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Clarification From Charles Schumer On Flash Ban

Tyler Durden's picture




 

U.S. Senator Charles E. Schumer (D-NY) released the following statement regarding SEC Chairman Mary Schapiro’s confirmation that she is seeking action on “flash trades,” pending the full Commission’s approval and a public comment period:

"We of course expect the SEC to follow its procedures for the implementation of this new rule, but there is every expectation the Commission will vote for it. The bottom line is, this practice will be eliminated."

--Senator Charles E. Schumer

 

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Tue, 08/04/2009 - 15:47 | 24550 Anonymous
Anonymous's picture

Mr Schumer, Mary...."toxic liquidity/dark pools"....you have cured a symptom ....how about the disease?

Tue, 08/04/2009 - 15:52 | 24569 Veteran
Veteran's picture

Crime is the disease

 

Cobretti, I mean ZH, is the cure

 

Sorry, couldn't resist

Tue, 08/04/2009 - 17:03 | 24744 Anonymous
Anonymous's picture

Flash trades have little, if any, relation to "toxic liquidity/dark pools"

Tue, 08/04/2009 - 20:25 | 25047 erich
erich's picture

You are killing the mood!  There is a CONSPIRACY here, run with it!

Tue, 08/04/2009 - 21:01 | 25092 MinnesotaNice
MinnesotaNice's picture

I really wish the SEC could do some original investigative work themselves that leads to a change in regulation that they initiate... rather than simply reacting to what is put before them... they certainly are not a dynamic, nor especially intelligent organization... they seem to spend the majority of their time out-maneuvered by someone or something.

Tue, 08/04/2009 - 15:47 | 24552 Anonymous
Anonymous's picture

Pending approval and public comment period.

And what about in the meantime?

They can ban shorting in an instant but not this?

Tue, 08/04/2009 - 15:50 | 24555 D.O.D.
D.O.D.'s picture

Your Shorts!!! Bring out your shorts!!!

Tue, 08/04/2009 - 16:08 | 24610 cougar_w
cougar_w's picture

Old Day Trader: "I'm not short."

The FED: "Err... he says he's not short."

Goldman Sachs: "Well, he will be soon."

Old Day Trader: "I'm feeling long SPY."

GS: "No you're not, you'll be stone short in a moment."

The FED: "Well, I can't take him like that. It's against regulations"

Old Day Trader: "I don't want to go all-in cash."

GS: "Oh, don't be such a baby."

The FED: "I can't take him."

GS: "Oh, do me a favor."

Old Day Trader: "I think I'll go long in PM."

GS to Old Day Trader: "You're not fooling anyone, you know."

Old Day Trader: " I feel happy. I feel happy."

The FED hits Old Day Trader with a an abrupt change in monetary policy.

GS: "Ah, thank you very much."

The FED: "Not at all. See you on Thursday."

GS: "Right."

Tue, 08/04/2009 - 16:28 | 24662 Dr. Kenneth Noi...
Dr. Kenneth Noisewater's picture

That must be Lloyd Blankfein?

How'd you know that?

He hasn't got shit all over him!

Tue, 08/04/2009 - 15:50 | 24561 GoldmanSux
GoldmanSux's picture

Plus, I would like to know who approved it, and what procedures/methodologies/hearings were used. If they approved it without the above, they can eliminate it today.

Tue, 08/04/2009 - 15:51 | 24565 Anonymous
Anonymous's picture

Exactly!

Tue, 08/04/2009 - 15:56 | 24581 peterpeter
peterpeter's picture

Feel free to peruse www.sec.gov and do a search.  This did not just happen one day...

Tue, 08/04/2009 - 16:11 | 24620 . . .
. . .'s picture

True, but the SEC did put Goldman's SLP program in place effective immediately without a notice and comment period.  If Goldman gets guidance ASAP, why shouldn't Senator Chucky S?

Tue, 08/04/2009 - 16:09 | 24612 . . .
. . .'s picture

Very true.  If the SEC feels it is appropriate, they can issue temporary guidance that is effectively immediately without a notice and comment period.  Along with a proposal of the identical rule as final guidance, that becomes effective after the notice and comment period and hearing (if any).

