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Critical Response Against High Frequency Trading Starts Generating Momentum

Tyler Durden's picture


Zero Hedge recently had some choice words against a subset of HFT, namely Flash Trading, and as even Irene Aldridge confirmed earlier, there is something very wrong with this critical component of program trading. It seems our admonitions have not fallen on deaf ears. In a startling development of anti-establishmentarian activism, Senator Charles Schumer has asked the SEC to ban Flash Trading in its entirety, as it "gives high-speed traders an unfair advantage over other investors."

From Bloomberg:

Senator Charles Schumer asked the U.S. Securities and Exchange Commission to ban “flash orders,”
saying the transactions give high-speed traders an unfair advantage over other investors.

Nasdaq OMX Group Inc., Bats Exchange Inc. and Direct Edge Holdings Inc. hold these orders for milliseconds, giving their customers the opportunity to gauge demand before traders on other exchanges get the chance to bid, Schumer said in a letter to SEC Chairman Mary Schapiro. Brian Fallon, a spokesman at Schumer’s office, confirmed the authenticity of the letter.

“Flash orders allow certain members of these exchanges to obtain access to order flow information before that information is made available to the public,” Schumer wrote. That allows “those members to use rapid trading programs to trade ahead of those orders and profit from advanced knowledge of buying and selling activity,” he added.

The implications of this development are immense: if politicians are willing to take a major chunk of out exchanges' primary revenue streams, one may even hope that they won't stop there but will in fact continue much higher in the food chain and start investigating the perpetrators of real market malfeasance.


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Fri, 07/24/2009 - 20:02 | 14678 ghostfaceinvestah
ghostfaceinvestah's picture

"one may even hope that they won't stop there but will in fact continue much higher in the food chain and start investigating the perpetrators of real market malfeasance."


Like the Fed?  They are already on that one.


KEEP SUPPORTING S 604, people.

Fri, 07/24/2009 - 20:13 | 14686 Anonymous
Anonymous's picture

S 604 and HR 1207 have about as much of a chance at becoming law as I do at growing a third penis. More's the pity, of course.

Fri, 07/24/2009 - 20:16 | 14688 Gordon_Gekko
Gordon_Gekko's picture

Don't underestimate politicians - they will gladly eat their own if it can get them elected.

Fri, 07/24/2009 - 20:44 | 14715 deadhead
deadhead's picture

GG is absolutely correct!!!  Amen.

Sat, 07/25/2009 - 00:00 | 14883 dnarby
dnarby's picture

They will eat more than that before they get re-elected.


Things aren't that bad - YET.  But when they finally get there, they'll be lucky if they can keep a populist third party from taking power.

Fri, 07/24/2009 - 20:17 | 14689 nicholsong
nicholsong's picture

It's unfortunate to know that President Transparency will veto the audit bill, but it's still an important moment to box him into that corner for the sake of posterity.

Fri, 07/24/2009 - 20:18 | 14694 Gordon_Gekko
Gordon_Gekko's picture

Obama is hands down the WORST president in American history.

Fri, 07/24/2009 - 21:18 | 14751 VegasBD
VegasBD's picture

Youre probably right. I have a feeling the second half of his first term will seem like a lame duck presidency. As this depression starts to set in further and further he is going to be marginalized faster and faster.


Blue Dog Dems are already one foot off of that bandwagon. And you know if the rats are jumpin ship....

Fri, 07/24/2009 - 23:10 | 14836 Bob
Bob's picture

Hard to judge yet, it seems to me.  Unlike Bush, he hasn't KILLED anyone yet.  But if he vetoes the FED audit, he will certainly be a dead political duck.  Most deservedly so. 

Fri, 07/24/2009 - 23:41 | 14859 Anonymous
Anonymous's picture

Hasn't killed anyone? Upgrading the Af-Pak war and drone bombing more weddings. But I'm sure he said it wasn't his fault in his latest signing statement. More possible 'kills' if the health bill goes thru. Did you see the part about "end of life counseling" for old folks? Leave your wallet at the hospice, pops.
O-man thought he was Roosevelt, but he's a Hoover, just sucking faster.

Fri, 07/24/2009 - 23:53 | 14876 Bob
Bob's picture

I stand corrected . . . he seems just fine with continuing Bush-style tactics, though he appears to be better defining the enemy. 

Elect to continue your private insurance, man.  You'll never be killed by them, right? 

People not covered now will certainly see no rise in mortality rates. 

Sat, 07/25/2009 - 04:25 | 15013 Anonymous
Anonymous's picture

LOL this is good! "Obama is a Hoover, just sucks faster"... Laughing my head off!

Sat, 07/25/2009 - 06:24 | 15022 Anonymous
Anonymous's picture

But what could anyone have done really, considering the extent of the debacle? Alert the recipients of the debt culture, "Let the Great Deleveraging Begin!" to the sudden poverty of all....

When you say "Worst president ever" do you really mean "Worst helmsman of the Titanic ever... (post iceberg)" The bond market response to the GM/Chrysler stuffing seemed to be "Yeh, saw that comin."

Sat, 07/25/2009 - 10:47 | 15066 Anonymous
Anonymous's picture

The Obamaniac DOES suck, no doubt, but c'mon, man... Jimmy Carter's not even in the ground yet.

Sun, 07/26/2009 - 13:38 | 15534 Anonymous
Anonymous's picture

I tend to agree. A lot of people feel like he's totally pulled the rug out from underneath them. That all the hype surrounding the guy has turned out to be just that, hype and BS. That he's scammed his way to office by telling the public how he's all about 'change' and is not like Bush. Truth is, he's just as bad. He's going to war on a foreign country (Afghan), he's also going to war on his own people economically. This guy will cripple the US public with debt and pad the pockets of a very select group of insiders to a degree that has never even been thought of before. Even by the likes of Bush & Cheney. He's making Haliburton contracts in Iraq look like tootsie rolls by comparison to his bailouts and debt monitization policies. I beginning to think that he's fucking looter wearing the protective shroud of race and labour. IE blame Obama or call into question his policies and he'll destroy your secured creditor status by fast tracking the bankruptcy and flipping the union to majority ownership. and at the same time he'll publically label you as a racist or as a greedy pig depending upon the situation.

