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GFT Forex' Schlossberg: "HFT Is Destructive And Does Nothing But Frontrunning And Quote Stuffing"

Tyler Durden's picture




 

It appears there is a pretty stark difference of opinions on market structure these days, with an increasingly greater majority seeing High Frequency Trading as the devil incarnate, while the HFT lobby, most typically in the face of one Irene Aldrigde, surprisingly defending the practices of the HFT practitioners. Regardless, today's incremental observation on High Frequency Trading fair market practices comes courtesy of Boris Schlossberg GFT Forex, who in a CNBC interview, discussing the massive surge in FX volume which we highlighted earlier, makes the following relevant observation on HFT: "HFT traders have been incredibly destructive to the equity market because they have essentially been doing nothing but frontrunning and quote stuffing." We wonder if Mary Schapiro was watching this particular interview.

Fast forward to 2:35 in the video.

 

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Thu, 09/02/2010 - 10:31 | 559530 Dismal Scientist
Dismal Scientist's picture

What chance the SEC actually do anything ? Probably easier to punish HFT algos than those poor, misunderstood perverts in their own organisation though.

Thu, 09/02/2010 - 10:36 | 559538 Sudden Debt
Sudden Debt's picture

the day they'll figure out how it works, they will already have upgraded their systems from a 1.0 to a 9.1.234 version.

So I would figure out their odds as : FAT CHANCE

Thu, 09/02/2010 - 10:40 | 559555 doomandbloom
doomandbloom's picture

if we tell SEC that deep within HFT programs contain secret passcodes to porn...they might be interested ..

Thu, 09/02/2010 - 10:58 | 559591 Sudden Debt
Sudden Debt's picture

why share those?

Thu, 09/02/2010 - 10:38 | 559544 D-Falt
D-Falt's picture

I'm sure that 2-cent gratuity the SEC gets every time a trade clears keeps them from taking any meaningful action. 

Thu, 09/02/2010 - 10:34 | 559536 newstreet
newstreet's picture

How to lose more money - trade with Boris or HFT?

Sun, 09/05/2010 - 06:54 | 564453 PrDtR
PrDtR's picture

Boris would clean your clock!

Thu, 09/02/2010 - 10:59 | 559540 BeerGoggles
BeerGoggles's picture

Wow, Boris says anyone who trades 50:1 or more has zero chance of success.

This must be excellent news for the company he works for, GFT, who offer 100:1 leverage for the UK market...not to mention all the other brokers offering 100:1+

Thanks Boris - I'll be sure to close my account.

A ridiculous statement really when it's related to risk management not what leverage you use.

Thu, 09/02/2010 - 10:38 | 559542 Fish Gone Bad
Fish Gone Bad's picture

For Thanksgiving, the traders will have a Mary Shapiro turkey with quote stuffing. 

Thu, 09/02/2010 - 10:38 | 559545 Bearster
Bearster's picture

I think you asked the 17th century stock traders in London to comment on the "jobbers" you would have heard everything bad about them, how they are just cheating everyone else, taking money from the mouths of babes, of poor moral fibre, etc. etc.

The "jobbers" were the market makers.

1) I can't think of a reason why <insert category here> are necessary

2) I think <insert category here> should be forcibly banned

These two statements are not equivalent.

Thu, 09/02/2010 - 10:48 | 559567 Bartanist
Bartanist's picture

While the 17th century London stock traders probably did no internal search to discover he value of their own parasitic existance, they were also more than likely correct about the "jobbers".

Thu, 09/02/2010 - 10:40 | 559548 Bartanist
Bartanist's picture

HFT does much more that front running and quote stuffing. It is an absolutely essential element of controlling the markets.

HFT IS the mechanism for controlling price these days and for providing the illusion that the markets are alive an active.

IMHO, if HFT was not involved masking the real market activity through high volumes of price controlling trades and through HFT arb to create correlation throughout the market, there would be dislocations in price and most likely pre-2000 volumes (can't have that).

