Anarcho Capitalist world envisioned in Stephenson's Snow Crash is coming very close to fruition. The State is incapable of protecting the individual. Capital as a concept, is headed for a sea change. See you in Mr Lees greater Hong Kong.

    Sat, 06/12/2010 - 02:29 | 409443 RoRoTrader
    RoRoTrader's picture

    It is the genius of the forum that draws and encourages talent, .........and those of us who are retarded who also want to contribute and be a part.

    The French financed the American Revolution.

     

    Sat, 06/12/2010 - 09:51 | 409593 RockyRacoon
    RockyRacoon's picture

    No, there really isn't any way that the death of Las Vegas can be avoided.  Just like the U.S. economy as a whole, it is inevitably doomed.  The numbers don't lie.

    LV might be the city to watch as a proxy for the entire country.  The decline and general lawlessness is a bad omen.

    Sat, 06/12/2010 - 04:19 | 409473 FreakuentFlyer
    FreakuentFlyer's picture

    this article is very much incomplete, and therefore misleading and inaccurate.

     

    1. there is no such thing as "public" feed vs the rest. they are all public. they differ in their granularity and technical requirements. 3 basic styles are as follows: a) native feeds from the venues - offer anonymous order level information and generally require 1GB network connections, due to the volume of information. each venue format is slightly different. there are several companies on the market selling "appliances" that normalize these feeds - see exegy and redline. since these native feeds require such bandwidth, the cheapest way to get them is to be co-located in one of the data centers which provide networking infrastructure. or you can just pay some ISP to run a line to your basement etc.

     

    b) broker normalized feeds - many brokers will provide normalization of all native feeds into one format, and then let their customers subscribe to instruments that they follow.

     

    c) data vendors - take a look at Activ financials, Quanthouse, Sungard etc - these companies will deliver any exchange feed in the world to any location of your choosing, for a (not so) small fee.

     

    2. the pre vs post HFT liquidity example is just bull - go take a look at the book for any stock trading more than a million shares a day.

     

    it puzzles me how someone is allowed by the SEC to accumulate such assets yet be so technologically incompetent - the docs on the NYSE site are very clear and most comp. sci grads would quickly (4h) figure out what to do with them. building/ assembling a state of the art data system in the US, is now a $300-$500k effort, for a solution that is as fast as anything getco or gs could possibly build - no one can escape the limitations of the speed of light. another, cheaper path is ~120k of programming that would get you 70% of the best case solution. and what i mean by "incompetent" is that programming such data processing is far simpler than building and/or making use of monte carlo risk management - something that all asset managers should be doing.

     

    what really happened in the email exchange between this VP and NYSE is that they we told to use the same tools and information available to all other market participants and were refused preferential treatment just because they are large enough to have VPs in their organization - which is exactly what all of us on this site want to advocate, but fail to do so at times due to lack of patience and thoroughness.

     

    almost every single "front running" example mentioned on this site has been illogical just like all rebate collecting schemes. if you would like to see a technologically accurate example of an unfair advantage exploited by HFT (which was created inadvertently), please take a look at this article: http://www.tradeworx.com/TWX-SEC-2010.pdf

    Sat, 06/12/2010 - 05:00 | 409495 John_Coltrane
    John_Coltrane's picture

    And yet, you don't find it strange that C, that insolvent bank, consistently leads the trading volumn every day?  Algo traders apparently just don't understand that C (bid=ask=0.0)?  Why do we need markets for "price discovery" in light of this ludicrous example of capital malinvestmet?  This is just the "greater fool" theory of pricing.  Let's move the Casino stocks to be separate exchange located in Vegas and let WYNN handle the settlements.

    Sat, 06/12/2010 - 06:03 | 409516 FreakuentFlyer
    FreakuentFlyer's picture

    yes, that 40% of NYSE nominal turnover can be just 4 stocks is absolutely ludicrus - a bunch of evil algos trading worthless tickers between each other, and paying the comissions / exhange fees. i hope you realize NYSE is not paying for their servers and office rent with fees on them 4 trades a quarter made by the justice and freedom lovin' regular ZH readers :)

     

    i'm not arguing that there are no issues that should and can be fixed. unfortunately, this particular article is a consequence of technological incompetence as well as old school pride and ego.