Tue, 08/04/2009 - 15:50 | 24563 Cheeky Bastard
Cheeky Bastard's picture

This is nothing more than a fucking game show for the general public ... They know they are gonna lose in the next elections, and they know that they have to do something to remain in W.DC ... i don't believe nothing they say, and the latest game that is being played is the one between Rahm, Issa and the dude from Arizona ... and the SEC will " vote " on this as long as they can so they present themselves to the public as if they actually have some power ...

Tue, 08/04/2009 - 15:51 | 24566 Anonymous
Anonymous's picture

Mary is fronting for her masters. Make no mistake,
the brokers(government sax) that pay her, however indirectly, control her actions. She's a liar.

Tue, 08/04/2009 - 15:52 | 24568 Anonymous
Anonymous's picture

so now the russian hedge funds and the Antiguan hedge funds and the israeli hedge funds can now relax and not worry about front running by the goldman sachs squid. there is no honor among thieves. thank you chuckie for looking out for your boys.....

Tue, 08/04/2009 - 16:01 | 24593 Cheeky Bastard
Cheeky Bastard's picture

Goldman couldn't care less about banning this stuff ... they are already focused on their next scheme ... Climate exchange and trading carbon credit .... they have been setting the grounds based on blatantly un-true fairy tale of global warming since mid-90s ... and to them that cash cow is worth app. 2 trillion a year so they don't even break a sweat about this ...

Tue, 08/04/2009 - 16:04 | 24600 Project Mayhem
Project Mayhem's picture

precisely

Tue, 08/04/2009 - 16:18 | 24636 . . .
. . .'s picture

Goldman has bipartisan support for their carbon emmisisons trading, for example Senators Boxer and Ensign.

It is a strange world we live in when the people fighting GS' carbon trading are regarded as extreme left (Dorgan and Sanders) or extreme right (demint and inhofe).

Tue, 08/04/2009 - 16:23 | 24653 Cheeky Bastard
Cheeky Bastard's picture

that's the kind of game they play ... since they have no valid argumentation to support global warming, they discredit and marginalize the people who oppose them with name calling and funding their political opponents when the election time comes ..

Tue, 08/04/2009 - 17:02 | 24740 ZerOhead
ZerOhead's picture

Finally something I know something about. Thirty years of global satellite temperature measurements and EXACTLY .001 degree C. warming to June of 2009. Remember these multi-million dollar thermometers have been flying since before global warming was an issue. Meanwhile Hansen at NASA GISS still measures temperatures in parking lots and actually adjust these temperatures up further. Google UAH MSU Global Temperature Anomally June 2009 if you don't believe a stupid cat!!

Tue, 08/04/2009 - 17:20 | 24773 Anonymous
Anonymous's picture

Since ground meteorology stations went electric they have been placed mainly near building, on rooves and many are near car parks. The heat island effect is real. Plus places that have been irrigated that were dry are now heat sinks and show up warmer. The data is dodgy but debate is frowned upon.

Tue, 08/04/2009 - 15:52 | 24570 buzzsaw99
buzzsaw99's picture

Piss on Schumer. GS already made their nut this year. Schapiro is Goldman's bitch.

Tue, 08/04/2009 - 15:54 | 24575 Anonymous
Tue, 08/04/2009 - 16:35 | 24684 Anonymous
Anonymous's picture

What good does it do to fine the present stockholders? The fines should go to the people who pulled this crap.

Tue, 08/04/2009 - 16:00 | 24590 Anonymous
Anonymous's picture

Still avoiding the question of whether it was illegal in the first place. - Pitchforks

Tue, 08/04/2009 - 16:00 | 24591 Anonymous
Anonymous's picture

You might also want to look into the regulation that prevents US indices from ending the day in the negative. This is *^%@%# unreal!

