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Clampdown On Market Abuse By High Frequency Churners, Er, Traders Begins
It couldn't happen to a nicer group of pirates. After a year-long campaign by Zero Hedge warning about the ongoing threat to market structure by the HFT plague, culminating in a the May 6 crash, whose incipient conditions exist to this day, the FT reports that the even more worthless regulator, FINRA, is beginning a clampdown on broker dealers who allowed high-frequency traders to have access to the markets without undertaking proper checks. As this means all of them, there is about to be a huge change in market structure as arguably more than half of the market "participants" are suddenly excluded from constant daily churning activity. What the outcome of this will be is anyone's guess, but definitely expect strange things if this is truly a first step towards reverting to some form of normalcy.
The FT reports:
The Financial Industry Regulatory Association is undertaking a “sweep” of broker-dealers that offer market access to high-frequency traders to find out if they allowed these firms to run computerised trading programs – algorithms – without undertaking proper risk-management controls.
“We’re looking to find out if the brokers understood what was being done with the algorithm and whether the high-frequency trader had thought through how it would work under big market changes,” Richard Ketchum, chairman and chief executive of Finra, told the Financial Times.
Brokers also face scrutiny of their checks on the ownership of the firms they allow – directly or through sponsorship arrangements – to access the markets.
“The brokers should be satisfied they know who’s really operating these systems,” Richard Ketchum, chairman and chief executive of Finra, told the Financial Times. “The sub-custodian chain can bury the identity of high-frequency traders in Eastern Europe and elsewhere who raise serious regulatory concerns.”
And you thought those pesky Eastern European were only responsible for reverse engineering any softward that ever came out and movie piracy - guess what: it turns out they now can just as easily hack the entire market too. And now please put back all your capital in stocks.
Nonetheless, this is a market test run by a US regulator: an entity better known for being the most corrupt organization in the history of the world. As such some may be skeptical.
The probe will at the very least lead to tougher guidelines. “You can expect something to come out of it,” Mr Ketchum said. “Certainly, there may be enforcement actions if we find serious cases where brokers have failed to even try to exercise their obligations to run checks on the firms before allowing them access.”
That's ok, Finra. We will constantly remind you, and your just as worthless and corrupt porn-loving cousin, the SEC, of just how worthless and corrupt you are until you actually put the investing retail public's money where you mouth is for once. Although it appears that at the rate retail is leaving the market, the system will fix itself and promptly blow up, once algos are left trading with just each other and the whole thing collapses like the binary ponzi scheme it is.
h/t NMR
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Well, its a long long road to Tipperary. Think regulatory capture. Ketchum may just be floatin his resume out there.
His name reminded me of a character from the old board game "Stop Thief!," which is bizarrely appropriate:
http://www.1stingames.com/rules/stopthief/kent.jpg
He may want to brush up his skills section...he might get capped instead of hired.
It sounds like FINRA is just acting to knock out a few troublesome algo operators to benefit others. It's easier to take out competition with regulatory capture than it is to fight algo wars. The white shoe boys will still be running their HALs unimpeded.
*Fingers & toes crossed*
Don't hold your breath on anyone with the tag "Primary Dealer" and regulatory action to be mentioned in the same sentence when it comes to HFT.
FINRA, SEC, CFTC, Barney Frank...
Talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk talk Talk talk talk talk talk talk talk talk talk talk talk talk...
No action...
...unless of course these Mafia Boses want to get VIG via lawsuit that gets settled of course with no one ever admitting wrongdoing.
Wake the f@<& up people!
I think investigations by regulators may just be a way for them to get a raise in their payoffs to look the other way. I'm still waiting for Gary Gensler to take some action after his investigation into silver manipulation.
Actually it sounds like at best this will just paint another patina of "compliance" department bullshit over some of the more noticeable market rust spots that are causing people to talk. It doesn't appear that FINRA is actually acknowledging that the current equity market structure is a piece of crap and needs a complete overhaul.
There are no "proper risk management controls" when the the mechanics of the market itself are this badly fragmented, non-transparent and susceptible to manipulation. Sending around some sociology majors to make sure that traders have "thought through" how their algos might behave under different market conditions is more or less the definition of "lip-service."
Besides, how many banks and other financial firms do you think have shit the bed in the last two years while being in "full compliance" the entire time?