    Sat, 06/12/2010 - 09:44 | 409589 RockyRacoon
    RockyRacoon's picture

    Looks like the argument (in the denotative sense of the word) has progressed to how many angels can dance on the head of a microsecond. 

    i'm not arguing that there are no issues that should and can be fixed.

    I'd much rather hear about that than the minutiae of why this post is so, so wrong.

    No disrespect or sarcasm intended, it sounds like you could really contribute to that discussion.

    Sat, 06/12/2010 - 13:58 | 409755 FreakuentFlyer
    FreakuentFlyer's picture

    then please read the link i included in my original response.

    Sun, 06/13/2010 - 01:22 | 410256 RockyRacoon
    RockyRacoon's picture

    This?

    http://www.tradeworx.com/TWX-SEC-2010.pdf

    Ok. It has been read.  Seems like the quibbling over those pesky deck chairs again.  Did I miss the socially useful aspects of HFT trading?

    Sorry if you missed my point.  Somewhere the usefulness of the entire concept has to be addressed.  What social use is the entire shebang?  Shuffling money around and seeing who can pick up pennies in front of the steamroller is not all that useful.

    Sorry to be so obtuse, it's obvious I am totally ignorant of the financial aspects.  Just trying to see the forest, not the trees.

    Sun, 06/13/2010 - 18:06 | 411121 FreakuentFlyer
    FreakuentFlyer's picture

    great point - let's deal with this when we are finished eradicating even more socially costly things like guns & automobiles that kill ~40k Americans each year - we can just ride buses and trains instead; yada, yada, yada.

     

    my point is that the article is incomplete and therefore inaccurate and misleading. i also gave an example that is mathematically accurate representation of exploitable inconsistencies in the technological infrastructure of the equities markets.

     

    i also claim that the writer of the original article is hypocritical - claiming that HFT is bad and just not fair, yet demanding preferential treatment from the NYSE.

     

    i make no claims as to net social usefulness of television, video games, porn, alcohol, cigarettes, hft, religion, corporal punishment, torture  etc.

    Sat, 06/12/2010 - 08:35 | 409555 KidDynamite
    KidDynamite's picture

    JC - if you think that algos are asininely buying C every day, then you should short it to them.  if you think it's worth zero, you should short it to them.

    As i wrote above, you're confusing HFT churn (and yes, C is certainly and active HFT stock) with government induced asset price manipulation.  They are two very different things.  I also find it frustrating that C, BAC, WFC etc didn't go to zero, but the reason they didn't go to zero is NOT because of HFT algos. 

    Sat, 06/12/2010 - 09:04 | 409565 Implicit simplicit
    Implicit simplicit's picture

    FF. Very instructive. Question: Don't the algos overcome the "speed of light" issues by cutting down the numerator in the distance/time=speed equation by locating close to the exchanges. This millisecond advantage is accentuated by the powerful processing speeds of their "expensive equipment.

    Sat, 06/12/2010 - 10:08 | 409601 New_Meat
    New_Meat's picture

    Grace Hopper used to carry around a foot long piece of wire to demonstrate a nanosecond vs. 1000 ft spool that was a microsecond.  Of course, it is all that IP stuff in all of those switches taking up the latency at remote locations.

    - Ned

    Sat, 06/12/2010 - 10:51 | 409627 Implicit simplicit
    Implicit simplicit's picture

    Yes, the friction or resistence coefficient becomes larger the further away and the less expensive the hardware that is used.  This must be factored into the loss of 186,000 miles/second speed  where distance and equipment are secondary to ability to pay (wealth) is primary.

    Sat, 06/12/2010 - 14:22 | 409777 FreakuentFlyer
    FreakuentFlyer's picture

    my point is that anyone can build/buy data management to match that of much bigger players. if you are willing to take the risk of investment and time to do it. of course, one can argue that the necessity to have one or two comp. sci. grads on your team constitutes an unfair requirement. i say bull - no different that the necessity of getting a math degree if you wanna trade options (and make a living a it).