Tue, 08/04/2009 - 16:01 | 24592 Anonymous
Anonymous's picture

The new GOLDMAN CREEDO--

STEALTH WEALTH:

--"Steal from the Taxpaying Masses, just don't show them what you are spending it on"....Suck it up and fly commercial until this thing blows over and we have taken over the country...

http://www.marketwatch.com/story/the-8-point-goldman-socialist-manifesto...

Tue, 08/04/2009 - 16:09 | 24613 Anonymous
Anonymous's picture

did HAL / WOPR wake up 15 minutes prior to market close?

Tue, 08/04/2009 - 16:13 | 24625 jdoo
jdoo's picture

Tried to find a post where this comment may be more relevant but I failed.

Can anyone explain what the hell is going on with GGC?

http://www.reuters.com/article/governmentFilingsNews/idUSN0413151520090804

http://www.google.com/finance?q=ggc

Based on my read these shares should be nearly worthless, not +250% from 5days ago close....

Tue, 08/04/2009 - 16:18 | 24634 Anonymous
Anonymous's picture

How can I find out about those moves in advance. I'm trying to get in on risk-free money by the boatload.

Tue, 08/04/2009 - 16:23 | 24651 mule65
mule65's picture

15% shares short = squeeze.

Tue, 08/04/2009 - 18:14 | 24875 Anonymous
Anonymous's picture

Their earnings were supposed to be released an hour ago but I can't find... Guess someone got word they're still solvent?

Wed, 08/05/2009 - 11:39 | 25764 Gilgamesh
Gilgamesh's picture

They restructured debt and amended credit agreements last week.  So, no BK - at least in August.  And you're left with no more stock sellers, and lots of shorts to cover/bought-in.

Tue, 08/04/2009 - 16:15 | 24627 Anonymous
Anonymous's picture

Public comment is hereby solicited as to whether front-running and officially sponsored theft on a colossal scale should be impeded. Somewhat. Temporarily.

Tue, 08/04/2009 - 16:20 | 24644 Comrade de Chaos
Comrade de Chaos's picture

well, check this out:

" Aug. 4 (Bloomberg) -- American International Group Inc., the insurer rescued by the U.S. government, will release second- quarter results without a conference call this week as Chief Executive Officer Edward Liddy prepares to step down."

Tue, 08/04/2009 - 16:28 | 24663 Anonymous
Anonymous's picture

Seems we can't stop Chucky Schumer's mouth from front running.

Don't get me wrong, flash trading should totally be banned it's just that this blowhard's prematured exclamations are not helpful.

Tue, 08/04/2009 - 16:31 | 24676 Anonymous
Anonymous's picture

$4 MIL -> $0 < 1 YEAR.
Gotta feel kinda sorry for the determined shorts who blow up...

"I shorted 500 ES contracts at 1003.75 today. Possible target is around 935. This is more like a short term trade and the only opportunity I have to recover, as I expect this move to happen in days."

http://xtrends.blogspot.com/2009/08/lightening-doesnt-strike-more-than-o...

Tue, 08/04/2009 - 16:36 | 24689 Anonymous
Anonymous's picture

Turned $350K into $4 mil in six months. Turned $4 mil into 0 in about 5 months.

Greed is not good.

Nice job...

Tue, 08/04/2009 - 16:32 | 24681 Anonymous
Anonymous's picture

July 15: Denial
July 20: Anger
July 27: Bargaining
July 31: Depression
August 3: Acceptance

Tue, 08/04/2009 - 17:03 | 24734 Comrade de Chaos
Comrade de Chaos's picture

September 3: Truth

October 3: Survival

January 3: Triumph

p.s. I doubt it's a diligent practice to evaluate returns on bi-weekly bases.

Tue, 08/04/2009 - 20:02 | 25027 Anonymous
Anonymous's picture

Touché Comrade, persist in your ass-kicking ways.

Tue, 08/04/2009 - 17:37 | 24799 Anonymous
Anonymous's picture

Tyler, would you be interested in what Irene has to say?

“Unfortunately, flash trading gives a bad name to high- frequency trading,” said Irene Aldridge, author of “High- Frequency Trading: A Practical Guide to Algorithmic Strategies and Trading Systems.” “Most high-frequency trading has nothing to do with flash orders, so it’s going to continue as business as usual.”