FINRA and the SEC are acting under national security orders to see no evil, hear no evil, speak no evil. I don't expect much from the regulators except maybe a few hands slapped.
I do expect plenty of back slapping among the shepards over another successful shearing of the sheep.
Algo Cannibelis bitchez.
Too little too late!!!!
One of these things is not like the...
oh.
You disappoint, All RobotTrader posts require at least one "hottie" attached. Get with the program.
@ Robo
maybe a little front running the fed open market tuesday ? hehe.
There is enough illegal activity going on with just the repeated posting of orders that are never intended to be filled. Why are they going through some back door route? Obviously they are not serious about taking on the problem if they are going at it along this ridiculous path.
Did the "Stress Test" do anything usefull??
FINRA?! are you kidding? ahahhahhhahahha... they couldn't regulate flies to shite
I haven't had a hard on since Barry Goldwater carried the Republican banner in 1964. There is a God.
Sounds disruptive to me...
FINRA, clampdown on HFT? The only clampdown these lying sacks of garbage will do is to bite down their tongue as GS jams it up their ass, again. They will do NOTHING.
I'll be surprised if anything really happens...maybe a few 'sacrificial cows' but most will remain untouched
ROBO TRADER
http://williambanzai7.blogspot.com/2010/08/robo-trader.html
Well, after a strong statement like that I'm all in. Again! After all, if it takes a total rejection of any explicit or implicit responsibility to exercise their obligations to run checks on the firms before allowing them access to get them in trouble, I'm certain they won't find a single problem whatsoever.
Whatever wasn't actually done (which I'm sure was everything) at the time the "access checks" were handed over will quickly be filled in with after-the-fact form signing/back dating and hand-on-bible testimony by private investigators that all dark corners were thoroughly checked out.
Game back on baby, game back on.
so are you saying Bill Gross really is the Treasury Secretary then?
Just in the nick of time to not prevent people from entirely abandoning the market, moving, changing their address, not returning the markets calls and getting a restraining order on participating in the market.
The healing process is just beginning. Phase 1: Nobody on the planet believes these liars. It's a start.
I can't wait for phase 2 - tell me more!
"find out if they allowed these firms to run computerised trading programs – algorithms – without undertaking proper risk-management controls."
Proper risk management, what a joke
Why don't they just go after the exchanges for leasing prime frontrunning real estate to the HFTs.
How many algos can trade on the head of a pin?!
If enough 'market participants' ARE excluded from the market, it could cause a serious reset. Think about it. If these suckers have 'badmintoned' the market ever higher and are now having to cease, even for a time, there is NOTHING but air under the bid. A LOT of space lies below. This could be the start of the 'turbulence' everyone has been dreading. Tyler, you KNOW what happens when you pull enough Jenga blocks away... (sorry for mixing metaphors) I cringe to use the b word, but 'tipping point bitches'... This from the good in me. The bad in me thinks like russki standart:
"...FINRA, clampdown on HFT? The only clampdown these lying sacks of garbage will do is to bite down their tongue as GS jams it up their ass, again. They will do NOTHING..."
and others here that nothing will seriously happen. Since all market makers are seriously compromised, colluded and complicit, I suspect their shields will hold. I'd like them to be vaporized by their evil and not be able to step aside and get a 'fireside' tan while watching someone else go up in flames. I wish I thought otherwise but 'masters of the universe' does have it's privileges! Survival being first and foremost...
"exercise their obligations"- that is a sell signal if one ever you could imagine a bell ringing on Wall Street. IF something were to happen, and volume were minusly impacted, would not price follow volume, minusly?
why don't you tell us what really think.
Never let it be said that FINRA can't find a way to attach themselves to seemingly under-regulated areas (or more to the point, areas/asset classes they have nothing to do with, e.g., insurance product, Advisory business...) for the express purpose of generating revenue (fines). Start with a few generic rules, begin fine-tuning them, and BANG!! You're in another regulator's backyard with millions in new revenue.
P.S. Run checks??!! Jeez. "Well, we ran checks and all these guys were upstanding executives on Wall Street with major firms and they all have advanced degrees from Harvard and Yale. One of them is even a Scout Pac Leader!!"