Its an entirely new level of entitlement and greed with this guy and his gang of advisors.

Its a very fine line between loving and loathing a leader. What strikes me most is that the loathing sentiment towards Obama is growing at a very rapid pace, faster even than the loathing towards bush grew. I think its because people are just tired of being lied to. And especially now that the lies invovle what's happening on their own soil and to their own jobs. Bailout after bailout and massive bonuses to bailout org employees is nothing but a massive slap in the face to the US taxpayer. Its criminal, and these guys have absolutely no shame. Its disgusting.

Fri, 07/24/2009 - 20:24 | 14696 ghostfaceinvestah
ghostfaceinvestah's picture

If Congress passed it and he vetoed it, that would be a real dream.

The Fed can pump up the stock market all it wants, but with real unemployment at 15% and rising, and gas at $3 and rising, the masses are soon going to look for a scapegoat, and will turn to the banking cabal (rightfully so).

A veto would just further guarantee a one-term deal for this puppet.

Now if we could just get a viable third party...

Sat, 07/25/2009 - 00:07 | 14891 dnarby
dnarby's picture

Hear hear!


I vote we call it the "Reason" party, since it will ultimately have to be composed of reasonably reasonable small 'L' libertarians.


The real battle isn't between left and right...  The states and counties can sort that out (community standards are ulitmately imposed anyway).  The real battle is between statists and libertarians.


So...  Time to throw the nut-jobs extremists out of the Libertarian party!


We need the least goverment we can *practically* have, not the least goverment we can possibly have.

Fri, 07/24/2009 - 20:18 | 14692 ghostfaceinvestah
ghostfaceinvestah's picture

I'm glad George Washington, or Martin Luther King, or...didn't have your defeatist attitude.

And that site you linked to sucks.

Fri, 07/24/2009 - 20:25 | 14698 Anonymous
Anonymous's picture


I tried to resist but I just can't...

How did you grow the second one?


Fri, 07/24/2009 - 20:30 | 14706 Anonymous
Anonymous's picture

I haven't grown the second one (or the third). Hence, "more's the pity".

Fri, 07/24/2009 - 21:44 | 14772 Steak
Steak's picture

If this bill is passed and vetoed it will be introduced every two years until the voters get the message across to their representatives.

If you get started on #2 right now, I'm sure the technology'll be in place to get you #3 by the time we see what the Feds holdin.

Fri, 07/24/2009 - 20:33 | 14708 Gordon_Gekko
Gordon_Gekko's picture


Fri, 07/24/2009 - 20:31 | 14707 Anonymous
Anonymous's picture

Hey, don't give up - I knew a bloke with five penises. His pants fit him like a glove.

Fri, 07/24/2009 - 20:17 | 14691 Gordon_Gekko
Gordon_Gekko's picture

"the perpetrators of real market malfeasance"


Yup. That's the Fed.

Fri, 07/24/2009 - 20:07 | 14682 Anonymous
Anonymous's picture

Great work

Fri, 07/24/2009 - 20:13 | 14687 nicholsong
nicholsong's picture

Top 20 Contributors:  Senator Charles E Schumer 2003 - 2008

Fri, 07/24/2009 - 20:17 | 14690 Anonymous
Anonymous's picture

File this investigation under 'Case closed'.

Sat, 07/25/2009 - 08:38 | 15038 Anonymous
Anonymous's picture

Exactly. I suggest one reviews the article about flash orders to see who was against them, in order to discover who gets hosed by their implementation. Then cross reference that with TD's previous posts about SLP. You'll discover an interesting intersection.

This is sharks vs. whales, and sharks vs. sharks. Schumer is just their pawn, and a good one, since he's not capable of understanding what's really going on. Just like TD. Anyway, keep up the self-back-slapping as if you are really doing something useful.

Fri, 07/24/2009 - 20:18 | 14693 mcnetgb
mcnetgb's picture

Schumer is the perfect high profile media hound to get the job done.

Well done TD for pissing off GS, then CNBC, enough to get the NYTimes attention to give this gift of an issue to Schumer.

Gotta love the unanticipated benefits of a little sunshine.

This blog is all the evidence I need to confirm that full disclosure is the only real regulatory reform needed right now. There are interested parties like yourselves and a few other excellent financial blogs that can take it from there.

Give the Markopolis's of the world a forum and we're off.Stanford was exposed pretty quickly after Felix Salmon started making a lot of noise about it. Coincidence, maybe.  Now this. You guys are my heroes . I want to work for you.


Sat, 07/25/2009 - 00:00 | 14885 Bob
Bob's picture

Agreed on the sunshine and props, but you left me at the turn to no change needed in regulation.  WTF?

Sat, 07/25/2009 - 04:25 | 15014 mcnetgb
mcnetgb's picture

I meant to emphasize "right now". Regulatory change is definitely needed, no question. But good changes require a clearer understanding of the markets/product that are regulated. Serious people are going to disagree and regulatory choices will have unintended consequences. As a first step, I prefer a lot more disclosure immediately, to increase the pool of knowledgeable participants in the debate.

One of the key guiding principles of the regulatory changes over the last 25 yrs was an acknowledgement by  regulators globally that they will never be smarter than the regulated. That principle still applies. Bad regulation is bad.

If you can't regulate human nature, you're best option is require transparency. If you want to rape your clients, fine, but do it in public, with an audience.

Fully disclose the terms of your CDS and the prices they're done at. Disclose in your financials exactly how much your making in HFT due to rebates, order flow payments, flash profits,etc. Disclose, if your GS, how much of the 12.9b from AIG ended up in the p/l and was paid out to traders.