Tue, 08/04/2009 - 17:49 | 24821 Anonymous
Anonymous's picture

Tyler D,

Good work on this one. I think you are the real reason why this issue even came about in the first place. I don't usually post here but I thought I'd come by and say good work. Just shows how successful your blog has become.

Michael

Tue, 08/04/2009 - 17:53 | 24838 KOZ
KOZ's picture

This sounds a lot like it is coming from someone running for reelection very soon....

http://www.opensecrets.org/politicians/summary.php?cid=n00001093

 

"We of course expect the SEC to follow its procedures for the implementation of this new rule, but there is every expectation the Commission will vote for it. The bottom line is, this practice will be eliminated."

--Senator Charles E. Schumer

 

 

"We of course expect the SEC to follow its procedures for the implementation of this new rule, but there is every expectation the Commission will vote for it. The bottom line is, this practice will be eliminated."

--Senator Charles E. Schumer

Tue, 08/04/2009 - 18:01 | 24852 D.O.D.
D.O.D.'s picture

Hello.... if anyone is reading...

The M$M keeps referring to Flash Trading as a "sub-set" of HFTPs, but I would argue the correct phrase would be, Flash Trading is a function, among thousands of funtions, of an HFTP. 

Please correct me if I am misunderstanding something...

Tue, 08/04/2009 - 18:02 | 24855 Cheeky Bastard
Cheeky Bastard's picture

nope, you got that right, its just one of components of HFT, but nevertheless, a significant one ...

Tue, 08/04/2009 - 18:00 | 24853 D.O.D.
D.O.D.'s picture

stupid lag....

Tue, 08/04/2009 - 18:12 | 24872 Anonymous
Anonymous's picture

to begin with, how do they expect to implement this ban? also, why a need for public comment..flashing is primarily used for frontrunning and is illegal. the 'public comment' they will seek from the banks is to excavate exactly which uses of flashing are legal (and useless) and use this to justify preserving the infrastructure (colocated servers) making flash orders possible. that'll take like a year.
after that's accomplished, the banks will simply then get onto a cat and mouse game where they continue to flash regularly for 'legal purposes' but then , when the occasional liklihood of getting caught is very low, they will use it to frontrun outright. of course the sec will prosecute ocassionally and the guilty banks will settle without admitting guilt for 33,000$.

a simple solution, like eliminating colocation altogether, , that was implemented with a BRIGHT LINE and with expediency would send a message to the market that cheating, nor the appearance of cheating, will be tolerated. this would deter other scammers.

but no, this isnt how things work. beauracracy will provide appropriately balanced regulation by providing a time for public comment so that the public itself gets ripped off. at times like these, beauracracy will be the wrench in the wheel that destroys this country. people talk about balancing the interests of different parties, and yet the average joe on the street is not going to care how well the government tries to balance the interests of goldman with those of the mutual fund industry and retail investors.

this careful ballet balancing act will topple over eventually.

Tue, 08/04/2009 - 19:41 | 25004 Anonymous
Anonymous's picture

Exactly. It's just another dog and pony show.

Tue, 08/04/2009 - 21:16 | 25120 Anonymous
Anonymous's picture

Not how Melissa Lee immediately equates Flash Trading with HFT in order to obfuscate the issue.

Tue, 08/04/2009 - 21:22 | 25137 casey
casey's picture

Hate to rain on the parade, but didn't Matt Taibbi write in 'The Great Takeover' about the EU threatening tough regulation:

'The situation worsened in 2004, in an extraordinary move toward deregulation that never even got to a vote. At the time, the European Union was threatening to more strictly regulate the foreign operations of America's big investment banks if the U.S. didn't strengthen its own oversight. So the top five investment banks got together on April 28th of that year and — with the helpful assistance of then-Goldman Sachs chief and future Treasury Secretary Hank Paulson — made a pitch to George Bush's SEC chief at the time, William Donaldson, himself a former investment banker. The banks generously volunteered to submit to new rules restricting them from engaging in excessively risky activity. In exchange, they asked to be released from any lending restrictions. The discussion about the new rules lasted just 55 minutes, and there was not a single representative of a major media outlet there to record the fateful decision.

