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Bachus Hensarling (aka HFT Lobby) Letter to Schapiro, and Themis Trading's Comments

Tyler Durden's picture




 

Submitted by Themis Trading

Bachus Hensarling Letter to Schapiro, and Our Comments.

This morning we awaken to find the Bachus/Hensarling August 24th
2010 letter
to Mary Schapiro in our inbox, which we include as an
attachment for you to read. Ever since the HFT industry formed their own
lobbying group in Washington DC a few months back, we have expected a
letter like this to surface. We certainly have expected it to surface
given the recent anti-HFT media attention post May 6th. Please allow us summarize their letter for you.

“In 2008 markets functioned exceptionally well. High Frequency
Trading is beneficial to all. We all benefit from their liquidity. If it
goes away we will all suffer.  Spreads have never been narrower. Costs
of trading have never been lower. There is no evidence that flash order
types are bad. Don’t make any changes unless you have more data. Turning
back the clock on innovation will do harm. With our bias in mind,
please answer in writing to us by September 10th, 2010 the following 15 rhetorical questions.”

Had we told you this letter was written by the HFT lobby, you would
have shrugged while commenting that such drivel is what you would expect
that lobby to say. Perhaps we all should shrug less, and be more
alarmed, that it comes from two congressman up for re-election, and
written on the Committee on Financial Services letterhead. Incidentally,
you can see who contributed to Representative Bachus so far in 2010
here : Open Secrets Bachus, and you can see who contributed to Representative Hensarling so far in 2010 here: Open Secrets Hensarling.

We understand how politics work in the United States. We know there
will always be certain groups that have the ear of certain Congressman.
However, let us compare this letter, with its open-ended and one-sided
blatant bias with the well thought out letter from Senator Kaufman dated
August 5th, where he analyzed our market structure deficiencies and offered up 9 separate potential solutions Kaufman Letter to Schapiro.

The Bachus/Hensarling letter states as fact that the US markets
functioned exceptionally well during the financial meltdown of 2008. But
did they? Where is the Congressmen’s data to support that claim, aside
from comments made by HFT proponents? In addition, their letter wants us
all to ignore everything that has happened in 2009 and subsequently
regarding HFT. They want us to ignore the arrest of Sergey Aleynikov,
who stole code from Goldman Sachs that could be used to manipulate
markets. They want us to ignore the studies by brokerage firms and TCA
firms that demonstrate the negative and predatory effects of HFT. They
want you to pretend you never heard of quote stuffing.

The Bachus/ Hensarling letter also states as fact that our markets
remain efficient, transparent, and accessible to all investors. They
obviously do not understand that our markets have become tiered, based
on the degree of co-location paid to the exchanges. They also don’t
understand that 20% of trading volumes are executed in the dark, which
is less than transparent, shall we say. They also don’t understand that
our markets have altered their focus from investing and towards
ultra-short term hyper trading, collateral damage and capital formation
be damned.

The Bachus/Hensarling letter states that, as we all do not know what caused the events of May 6th,
we should refrain from using terms like “Flash Crash”, as it presumes
flash order types were the culprit. To this point, we say the following:
not only is the “re-naming and spin management” game a silly one for
the civil servants, whose salaries we pay, to play, but their argument
demonstrates the lack of knowledge by these two Congressmen. The May 6th Flash Crash is aptly named, because the events of that day took place in flash-like speed. The May 6th
Flash Crash was never named because of any reference to flash order
types. The Congressmen know precious little of the issue they are
attempting to address! Given the other portions of this letter that
specifically address the SEC’s focus on flash order types, we easily see
the real purpose of this letter, which is to advocate the position of
those who wish to utilize these order types in equities and options.