Disclose, position by position, the valuations you're carrying your inventory at. Let me determine for myself if GS and JPM are carrying the same position at the same value.

If you're a rating agency disclose how you arrived at AAA. The structurers knew how to satisfy the rating requirements. Share that with the rest of us.

The SEC has the power to demand this information today. They need to start excercising the powers they already have before we go overhauling anything. Force FASB to grow a pair. Then move on to the debate about the regulatory or chart.

The press, and the blogs, can ask those same questions, loudly and often.

I'd like to see enhanced disclosure today before opening  negotiations with the banking lobby on sweeping regulatory changes that they will be gaming before, during and after the process.


Sat, 07/25/2009 - 09:51 | 15052 silencedogood
silencedogood's picture

Organizing so that we can push thru the necessary regulatory changes REQUIRING transparency is needed.  Check out:  to see how I am looking to do so...

-Silence Dogood

Fri, 07/24/2009 - 20:25 | 14699 Anonymous
Anonymous's picture

I feel sorry for the anonymous fellow in the comment above that has two penis'. Especially considering where the second one might be located.

Sat, 07/25/2009 - 00:12 | 14897 dnarby
dnarby's picture

That would more properly be 'penii'.

Sat, 07/25/2009 - 05:10 | 15017 Anonymous
Anonymous's picture

Considering the topic - it's collocated, so no problem there.

Fri, 07/24/2009 - 20:26 | 14700 Bruce Krasting
Bruce Krasting's picture

The dots on this go directly back to ZH. Hit tip.

Fri, 07/24/2009 - 20:27 | 14701 Anonymous
Anonymous's picture

WTF, "digital dickweed" dennis kneale is ripping the shit off of ZH's face with his "bottom" call... I can't short this mkt by myself I need some Fight Club brothers. Start by shorting the shit out of COF... c'mon lets target each finny one by one... let the truth be told!

Fri, 07/24/2009 - 20:47 | 14717 deadhead
deadhead's picture

COF was amazing today....i read the ceo's comment and must say he was rather straightforward and bearish.....naturally, stock rocks up ~8%.  I saw that (as well as axp) and sold faz that i bought the other day.

Fri, 07/24/2009 - 20:28 | 14702 agrotera
agrotera's picture

Seriously Tyler, if you don't explain everything about how to exactly quantify the crime, it will never get done--in other words, tell the people who are supposed to investigate, how to investigate, and how to build the case.  You can make it into a petition if you like for all of us to sign.  Just please make it at some other web location so that everyone's anonymity here is not compromised.

Sat, 07/25/2009 - 16:56 | 15171 Anonymous
Anonymous's picture


Fri, 07/24/2009 - 20:30 | 14705 Gordon_Gekko
Gordon_Gekko's picture

This a no doubt a great development, but nevertheless it is a very sad commentary on the state of affairs in this country when somebody has to literally campaign to stop what is simply a case of blatant front running. In any case, if Schumer has the right intentions behind this, then we should all definitely support him.

Fri, 07/24/2009 - 20:53 | 14722 deadhead
deadhead's picture

Schumer is an incredibly smart operator.....he knows how to play both sides of the fence, i.e. pro Wall St (NY senior senator and he recognizes the $$$ that the street means to NY) yet he can jump to the populist side quicker than a HFT flash (couldn't resist).

If the light goes away and the pressure is off, he and the others will back off the street.  If the heat stays on, the populist route will win over.  like you said GG, the establishment will eat their own to get elected.  If more of us let the Dems know that they will lose midterms if this crap isn't fixed, they will do something.  The key is to make sure that 401k and pension America know and react to the fact that their money was grabbed by the street elite.

Fri, 07/24/2009 - 21:26 | 14756 Gordon_Gekko
Gordon_Gekko's picture

With you there, deadhead. Seems like the other politicos have noticed the attention and popularity Ron Paul is getting with his Fed campaign, and they want a piece of the action for themselves.

Fri, 07/24/2009 - 21:43 | 14771 deadhead
deadhead's picture

absolutely correct.  it will be interesting to see if the goldman et al wall st/banking mess becomes a pivotal issue in the mid-terms, which will begin to  occupy 100% of Rahm's et al time schedules starting, say, yesterday.  if the Repubs are smart enough to pick up on it, they may have a shot at getting back some seats.  if I were king of the Repubs, I might start the mantra that the banks and wall st have been screwing all of you Americans and the Obamas have taken it to a new level by sub contracting the USA to a bunch of Goldman alumni.

Fri, 07/24/2009 - 22:05 | 14789 VegasBD
VegasBD's picture

Good idea. In the game of politics thats might just work. Spinning 'the govt was h anded to GS by obama's appointees' could go a long way. Specially when we have a couple more crashes and all the exotic loans start doing their resets, can really capitalize on what should be obvious by now, another crash coming.

Sat, 07/25/2009 - 17:05 | 15180 Anonymous
Anonymous's picture

Hate those Obama appt like Hank Paulson.

Sat, 07/25/2009 - 00:04 | 14889 Bob
Bob's picture

An ironic flip of the script, but true. 

Sun, 07/26/2009 - 04:42 | 15420 agrotera
agrotera's picture

If they fell for the TARP con, they should get voted out!

Sat, 07/25/2009 - 10:00 | 15056 Anonymous
Anonymous's picture

smart enough to sink indymac and let his contributors cherry pick the left overs.
Yes, that could be playing both sides of the fence.

Sat, 07/25/2009 - 13:03 | 15084 Oso
Oso's picture

GG - agreed, it is a very sad state of affairs. 


This is phenomenal news, but we cant let it stop.  A full petition would be great, anything that Schumer can use to support his case that this is "the people's will" will be helpful.  Others on the Banking committee might get behind it....



Fri, 07/24/2009 - 20:33 | 14709 Anonymous
Anonymous's picture

I hope the HFT get stopped before they destroy the integrity of the market all together. Really they are causing incredible amounts of damage as it is given if they are stopped tommorow their interference so far will cause major re-calibrations.