Donaldson OK'd the proposal, and the new rules were enough to get the EU to drop its threat to regulate the five firms. The only catch was, neither Donaldson nor his successor, Christopher Cox, actually did any regulating of the banks. They named a commission of seven people to oversee the five companies, whose combined assets came to total more than $4 trillion. But in the last year and a half of Cox's tenure, the group had no director and did not complete a single inspection. Great deal for the banks, which originally complained about being regulated by both Europe and the SEC, and ended up being regulated by no one.'

 

I hope this isn't just a pill to calm the masses. 

 

Be vigilant and don't trust the SEC or the government.

 

Tue, 08/04/2009 - 22:04 | 25181 Sqworl
Sqworl's picture

I hate Chuck Schmuck...let's make him go away.  Goldman please make him an MD so he can continue steal with transperancy!

Tue, 08/04/2009 - 22:44 | 25233 sellside_pov
sellside_pov's picture

From Joe Ratterman, one of the original opponents of flash orders:

Misstatement 1: Flashed orders create unique front-running opportunities.

Misstatement 2: Flashed orders are used solely by high speed trading firms.

Misstatement 3: Flashed orders disadvantage retail investors.

Misstatement 4: Exchanges intended to flash quotes solely to their own members.

It needs to be said again - there are valid reasons to review, debate, and even ban flashed orders. I listed six of those reasons in our last newsletter. It's equally important to make clear, however, that there are accusations being circulated recently that are distorting the perception of how these systems actually work. The difference between the real concerns and the hype may be difficult for people outside of our industry to discern, so we felt it was important to shed some factual light on this topic.

There is grave danger in allowing misstatements and myths to perpetuate, and I hope that we have been able to clear up some of the confusion here.

http://www.advancedtrading.com/exchanges/showArticle.jhtml?articleID=218...

Wed, 08/05/2009 - 00:45 | 25368 Anonymous
Anonymous's picture

For any of the grownups left in this room, please have a look at Nina Mehta's coverage before choosing the next best step. (http://www.tradersmagazine.com/issues/20_296/-103978-1.html?pg=1) Excerpt below.

The Quote Rule
The SEC is carefully tracking the flash issue. David Shillman, an associate director at the Commission's Division of Trading and Markets, said at the SIFMA conference that flash orders lasting less than 500 milliseconds fall within an exception to the Quote Rule, or Rule 602, in Regulation NMS. The Quote Rule requires all market centers to publicly disseminate their best bids and offers through the securities information processors. The exception is for orders that are immediately executed or canceled.
[IMGCAP(3)]
However, the SEC's thinking on this issue isn't settled and may be re-examined, Shillman said. "It's an open question as to whether the Quote Rule should be modified, whether it is really necessary to have that [exception] in the electronic world," he told the SIFMA crowd.

This is the rule at the heart of the issue
The exception enables the flashing that is described in the MSM (only the chosen can see some bids/offers on some exchanges)

AND
it covers the IOC activities that effectively allow dummy offers to be posted and withdrawn in an effort to discover and execute at the highest limit order price, rather than NBBO.

Shumer's ban would only cover the first (lower impact) instance and do nothing about the second (which is more pernicious and lucrative)

Also, Shumer's issue helps his NY based exchange constituents at the expense of non NY players, while the second has no political benefit to him since it will impact all algo traders equally regardless of their home base. In fact it might be net harmful to his constituents.

The SEC on the other hand needs to resolve both issues with the one rule change, so their irksome response to his preannouncement of their intentions is understandably ambiguous and not necessarily (although possibly) an indication that they won't follow through.

Shumer isn't, and never will be a hero. Delude yourself at your own risk.

Wed, 08/05/2009 - 01:37 | 25405 Anonymous
Anonymous's picture

Good post, thank you!

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