     

    the so called "front running" based on trade volume data, has been taking place since the dawn of the tape - ppl have been keeping track of the volume trading on the bid or on the offer with paper and pencil, in order to adjust their own trading. roll-up your sleeves (or hire some ppl, thereby reducing the unemployment) and teach a computer how to do it for you instead.

    Sat, 06/12/2010 - 04:54 | 409493 Cheyenne
    Cheyenne's picture

    I like this post because someone is hitting back.

    Jesus. I bought a rural place a year ago to hedge against the inevitable food riots that will hit. I come down on the weekends to get away from it, relax.

    The last two weekends I've been getting 1-800 phone calls on the landline. Lots of them, six last Sunday. Wtf? Today I pick up. They're looking for Charles Biederman, who I've never heard of.

    "I ain't him. Who's calling?"

    "Charlene."

    "Okay Charlene, who you calling on behalf of?"

    "Wells Fargo."

    "That's a piece of shit bank," I say.

    "Could I get your name for our records?"

    "Absolutely not."

    "So I'll just put here that you don't want to give your name."

    "No--I'm not going to give my name, to be accurate."

    "Sir, did I do something to offend you?"

    "Yeah. Like I said, Wells Fargo is a piece of shit bank. You're a total loser. You took TARP funds, and now you're a financial terrorist and complete scum."

    "Didn't we pay back TARP?"

    "TARP, yeah," I say. "But did you pay back PPIP, did you pay back TLGF, have you given up interest-free lending at the Fed, have you marked your bullshit assets to market? You haven't done dick, and you haven't paid back jack shit."

    "Sir, sir..."

    I hung up.

    I'm done. I've been watching this financial shit since the 10/08 bailouts. I've been reading sites like nakedcapitalism and calculatedrisk and mish and denninger, for years, without comment. This site shows up around 1/09 and is my favorite, even though I don't understand 70% of the content, actually.

    Goddamnit. I used to invest with an eTrade account. It was fun, a hobby. I'd buy beat-down companies like MO in the middle of the tobacco litigation, or MRK during Vioxx. It paid if you waited.

    Then, at the end of 2007, I look at my annual returns and it looks like a graph from a casino. I get out then, 12/31, sell it all. I can't take the volatility. That's when I start on the  blogs, which is okay, but passive.

    But when Wells Fargo starts calling my house, when I don't owe WFC shit, well, somehow that's crossing the line in my mind. I guess that's the point for me where this financial shit is no longer merely an academic pursuit.

    It reminded me of BP. Who the fuck do these assholes think they are? They act like the fucking police. I'm going to roll over on some dude I don't know?

    I'm so upset from the WFC phone call I go to my local for my first drink in a long time. I ask some drunks what pisses them off the most, and get an earful about illegal immigrants. Mon Dieu.

    Times like these, man, I wonder if it's simply too late for redemption in this country. For the first time ever, and I'm mid-forties, I am genuinely worried...

    Sat, 06/12/2010 - 08:19 | 409549 Implicit simplicit
    Implicit simplicit's picture

    Changed my landline number and had it unlisted. Works great. Don't have to pay for changing the number, but do have to pay a few bucks/month for being unlisted. Now we only get calls from those we have given the number.

    Sat, 06/12/2010 - 08:33 | 409554 chumbawamba
    chumbawamba's picture

    Sounds like a collection call.  You should research the Fair Debt Collection Practices Act.  If they call again you might be able to sue them, but you have to notice them in writing after the first call:

    http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre18.shtm

    Some people make a career out of waiting for debt collectors to make mistakes then pounce on them in small claims court.

    Anyway, I love the way you handled the call.

    I am Chumbawamba.

    Wed, 06/16/2010 - 13:54 | 417274 UpShotKnotHoleGrable
    UpShotKnotHoleGrable's picture

     

    Do NOT follow this link or you will be banned from the site!