Fri, 07/24/2009 - 21:29 | 14757 dark pools of soros
dark pools of soros's picture

integrity was long gone before HFT but at least manipulation took some work before this


i still think the dark pools and protecting hedgies truly ruin the markets

Fri, 07/24/2009 - 21:29 | 14758 dark pools of soros
dark pools of soros's picture

integrity was long gone before HFT but at least manipulation took some work before this


i still think the dark pools and protecting hedgies truly ruin the markets

Sat, 07/25/2009 - 01:57 | 14982 Anonymous
Anonymous's picture

Yo ! I's don't like his sorrows dude. It's illin. The dude needs respecK. na..han scorn from y'all. me chill nah. Peace. ZH I lay my \/ for ya. Luv.

Sat, 07/25/2009 - 03:40 | 15004 Cheeky Bastard
Cheeky Bastard's picture

i will give you the year wall street lost all integrity it had .. it was the year when ruthless predators and sophisticated scam artist like Milken and Boesky entered the game ...  if you want to know more please read this article .... i think its the best piece of financial journalism written in the past couple of years ...

Fri, 07/24/2009 - 20:48 | 14719 SloSquez
SloSquez's picture

Offshore = Good.

Fri, 07/24/2009 - 20:49 | 14720 Anonymous
Anonymous's picture

Uh Ohh.. Tyler done started a bush fire

Fri, 07/24/2009 - 20:51 | 14721 D.O.D.
D.O.D.'s picture


GUNS, GOLD, and AMMO people...

Fri, 07/24/2009 - 22:06 | 14790 VegasBD
VegasBD's picture

We need an SKF type deal for ammo. Its literally tripled in price in the last six months.

Sat, 07/25/2009 - 10:03 | 15057 Anonymous
Anonymous's picture

i'm awash in bullets

Fri, 07/24/2009 - 20:54 | 14723 Altan311
Altan311's picture

Dennis Kneale just mentioned that he's about to attack the bloggers, prepare for the weasel when CNBC returns from commercial.

Fri, 07/24/2009 - 20:56 | 14724 deadhead
deadhead's picture

I am happy to sound like a broken record and thank TD once again for pushing yet another critical financial matter to the forefront.  I also thank those folks, particularly any insiders, who have come forward to provide valuable information.


I look forward to the day when TD walks on stage with a bag on his head to accept a Pulitizer.

Fri, 07/24/2009 - 21:01 | 14728 SloSquez
SloSquez's picture

"I look forward to the day when TD walks on stage with a bag on his head to accept a Pulitizer."


Fri, 07/24/2009 - 22:15 | 14800 Anonymous
Anonymous's picture

AMEN to that!!

Goldman Sachs----

Automated Front Running on an UNFATHOMABLE SCALE-----

"While the Street is percolating with anger and curiosity about “High Frequency Trading” there is also frustration and astonishment that the media, regulators and our duly elected are not addressing what could be the biggest financial abuse story of our times, if not history..........

MARKETWATCH!!! CNBC!!!! Anyone in the mainstream financial media care to COMMENT??????

Sat, 07/25/2009 - 00:15 | 14903 dnarby
dnarby's picture

Better a Brad Pitt mask and a 70's shirt.

Sat, 07/25/2009 - 09:53 | 15053 SWRichmond
SWRichmond's picture

That I would pay to see.

Sat, 07/25/2009 - 08:10 | 15032 Gabriel Gray
Fri, 07/24/2009 - 21:09 | 14732 Eagle
Eagle's picture

Since Chuckie never does anything for the real public good, this is probably a ploy on his part to get GS to pony up a HUGE contribution to his PAC in return for making this request "go away".

Sat, 07/25/2009 - 10:05 | 15058 Anonymous
Anonymous's picture


Fri, 07/24/2009 - 21:13 | 14742 Anonymous
Anonymous's picture

Stop Trading! Let the snakes eat their own tails. Smart money is buying Time (Chapter 11 or Treasuries).

Fri, 07/24/2009 - 21:15 | 14745 ShankyS
ShankyS's picture

Funny but when was the last time CNBS generated any sort of reaction from the Senate? Bueller? Bueller? GD fucking moronic stupid ass mother fucking POS worthless pond scum fucking bastards. Fuck 'em all!

Beer/? - beach and CAPTCHA - LOL - WOOOOOO!



Fri, 07/24/2009 - 21:16 | 14747 Anonymous
Anonymous's picture

Please stop feeding those morons on CNBC. For them, being attacked at ZH is a badge of honor that they can discuss in front of a water cooler.

Fri, 07/24/2009 - 21:20 | 14753 Woodshedder
Woodshedder's picture

Any attorneys in the house want to speculate on the viability of a class-action suit against the exchange and brokers? I would think anyone who has traded a stock in the past 3 years would be eligible.

Fri, 07/24/2009 - 23:50 | 14870 Anonymous
Anonymous's picture

Gotta pick the right class representative and a firm with a good track record and deep pockets. Venue will probably help to the extent it can be manipulated... but, a class action will be very viable... just look at E*trade. Depending on where you are and how things play out, you might be able to blow the whistle and make some statutory bank. The legality of all this stuff is incredibly complex and convoluted given the acceptance of government money... take for example the thomas more (I know, I know) lawsuit, which alleges a violation of the establishment clause (all I could find on my first good search/first couple of links was this response to a motion to dismiss)

but things like this may turn up documents through discovery that are used in other cases... eventually we'll weed through most of this crap and the paper trail will lead where it needs to... but it would be good to find out.

Fri, 07/24/2009 - 21:26 | 14755 lizzy36
lizzy36's picture

Tyler, getting the right people to notice is conversation, getting the right people to act is a decent start.


@ GG i think misfeasance is a better concept with respect to the culpability of the fed. I think malfeasance is best reserved for other actors (summers, paulson, geithner ...).