One thing that I wonder about is how the markets themselves (NYSE, etc) make money when they are handing out all of these volume incentives for HFT liquidity. Or is making money irrelevant when all they care about is control?

Thu, 09/02/2010 - 12:39 | 559842 Waterfallsparkles
Waterfallsparkles's picture

I agree.  There should not be payment for liquidity.  Especially when the liquidity completely evaporates or the bid pulled before anyone can take advantage of it.  What good is a 20,000 share bid for less that 1000th of a second?  It is guaranteed that no one can act on it although they get paid for the liquidity.  Only putting a bid up long enough to get cancled is not liquidity.  It is disingenuous at best.

When the Computers place bids they know cannot and will not get executed it is Market Manipulation.  They give the appearance of liquidity yet it is only used to front run the traders.

Traders show their position and the Computers do the opposite.

Thu, 09/02/2010 - 10:51 | 559572 Ragnarok
Ragnarok's picture

OT: EU May Limit Naked Shorts of Stocks, Government Debt

 

http://noir.bloomberg.com/apps/news?pid=20601087&sid=amA8fapDk6RQ&pos=4

Thu, 09/02/2010 - 10:54 | 559580 RobotTrader
RobotTrader's picture

Somebody seems to be quote-stuffing JWN and Victoria's Secret today...

LOL...

 

Thu, 09/02/2010 - 10:56 | 559587 Ragnarok
Ragnarok's picture

Bra-stuffing perhaps. :P

Thu, 09/02/2010 - 11:00 | 559593 Sudden Debt
Sudden Debt's picture

Clearly a stiff nipple action trade... interesting... could you visualize that?

Thu, 09/02/2010 - 11:03 | 559597 Scisco
Scisco's picture

There can be no bear markets in FX? Maybe, but they govvies of the world are sure trying to disprove that. Last time I checked this is a race to the bottom where the biggest winner is the biggest looser. Would be interesting this onion story becomes reality. http://www.theonion.com/articles/us-economy-grinds-to-halt-as-nation-rea...

Thu, 09/02/2010 - 11:30 | 559653 LePetomane
LePetomane's picture

ROFL!

Thu, 09/02/2010 - 11:11 | 559613 toddf
toddf's picture

Maybe we can get the porn industry to film a high frequency tranny gang bang (HFTGB) and interview the participants afterwards to see who got screwed the most, then maybe, just maybe the SEC could understand the implications of HFT.

Thu, 09/02/2010 - 11:31 | 559640 plocequ1
plocequ1's picture

Opinions and laws are for The little people, Myself included. If you are part of, what George Carlin refers to " The big club", then opinions and laws are muted. Remember, "'Its a big club, And were not in it"

Thu, 09/02/2010 - 11:33 | 559661 MrTrader
MrTrader's picture

Legitimate question: has Irene Aldrigde ever written her own code ? :=))))

Thu, 09/02/2010 - 11:49 | 559694 JR
JR's picture

Nathan Martin of Nathan’s Economic Edge said today: “Speaking of conspiracies, what  do you suppose is Mr. [Ethan of BofA Merrill] Harris’s motivation for speaking the following line of drivel,  'The U.S. economy is so bad that the chance of avoiding a double dip back into recession may actually be pretty good’?

“You have got to be kidding me.  This is so insane, so totally lame, that you absolutely have no choice but to see the conspiracy that I mention, it is blatant.  And yet Bloomberg, a supposedly respected business news service, chooses to print this crap. …

“There are simply no sources left, besides select bloggers on the internet, to get any semblance of reality.  And here’s the reality – there is no recession, it’s called depression.  There is no growth, the GDP numbers are false, our ‘productivity’ is false, and our employment numbers are nothing but an outright lie.  I am ashamed of what I see; embarrassed for my country and for the portions of the world that play along.

“It’s tough to even call our stock market a ‘market.’  It’s nothing but a playground for those wealthy enough to use High Frequency Trading machines to rob the citizens who are fooled into thinking they are ‘investing’ for their futures.  This theft is allowed, backed, and sponsored by our own government.  Talk about a dysfunctional relationship.