We suggest that the Congressmen listen to what the real owners of our
market have been saying.  They may want to read the letters recently
written from Iridian Asset, Southeastern Asset, and Baron Asset.  Or
listen to the words of Invesco and Principal Global.   These large
institutional players have become frustrated with our fragmented market
structure and they are now demanding change. Most of them have warned
that unless significant changes are made then we should expect more
flash crashes to happen. They may also want to listen to the legions of
retail investors who have totally lost confidence in our equity market
and are withdrawing their funds every month.   So, who are we to
believe?   Two up-for-reelection Congressmen who appear highly
conflicted, or the true owners of this market, as well as the outgoing
Senator Kaufman who has clearly demonstrated that he understands what
the issues are facing our market structure?

 

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Tue, 08/31/2010 - 11:16 | 555198 prophet
prophet's picture

Freq'n Bitchez!

Tue, 08/31/2010 - 11:33 | 555241 MarketTruth
MarketTruth's picture

His long letter would have been easily summed up in just eight words:

All your stock markets are belong to us.

Tue, 08/31/2010 - 11:50 | 555275 Rasna
Rasna's picture

Is it just me, or is the "Bitchez" mem being over worked... Just askin'

Tue, 08/31/2010 - 12:05 | 555305 Translational Lift
Translational Lift's picture

Unscrupulous Lobby Lapdogs  (i.e. Bitchez) 

"Just askin" mem being over worked...   ;>)

Tue, 08/31/2010 - 12:29 | 555377 homersimpson
homersimpson's picture

Overworked like Ben's printing press..

Tue, 08/31/2010 - 12:37 | 555405 sheeple
sheeple's picture

if ppl just ignore them comments like those will dissappear shortly

Tue, 08/31/2010 - 13:06 | 555498 prophet
prophet's picture

Junk'n Bitches!

 

 

Tue, 08/31/2010 - 13:08 | 555506 Translational Lift
Translational Lift's picture

+++  LOL  :>)

Tue, 08/31/2010 - 11:22 | 555220 Translational Lift
Translational Lift's picture

Lobby Lapdog Bitchez...............

Tue, 08/31/2010 - 11:38 | 555251 Mongo
Mongo's picture

The dogs are barking... (yes, its a reference to a Schwarzenbailout-movie)

Tue, 08/31/2010 - 11:44 | 555258 Ripped Chunk
Ripped Chunk's picture

Spencer and Jeb need to shut down the nitrous tank for a couple of days.

Tue, 08/31/2010 - 14:29 | 555764 aint no fortuna...
aint no fortunate son's picture

"They obviously do not understand that..."

Oh, they understand alright... that's the problem.

Tue, 08/31/2010 - 11:45 | 555260 omi
omi's picture

well, some of them are reasonable things to think about.

Tue, 08/31/2010 - 11:54 | 555283 old_turk
old_turk's picture

Obviously, the HFT folks will not stop until they have killed the goose that lays the golden egg.

Liquidity my aunt fanny.

HFTs provide liquidity ... until they don't.  HFT is a one way street ... to peridition.

Tue, 08/31/2010 - 12:13 | 555334 willien1derland
willien1derland's picture

+100 - Could not agree more - On liquidity, one could easily make the case that the Mexican/Columbian Drug Cartels provide liquidity as well despite illegal activities - or making incredibly BAD loans when you are not held accountable/responsible for your actions (Ben & Tim, please pay attention) - Here is an idea - I think the Fed should be the contra-party to EVERY trade taking a 1/16 for each side of an execution (paid DIRECTLY to a sinking fund to RETIRE US Treasuries) - in this way markets are guaranteed liquidity - make Bennie Boy happy & make Wall St pay SOMETHING to resolve the MESS THEY CREATED -