Fri, 07/24/2009 - 21:50 | 14779 Anonymous
Anonymous's picture

HFT, Flash orders, and Program Trading are all mutually exclusive activities. Before the backslapping goes too far, all this exercise has proven is that the mainstream media does not fact checking whatsoever and that a member of Congress does less fact checking than the mainstream media.

Fri, 07/24/2009 - 22:33 | 14815 Anonymous
Anonymous's picture

They are all in principle the same. Just tweaked to work differently.

Fri, 07/24/2009 - 22:42 | 14824 Anonymous
Anonymous's picture

Respectfully, they are not.

Program Trading is defined by the NYSE as: Program Trade
Program trading is defined as a wide range of portfolio trading strategies involving the purchase or sale of 15 or more stocks having a total market value of $1 million or more. One example is index arbitrage. Index arbitrage is defined as the purchase or sale of a basket of stocks in conjunction with the sale or purchase of a derivative product, such as index futures, in order to profit from the price difference between the basket and the derivative product. Other examples of program trading strategies are liquidation of facilitation's, liquidation of EFP stock positions, and portfolio management, which includes portfolio realignment and portfolio liquidations. The NYSE's program trading statistics are aimed at assessing the impact of these transactions on the normal functioning of the market. Daily program trading activity is calculated as the sum of shares bought, sold, and sold short in program trades. The total of these shares divided by total reported volume then provides a percentage which illustrates the relative importance of program trading during the period in question. This method is not the only way to measure program trading. One alternative would be to examine buy programs as a percentage of total purchases; another would be to examine sell programs as percentage of total sales. A third alternative is to calculate program purchases and sales as a percentage of total purchases and sales or twice total volume (TTV).

Note the above makes no reference to the use of computers. Investopedia, wikipedia, etc. are all incorrect.

Flash orders are an order type offered by an exchange which allow any order which cannot be fulfilled on the exchange's order book to be "flashed" to counterparties that may provide liquidity and fulfill some or all of the order before the exchange routes the order out to the exchange that has liquidity in the stock (see BATS BOLT, Direct Edge ELP, and others).

High frequency trading refers to multiple styles of trading which involve models run on computers that use market data and other inputs to determine when to buy and when to sell. By the very nature of automation, these systems can produce a significant number of trades easily and as such are called high frequency. Not all are "trading for rebates" and not all are trading in micro seconds, but none the less they are all lumped under high frequency.

Institutions engaged in Program Trading may or may not avail themselves of Flash order types. Institutions engaged in high frequency trading may or may not avail themselves of Flash order types. Neither program trading nor high frequency trading must use flash order types.

Sat, 07/25/2009 - 12:21 | 15076 Anonymous
Anonymous's picture

Thank you for taking the time to provide some detailed and accurate information on the matter.

Sun, 07/26/2009 - 04:52 | 15421 agrotera
agrotera's picture

Is this a new way of describing cancerous vampire squid tentacles?

thank you for the details.

Fri, 07/24/2009 - 22:08 | 14792 Anonymous
Anonymous's picture

I never thought I would see the day when I would agree with Chuck Schumer> It's really a cold day in hell, because I actually agree with Communist rag, NYT:

I heard the WSJ is coming out with a big expose on HFT Monday.

If they have the balls to make all orders good for one second, this tape has to totally guess is SPX is down 10% in one day.

Fri, 07/24/2009 - 22:09 | 14794 VegasBD
VegasBD's picture

Tyler- Project Mayhem idea. Recruit some parking lot dude that works for some of these firms and give him a stack of ZH stickers. Hell know which cars to put those on.


Or does no one really have cars in NY? Us west coasters think thats kind of an urban legend.

Sat, 07/25/2009 - 05:19 | 15018 Anonymous
Anonymous's picture

Parking dude is really a weak point in any attempt to reveal Tyler's identity, no need. That's for kids.

Fri, 07/24/2009 - 22:09 | 14795 Anonymous
Anonymous's picture

Our elected officials better get off their bought and paid for A$$$es and get some investigations going!!!

Most of them won't because they are profiting personally as America goes bankrupt.

Fri, 07/24/2009 - 22:19 | 14802 Ben_the_Bald
Ben_the_Bald's picture

I'm still confused about what ZH wants.

1. I guess ZH is OK with banning flash orders. Right?

2. ZH wants to investigate bad actors.

3. ZH doesn't say anything specific about what to do with the system, how to change the game. So hate the players, but love the game?

Sat, 07/25/2009 - 00:22 | 14913 dnarby
dnarby's picture

ZH is busy shining the light down the various dark slimy cracks of finance, smoking a cigarrette...  Which is used to light M-80's which they toss copious amounts into those cracks, thus drawing attention to said while pointing and yelling "Party's over here, boys!  Come get yer low hanging populist fruit!".


Guys like Joe Saluzzi come up with solutions.

Sat, 07/25/2009 - 05:24 | 15019 Anonymous
Anonymous's picture

I think ZH wants to bring the light to what is otherwise opaque and non-transparent practice and so far has been quite successful in doing so. What to do with all that, is a matter of a much broader public discussion, but ZH efforts are highly plausible anyway.

Fri, 07/24/2009 - 22:37 | 14818 Bubby BankenStein
Bubby BankenStein's picture

A message for the various PR & Political Trolls:

Your Paymasters are losing it.

It is too late, it has gone too Far.

People have figured out the game.

On a short timeline you will be running for cover.

Sat, 07/25/2009 - 00:24 | 14915 dnarby
dnarby's picture

Better start picking out apartments in the backwaters of Asia, Africa, South America or former Soviet Bloc countries.


People will be watching all the nice hidaways (Carribean, etc.).  You can still go live free in the shitholes, though.

Fri, 07/24/2009 - 22:40 | 14822 Anonymous
Anonymous's picture

Tyler President Obama would like to invite you to the White House for a beer and a discussion about getting of his ASS!