“The proof of dysfunction was on clear display yesterday. Data that is poor, even in its trumped up form, gives the thieves a reason to ramp their HFT machines that all get on the same page within nanoseconds, even before orders are executed.  Of course they are using YOUR MONEY to steal your money from you.  The money is given to them by the FED, who works for them, yet leads you to believe they are a part of the government.  They are not. The FED, through POMOs, is feeding the very companies who run the HFTs BILLIONS.  That money is not used to do anything productive in the economy; it is used to ramp up the markets, enlarging the disconnect between reality and price.”

Continues Nate: “Weekly Jobless Claims were roughly the same as last week, coming in at 472,000 versus last week’s 473,000.  Of course last week’s figure was revised upwards to 478K, so the headline monkeys type that it fell 6,000 during the week!  No, it fell 1,000, you cannot compare apples to oranges, yet the media does that all the time if it makes any report sound better than it is—which is exactly the theme as everyone is ultimately trying to take your money and your life’s productivity… 

“By the way, the DOL releases these numbers to the public (yours truly) 15 minutes after companies like Bloomberg are granted access.  I want to know who else is granted early access and why  –  it is absolutely ridiculous to create ‘insiders’ who have the data prior to the public, especially when that data comes from a government agency that is paid by the public!”

http://economicedge.blogspot.com/

Thu, 09/02/2010 - 12:53 | 559888 Waterfallsparkles
Waterfallsparkles's picture

Excellent post JR.

Of course with the numbers released to the Press 15 minutes early you know they have their Hedge Fund buddies and the contacts at the Big Banks.  It is interesting to watch the Market react right before the numbers are released.  They try not to be too obvious yet the Market does move ahead of the numbers.  Many already have their Orders in place and just cannot wait they 3 minutes for it to be announced.

Thu, 09/02/2010 - 12:56 | 559897 Waterfallsparkles
Waterfallsparkles's picture

I am also inclined to believe that a 401K is nothing more than a Checking Account that Wall Street has access to and can withdraw as much money as they need at any time.

Thu, 09/02/2010 - 16:53 | 560542 JR
JR's picture

Your hands-on expose of HFT today at #559202, Waterfallsparkles, is an Internet classic. The ability to clarify expertise, such as you and Nate have, is central to opening up the globalist and central banker hoax that collapsed the economy for what it is— deliberate. As Giordano Bruno of Neithercorp Press said, “The Elites see financial systems as mere tools in the pursuit of a greater goal: World Government.”

Calvin and Hobbes are always playing Monopoly and they always end up in a fight as to who gets to be the banker—who’s going to get to hold the money.

I think, as you do, that it is pretty naïve to believe that we’re dealing here with any kind of market; the bankers are making it do whatever they want. Again, as Bruno says,  “Banks like Goldman Sachs have been caught, yes caught, setting the stage for an economic implosion in this country.” And Goldman, as he points out, “is one of the primary globalist banks involved in the igniting of the debt crisis.”

Their global plan for self-serving power, however, is about out of bullets, IMO. How can the parasitic Goldman feed on a host if the host economy is no longer alive?  HFT is just another form of banker usury; and there is no other description for usury than parasitic.

As for what you say regarding the invention of the IRA and the 401(k) plan, economist Simon Johnson would agree: “Together, these developments vastly increased the profit opportunities in financial services,” – whose earning share of domestic corporate profits “this decade reached 41 percent.”

Thu, 09/02/2010 - 11:55 | 559723 CitizenPete
Thu, 09/02/2010 - 16:39 | 560517 dirtbagger
dirtbagger's picture

Can some one explain the mechanics of how the HFT's create artificial ask and bid prices?  What keeps a counterparty from accepting the bid/ask prices created by the HFT?

Thanks

Sun, 09/05/2010 - 07:36 | 564462 PrDtR
PrDtR's picture

Re HFT ..Sub-penny pricing.. perhaps?.. prevents acting on any of these bids/offers if the flash speed doesn't stop you first..

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