Tue, 08/31/2010 - 11:59 | 555292 willien1derland
willien1derland's picture

It sickens me to think that blatant reversal of trades by the exchanges due to flagrant HFT activities are not sufficient evidence - not withstanding the 6 May 2010 event all of the mini-flash crashes which have been documented clearly show manipulation - The exchanges keep their 'UNDO' button & merrily it will roll along - It comes down to integrity & since most in Washington DC have 'downsized' their ethics & morals - I guess it will be game on - thank you Tyler & crew for the excellent work - will write my senators & congress people again as I continue playing Sancho Pancho to Washington DC's Don Quixote - Perhaps the next monument in DC could be a windmill for Al Gore - I mean he DID provide the internet....Tragic Irony...Poetic Justice - Your call

Tue, 08/31/2010 - 12:05 | 555303 williambanzai7
williambanzai7's picture

More douchebagary

Tue, 08/31/2010 - 12:11 | 555325 Bearster
Bearster's picture

This is how every power grab (er, I mean regulation) works:

Step 1: demonize an industry in the press

Step 2: float a trial balloon by some academic wonk

Step 3: start hearings in some subcommittee

Step 4: start raking in the campaign contributions

Step 5: business and government work together on new rules

Step 6: repeat step 4 several more times

Step 7: pass an incomprehensible law that no one but lobbyists truly understand

Step 8: distort market to favor incumbents and lock out challengers

And HFT regulation will be different this time for why??

Tue, 08/31/2010 - 12:23 | 555360 willien1derland
willien1derland's picture

+100 - Very Good - From the upcoming Bearster book, ,"Recipes for the Ethically & Morally Challenged - A Joe Stalin Primer..."

Tue, 08/31/2010 - 12:34 | 555397 Widowmaker
Widowmaker's picture

"Recipes for the Ethically & Morally Challenged - A Joe Stalin Primer"

Priceless!

Tue, 08/31/2010 - 12:22 | 555355 ZackAttack
ZackAttack's picture

Bachus Hensarling

That sounds like the Roman god of beer and chicken.

 

Tue, 08/31/2010 - 12:26 | 555368 willien1derland
willien1derland's picture

BwaaaaaaHHAHAHAHAHAHA!!! - Outstanding! - Mr. Ceasar, Reservations for 15 March?...so you will be arriving after the Senate activities, excellent, please hold on a moment while I confirm...

Tue, 08/31/2010 - 12:27 | 555373 Miss Expectations
Miss Expectations's picture
Bachus Hensarling

Sounds like a cheap Riesling that you might serve at a bacchanalia.

"Riesling is a variety which is highly "terroir-expressive", meaning that the character of Riesling wines is clearly influenced by the wine's place of origin."

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

Tue, 08/31/2010 - 13:11 | 555511 AccreditedEYE
AccreditedEYE's picture

We suggest that the Congressmen listen to what the real owners of our market have been saying.

Yes, like their constituents... who are talking with their asset allocations! As pointed out by ZH over and over, they are leaving the equity market in DROVES in a vote of no confidence.

Tue, 08/31/2010 - 13:16 | 555540 knukles
knukles's picture

What the hell, the terms "elected" and "representative" have slipped into the mists of history.

When is it we get to vote again?

Tue, 08/31/2010 - 13:45 | 555633 Panafrican Funk...
Panafrican Funktron Robot's picture

http://apttax.com/index.htm

This would go a long way towards fixing this (and many other) problems.  If you like it, please write your reps.

Tue, 08/31/2010 - 15:09 | 555872 drheywood
drheywood's picture

Calm down. As we speak, fancy greek words assure the people is in power.

Tue, 08/31/2010 - 22:11 | 556743 williambanzai7
williambanzai7's picture

Bachus Hensarling Syndrome is a disease of the anus

Wed, 09/01/2010 - 01:53 | 557032 Moonrajah
Moonrajah's picture

Take name, boys, for now. The ass-kicking will soon follow.

Wed, 09/29/2010 - 07:02 | 612131 Herry12
Herry12's picture

 

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Tue, 10/26/2010 - 22:45 | 679535 guccichanel
guccichanel's picture

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Tue, 10/26/2010 - 22:45 | 679544 guccichanel
guccichanel's picture

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