Fri, 07/24/2009 - 22:48 | 14828 Stuart
Stuart's picture

Senator Schumer was certainly listening, perhaps even read Zero Hedge...


Sen. Schumer warns SEC on "flash" stock orders 
By Jonathan Spicer

NEW YORK, July 24 (Reuters) - U.S. Senator Charles Schumer warned a top regulator on Friday that if she does not ban so-called "flashes" — orders that stock exchanges send to a select group of traders before revealing them to the wider market — he will introduce legislation that does.

In a letter dated Friday to Mary Schapiro, chairman of the U.S. Securities and Exchange Commission, Schumer said this type of order "seriously compromises the integrity of our markets and creates a two-tiered system where a privileged group of insiders receives preferential treatment.

"If allowed to continue, these practices will undermine the confidence of ordinary investors and drive them away from our capital markets," Schumer, a senior Democrat on the Senate Banking panel, said in the letter obtained by Reuters and verified by an aide.

"If the SEC fails to curb this practice, I plan to introduce legislation in the U.S. Senate to prohibit the use of flash orders," the letter said.

At issue are buy and sell orders that the Nasdaq Stock Market and BATS Exchange began "flashing" early last month to market members, including the big broker-dealers, before they are routed elsewhere to all participants.

The flashes — which last for fractions of a second, allowing computer programs to respond — are also available in some anonymous trading venues, known as "dark pools." Some describe them as exchange-run dark pools.

The new services at Nasdaq and BATS resemble one long offered by fast-growing trading venue Direct Edge, and amplified an ongoing debate over fair market access, prices, and the way orders circulate through the dozens of electronic trading venues in the United States.

Schapiro has not specifically mentioned flash orders publicly. But in a speech last month she raised concerns about the growth of dark pools, warning that the SEC may take action to protect market integrity and fair price discovery.

An SEC spokesman said he couldn’t confirm or comment on letters the market watchdog receives.

Fri, 07/24/2009 - 22:50 | 14829 Anonymous
Anonymous's picture

I bet Chuck wrote that. I wonder which constitute with an ax to grand faxed it to his office for a pleeb to transcribe. Follow the money, who wins if this goes away?

Sat, 07/25/2009 - 00:10 | 14895 Bob
Bob's picture

If the momentum builds sufficiently, we all win.  Except for our financial overlords, of course.  Sometimes people take advantage of an opportunity to do the right thing.  We aren't the only ones, guys.  It could happen even to a politician . . . though it's popular potential certainly can't hurt!

Sat, 07/25/2009 - 00:14 | 14902 Anonymous
Anonymous's picture

Good thing "we' don't own mutual fund shares which trade through brokers like Goldman and others who use HFT. Otherwise, jeez, "they" might win.

Fri, 07/24/2009 - 23:14 | 14839 Woodshedder
Woodshedder's picture

Perhaps someone should ask Mrs. Schapiro why it took Mr. Schumer to bring this to her attention. Is this not HER job, as the Chairman of the SEC, to regulate the industry?

Similarly to the Madoff scandal, ZH has served this up warm and on a platter for Mrs. Schapiro for several months now. Perhaps Mrs. Schapiro should consider an early retirement, as did her former colleague, Mr. Cox?


Fri, 07/24/2009 - 23:59 | 14881 Anonymous
Anonymous's picture

Some people are under the mistaken impression that additional regulation will magically repair regulator inadequacy... I'll put the computers and collusion among veteran players with god complexes above the kid fresh out of college with nothing more than an accounting degree and a handful of false confidence any day of the week. Easy money. Or as the trading program computers say 1010101101111010101011LOLLERSKATES100001!!!

Fri, 07/24/2009 - 23:39 | 14856 Shaza (not verified)
Shaza's picture

I am getting very sick of American Financial Innovation aka Scamming. 

Sat, 07/25/2009 - 00:09 | 14893 kote
kote's picture

I recommend that everyone sign in to the NYT site and click recommend on this story and the one from yesterday.  Let them know they are headed in the right direction with this.

Sat, 07/25/2009 - 00:31 | 14920 dnarby
dnarby's picture

Link for the other one, please?

Sat, 07/25/2009 - 00:14 | 14899 Anonymous
Anonymous's picture

Although I agree that it lays bare the corruption in financial markets, it is by no means clear that it is per se a bad thing for GENUINE 'long term investors'... or even for traders.

HFT will, generally, add to market pressure in the direction of the largest slug of observable trade... that is, it will make the market become more overbought in uptrends, and more oversold in downtrends. It will also permit overbought/oversold conditions to persist for longer than would otherwise be the case.

What that means, is that contrarians will generally be able to enter at more advantageous prices than would otherwise be the case, and trend-followers (idiots) will generally enter on worse terms than would otherwise be the case.

For long term investors to be harmed, you would need to make the following case:

(1) that long-term investors enter in a manner similar to 'trend followers' (untrue, generally - long term investors tend to look to buy value);


(2) that HFT is able to alter the relationship between stock prices and economic performance of the underlying company - that is, to the extent that stock prices move toward some 'attractor' which is itself determined by economic relationships, that HFT changes the attractor itself, not just the path towards it.

Front-running in the same direction as the bulk of order flow will make the market 'stretch' in the same direction as the dominant side of the market. When I made a relatively ballsy "Buy Now" call on Feb 22 (see ), I was quite surprised to see the DAX continue to run to the downside for five more sessions.

Note also - the tendency of the market's rubber-band engine to stretch more than usual, is NOT observed in commodities or ForEx... see recent Twitter (GeoffreyTransom) updates of mine on a Long Gold (from $911) long AUD (from 0.7790) long Crude (from $60.75)... all of which panned out as expected, with a timeframe only slightly longer than anticipated. No 'excessive stretchiness' except in equities and equity indices.

The only people who should be really outraged about this, is late-entry trend-following nuffnuffs. Everybody else should be able to make money off HFT.

And yeah, it shows that GS is balls-deep in the mouth of Congress, the Fed and the regulatory system. Where's the news in that?