The politics of bureaucracy being what they are, I will suppose that FINRA simply extended the policies of the NASD when they took over. Having worked for both BDs and banks, I noticed that the banks tended to give no regard to the SRO other than the fact that their "Committee for fucking off" as we called it set the bond market holidays. For the individual at a BD, you have to deal with U4s, fingerprints, and the SRO could take your license. At the bank, you just smeared a little blood on your offer letter and started trading. If, as it appears, the biggest HFT perpetrators are now 'banks' or are fronted by them this, in reality, is no more than a PR stunt.
I doubt if this stuff on FINRA amounts to any concrete actions which will prevent the fraud FINRA inflicts on investors. But I do appreciate Tyler finally giving FINRA their just due as a complete sham and exhibiting FINRA as the parasites sucking the blood of individual investors that everyone should know they are.
"The probe will at the very least lead to tougher guidelines."
Notice the wording. The financial industry hates laws - after all those can't be broken without possibly facing some serious jail time (well, that's at least how it used to be). Instead financial news always talks about 'rules' and 'guidelines' - you know, as in something that should be followed voluntarily.
Laws are there for the little people. Like stringent bankruptcy laws - or laws regulating the consumption of alcohol for anyone conducting an automobile. The elite is way above us little people and as such they don't respond well to laws - voluntary rules are the pinnacle of what they deem to be acceptable.
I hope those fucking bitches burn when it all comes crashing down. I for one will be first in line and I have nice long boiled rope ready to go.
sounds like a token investigation at best. i doubt even wrists will be slapped.
I would agree Gary Gensler is wandering in a Dark Forest about to be devoured by the ghost of Joseph Leiter.
Eh? What's with the random sideswipe at Eastern Europe? Doesn't sound like co-location to me. As things stand, they can perfectly well hide out on Broadway, no? (And how far 'east' are we talking? Are they somehow going to find a way to blame the Russians?)
It appears to me that the HFT Computer programs allowed to Trade on the Market DO pose a National Security problem.
If you look at what happened with the Flash Crash Down 1,000 points in minutes. What would have happened it it continued and the Dow lost say 7,000 points. What if an Unfriendly Foreign Government was able to hack into these programs? Or, as the article implies NO ONE knows who actually has access. This is a big problem.
A good hack job could in essence wipe out all Investors in the Stock Market. This could wipe out the Retirement of most Americans. Thru their 401K and Pension Funds invested in the Market. Maybe those withdrawing their Money are not that Stupid. They see what is happening and the Destruction that is possible and they do not want any part of it.
TD....
This would be an interesting study....
Tracking Ex SEC employees that now work in the private sector....law firms and the big IBs ....would uncover and make clear what the public needs to know....
Knowing the salary change ....would be the "true sell out" numbers....
RETAIL has been sold out....just as have the manufacturing jobs....
...................................................
Three words WOULD solve HFT....
ONE SECOND MINIMUM....
This is too complicated for the likes of the SEC....
Too complicated for their personal future job prospects....
New guy here. Great site!
I would love to see for 1 day all algo trading shut down (never will happen) and then we would see what the equity markets really look like; what the interest is from institutions, BDs and retail.It would be a totally different animal.
IMO one of the catalyst that allowed HFTs to emerge was (wrongly) eliminating the fraction spreads (1/16, 1/8, 1/4 etc )in the equity markets, (in a supposed effort to provide faster executions and transparency for investors).
Now the result is a bunch of computer algos playing with each other all day long. Theres no purpose to the markets anymore.
Again, Great site here. Thanks
I would love to see for 1 day all algo trading shut down (never will happen) and then we would see what the equity markets really look like.
~~~~~reply~~~~~
That's an easy one. Volume drops by 80-90 percent and the exchanges/HFTs/hedgies... would yell, "See. We tried to tell you that we provide valuable liquidity."
Liquidity for themselves as everyone else has left the building (BDs and retail included).
Oh no! Say it ain't so! What are all those MIT, Princeton and Harvard grads with PhDs in Quantum Physics and Computational Mathematics going to do if regulators take away their free lunch? Time to "reverse engineer" their careers?
More than half, of the old traders are now being banned from doing FLASH trades. With less participants in the computer generated ponzi scheme, I expect much more volatility and manipulation. Fat Finger Power.
If all human participants pulled out, I think you'd see it immediately. Volatility spike and wild whipsaws until the HFT's stopped participating to limit their sudden losses. Probably would look like the output of a siesmograph.
Thanks for such a great post and the review, I am totally impressed! Keep stuff like this coming!...
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