When you have a Soviet style system of setting the short term price of money, you will always overexpand the thing that costs the least to produce (fiat money), which will mean that financial institutions have an incentive to expland their books of business. I was writing about that (specifically related to vendor-finance, the mortgage market and CDOs) in 2004, but nobody was listening - see .



Disclosure: short GS and INTC, with some slight anal bleeding.

Sat, 07/25/2009 - 00:20 | 14909 Anonymous
Anonymous's picture

Oh... another thing.

regarding 'flashes' - that's already illegal under laws regarding the use of inside ('non-public') information.

If you took away inside information, how on earth ould the Masters of the Universe make any money? Their entire schtick is having an informational advantage over us schlubs.

What the political-parasite class will do, is make a whole lot of noise about it (for the electorate) and then drop to their knees and administer a hum-dinger of a blowjob to the guys who pay the biggest bribes.

I first said that when they were pretending that they were opposed to TARP (the T-axpayer A-nal R-ape P-roject).



Sat, 07/25/2009 - 13:36 | 15095 Anonymous
Anonymous's picture

It is not illegal for a broker to reach out to preferred clients with order indications before, or instead of releasing the order to the public market. This is not what inside information is. Client's are attracted to brokers that have networks to get orders filled without exposing information to the broad market, which would position against them.

Sat, 07/25/2009 - 00:21 | 14911 Anonymous
Anonymous's picture

CNBC spent what....5 minutes covering this kind of ILLEGAL trading... They will find a way to try to take credit for anything Congress might do. Gasbag will say it was his coverage that brought this out to the open. I guess letting ZeroHedge run with it for months gives one enough knowledge to speak about it....even an idiot like Gasbag can finally understand it.

He is a complete jackasss!!!!!

Sat, 07/25/2009 - 10:09 | 15061 Anonymous
Anonymous's picture

hate his guts...and can probably kick his golden glove ass !!!

Sat, 07/25/2009 - 00:48 | 14937 Anonymous
Anonymous's picture

Tyler, given your position on this topic, are you going to forgo revenue from the ads on this blog that solicit high frequency trading? Specifically, the "Orc Spreader ultra low latency, high frequency spreading and arbitrage solution " advertisement that appears often at the top of your blog's page?

And, please, do not blame some "ad bot" and claim ignorance.

Sat, 07/25/2009 - 00:53 | 14940 Anonymous
Anonymous's picture

Naughty ad bot. Needs to be spanked in its fanny.

Sat, 07/25/2009 - 01:27 | 14959 Anonymous
Anonymous's picture

If one is bold enough to create a website complete with manifesto and have an underling publish an open letter espousing that due to their anonymity they will be judged by their content alone, then pay attention to details.

Zero Hedge has, wait for it... a profit motive, just like those evil brokers, hedge funds, etc. That is why they sell adds.

Google Ad Sense allows a substantial amount of filtering. I would have thought the time not spent investigating equity trading thoroughly could have been spent aligning the ad server with the manifesto but apparently not.

Don't decry drinking and then turn around and buy a bar.

Give the money back, Tyler, to the advertiser. Document it on this site.

Sat, 07/25/2009 - 01:52 | 14978 Woodshedder
Woodshedder's picture

As an owner/blogger of another finance blog, one with generous and growing traffic, albeit not as generous as ZH of late, I can say with authority that those google ads bring in pennies a month.

Certainly they pay less per page view than the .0025 rebate does per share.

Tyler Durden is compromised. Have you not seen the movie? Of course there is an ulterior motive. Surely if you didn't understand that, you would have read conflicts/full disclosure policy? Perhaps you quit at the manifesto?

You should assume that everything ZH does is calculated to remove everythign that is good about your existence. Gold, when carried by a thief, is still gold, no?

But really, the page view rebategate thing is pretty silly. You have managed to take to task pretty much the only thing on the site that is not content, and I have to give you credit for that.

And you wonder why they treasure anonymity?

Sat, 07/25/2009 - 00:54 | 14941 Anonymous
Anonymous's picture

Neither Tyler nor a single person on this thread has adequately explained what a flash order is. Take a look on the actual specs of the order. It isn't as devious as you think.

Anybody who sends an order to an exchange has the OPTION to flash. You don't have to flash an order. IT IS OPTIONAL. Of course, it is not advantageous to most retail orders to flash so they won't flash. What is the problem with this then?

Tyler posts a lot of great information that so many other sites miss. However, his lack of equity trading knowledge leads him to create crazy conspiracy theories. Ultimately, it's a bit childish.

Sat, 07/25/2009 - 01:05 | 14948 Anonymous
Anonymous's picture

It is simple. You flash your bum, yeh. A giant rod get's stuck in your arse, yeh. That's a flash order. It may seem to be juvenille, but it hurts to the peasants.

Sat, 07/25/2009 - 01:06 | 14949 Anonymous
Anonymous's picture

This was posted earlier:

Expanding upon it, one of the benefits of flash orders is it reduces the exposure of your order to the broader market theoretically allowing the user of this order team to complete most or all of their order without having to route to multiple trading venues.

If an order to buy 100,000 shares of MSFT (a bad example give the liquidity characteristics but we'll a symbol familiar to all) is sent to Direct Edge with a limit of $23.40 but DIrect Edge only has 50,000 shares on the offer at $23.40, you can optionally "flash" the balance of that order and counterparties that participate in the flash can respond to fulfill some or all of the remaining 50,000 shares. The advantage of using flash in this scenario is that the entire order is sent to one venue and fulfilled without being bounced to NASDAQ, NYSE ARCA, BATS, etc. as each of those routes to other venues leaks information about your order. With flash, you are exposing information about your order but you are choosing to do so in exchange for the benefit of having you order fulfilled. You can chose whether or not you will receive partial fills. You can choose to have the remaining balance of your order cancelled and sent back to you or routed out. You have control. This scenario is irrelevant for retail orders of 100,200, or even 5,000 shares in highly liquid tickers as the liquidity is available on the displayed market.

All of this is called choice and a professional trader can chose to use these tools or opt not to use flash. Professional buy side traders can instruct their sell side brokers to use orders that will or will not make use of flash.

Sat, 07/25/2009 - 02:01 | 14983 Woodshedder
Woodshedder's picture

However, the process of displaying the orders to participants and liquidity providers could result in information leakage. “One problem is that the ‘darkness’ of this type of order may be illusory or worse, as the consumers of these short-duration, flashed quotes are, not surprisingly, often high-frequency shops, who can interpret them as imminent demand across the current spread and try to trade ahead,” said Debiche.

“There are questions about the potential for gaming with these order types,” agrees Miranda Mizen, principal at research and advisory firm TABB Group. “Because markets now deal in microseconds, a lot can happen in 25 milliseconds. There needs to be some assurance that nothing bad will happen on the back of someone seeing the orders.”

Furthermore, argues Mizen, the practice of keeping orders back could cause users to miss better prices on other venues. “You need to weigh the potential for price improvement and speed against the possibility of missing the market,” she said.


Sat, 07/25/2009 - 08:06 | 15031 Anonymous
Anonymous's picture

You need to weigh the potential for price improvement and speed against the possibility of missing the market,”

That's what a trader has always done and will continue to do, make the trade they think is best. It does not make flash orders illegal.

Sat, 07/25/2009 - 12:42 | 15080 Anonymous
Anonymous's picture

15031 is correct.

If the client initiating the order has the choice over whether to flash or not, the argument falls flat on it's face. What it implies is that if this order is going to be the first of many then the optimal decision is not to flash.

Sat, 07/25/2009 - 01:13 | 14954 Anonymous
Anonymous's picture

This is where Tyler works with Senator Franken to get to the bottom of it all:

And this is where Themis Joe takes Tyler under his wing to show him the good old days (excuse the substitution of commodities for equities):

Childish, indeed.

Sat, 07/25/2009 - 01:01 | 14947 Anonymous
Anonymous's picture

Game Over ?

They have until October.

Politics always trumps Free Markets and it's all calculated!

If this fiasco hasn't turned-around by then, the O-Team will send in "The Cleaner" and the Election Cycle will rein.

- misallocated Capital encouraged overcapacity and the Social Contract with Labor is null & void
- End of '09, Bargaining & Hope is lost and Anger causes heads to roll (i.e., B.B., L.S. and T.G. are out as the nation moves closer to socialism)
- 2010 will bring Depression and will end with Acceptance
- 2011 re-election campaign kicks in with promises to Labor of a "Road to Recovery"
- 2012 Capital gets the backseat, Labor is in the driver's seat. O-Team is re-elected with a majority in the House

The fate of capitalism as we know it, will forever have changed!

Election Cycles:
...note election year Novembers, the February following election year Novembers has been an excellent indicator as to whether the election year November would mark[s] an important top. In every case since at least 1968, when February following election year November moves to a higher high than the January following election year November, the market has proceeded to do very well.

Conversely, when the post-election year February is unable to move higher than the post-election year January, a significant market decline has always followed. This may be coincidence but it has proved prescient for at least the past 40 years.

Sat, 07/25/2009 - 03:49 | 15006 Miles Kendig
Miles Kendig's picture

What has always trumped free markets is frqactional banking and private central banks owned by their member institutions and dedicated to protecting and enhansing their member institutions at the expense of the economies they operate in.

Whatever any national politician does it will always be to the benefit of the Fed and its member institutions.  The actions of these past two years, by both parties should provide proof enough.  This Schumer Friday action is just a realization that it is time tio move to greener pastures and punt the situation to the dark pool of capacity that is the SEC.

Sat, 07/25/2009 - 01:41 | 14969 Dr Hackenbush
Dr Hackenbush's picture

not only do they gauge bid/ask/demand and frontrun, but they tag/id the traders as well...which is already illegal, but not enforsed.

these bast_rds really need the 'old west' treatment; game found rigged = shot, drug and hanged! 


Sat, 07/25/2009 - 03:40 | 15003 Miles Kendig
Miles Kendig's picture

Better if Judiciary Committee member Schumer introduced a bill incorporating his concept into the CCCA/Title XVIII and the sentencing guidelines under the greatest severity category with explicit language concerning collusion, RICO and the requirement to consolodate the gains from the whole operation while estimitating the impact as being the sum total of the value of all shares traded in the effected issues during and since the effected trades and for each trade.  However, each share of each trade becomes the new rack and stack of glee for each USA/AUSA.  Time to drop the hammer and bring the law of the flats to that street.  I never thought I would be advocating expanding the power of the CCCA position, but the conduct we have witnessed makes this conduct worthy of illuminating the CCCA in a way I had yet to appreciate.


Sat, 07/25/2009 - 07:51 | 15028 Anonymous
Anonymous's picture

Cheeky Bastard: Thanks for the link. Wow, just wow. This article is a must-read for sure.

Sat, 07/25/2009 - 10:07 | 15060 Cheeky Bastard
Cheeky Bastard's picture

no problem man, I'm just putting the word out about some sick shit these people are capable of doing to earn a damn buck ...

Sat, 07/25/2009 - 16:06 | 15155 kote
kote's picture

The AP version of the article is now one of yahoo finance's "top stories."

From the article:

Even BATS Exchange Inc. CEO Joe Ratterman called for an industry review of the practice earlier this month. In a July 7 e-mail to BATS members and others in the industry, Ratterman noted that the SEC currently deems flash order functionality legal and compliant with regulations, but said BATS is ready to participate in an industry review of potential issues, "including the possibility that they (BOLT, Flash and ELP flash order services) create a two-tier market."

Sun, 07/26/2009 - 06:30 | 15429 Anonymous
Anonymous's picture

Here is another view of this issue from a contributor..

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