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Guest Post: Section 747 And HFT
Submitted by Joe Saluzzi at Themis Trading
Section 747 and HFT
Have you ever heard of Section 747? No, it’s not where the
government is hiding the aliens. And it’s not the secret area where The
Bernank prints all the money. Section 747 is a small paragraph buried
deep in the 3000 page monstrosity known as the Dodd-Frank Act. And
Section 747 is causing a lot of folks in the HFT world to be very
concerned. Yesterday, the CFTC held a roundtable meeting on disruptive
trading practices. This meeting was in response to an advance notice of
proposed rulemaking (ANOPR) that the the CFTC issued on October 26
which dealt with section 747 of the Dodd-Frank Act (http://www.cftc.gov/ucm/groups/public/@lrfederalregister/documents/file/2010-27547a.pdf):
SEC. 747. ANTIDISRUPTIVE PRACTICES AUTHORITY.
Section 4c(a) of the Commodity Exchange Act (7 U.S.C. 6c(a)) is amended by adding at the end the following:
ANTIDISRUPTIVE PRACTICES.—It shall be unlawful
for any person to engage in any trading, practice, or conduct on or
subject to the rules of a registered entity that—
(A) violates bids or offers;
(B) demonstrates intentional or reckless disregard for the orderly execution of transactions during the closing period; or
(C) is, is of the character of, or is commonly known to the trade as, spoofing’ (bidding or offering with the intent to cancel the bid or offer before execution).
Dodd-Frank section 747 also gives the CFTC the authority to make rules and regulations
as, in the judgment of the Commission, are reasonably necessary to
prohibit the trading practices in section 747 and any other trading
practice that is disruptive of fair and equitable trading.
In the ANOPR, the CFTC also asks for comments on 19 questions. We
won’t list them all here (you can find them in the above link) but
question #9 is of particular interest:
“Should the Commission separately specify and prohibit the
following practices as distinct from spoofing as articulated in
paragraph (C)? Or should these practices be considered a form of
spoofing that is prohibited by paragraph (C)?
a. Submitting or cancelling bids or offers to overload the quotation system of a registered entity, or delay another person’s execution of trades
b. Submitting or cancelling multiple bids or offers to cause a material price movement
c. Submitting or cancelling multiple bids or offers to create an appearance of market depth that is false.”
The participants at yesterday’s meeting were a who’s who of the HFT
world including representatives from Hudson River Trading Group,
Quantlab Financial, Allston Trading and DRW Trading Group and of course
one of their lobbying firms, Patton Boggs. And they weren’t very happy
about the new power that Dodd-Frank has bestowed on the CFTC. In fact,
here is how a Bloomberg reporter summarized their responses (http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=ahNsO33J7kZw):
“The top U.S. commodity regulator may hamper markets if it writes rules to stop disruptive trading practices without considering the intent
behind a transaction, representatives of high-frequency trading firms
said. The firms said that without a better sense of the purpose of a
trade, regulators could restrict practices that move markets but are not
disruptive. “What really needs to be there, in my mind, are some
notions of intent,” said Cameron Smith, general counsel of Quantlab
Financial…Donald Wilson, founder and chief executive officer of DRW
Trading Group, said at the meeting that markets could be “significantly
harmed” if the rules lack specifics about the intent of the trades.
So there you have it. A new front has been opened up by the CFTC on
the battle against HFT. No doubt all the HFT lobbyists have been busy
coming up with ways to defeat Section 747. They appear not to be using
the standard HFT defense that “we add liquidity and shrink spreads” .
This time they are going with intent - “you need to know the intent” of
what is clearly disruptive trading practices. They are basically
saying that even if we cancel 99,000 out of 100,000 orders, that
shouldn’t be considered spoofing because you don’t know the intent of
those cancellations. C’mon guys, you have to do better than that. We
all know what your intent is.
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Lobby-button pushed. Process initiated.
... FINISHED
Threat eliminated.
Go back to work.
CFTC will be selective in their enforcement
Yep and will probably work with the HFTs to get around this legislation.
Rules? Like they matter. Status quo - They will keep on breaking them till they get caught and then a slap on the wrist will be all they get. A "big" fine representing 5% of the wealth they have plundered will be enough to placate the sheeple back into their lazboys. Rinse/repeat.
High Frequency Trading is apparently High Frequency Bidding/Offering
oh definately. there has been a 20-year promise to not find anyone guilty of manipulation. here's the Honorable CTFC judge George Painter spilling the beans:
http://www.neuralnetwriter.cylo42.com/node/3721
http://www.enterprisecorruption.com/wp-content/uploads/2010/08/CFTC-Real...
^^^^^^^ how do I insert images? the img shows when I edit but not when i post.
In other words, one should not be stopped from spraying bullets all over the place because you don't know if the intent is to hit someone.
Very well said.
+1
Of course, this is the same thing done by any lawyer: Argue the letter of the law, until you figure out you're screwed, and then argue the intent of the law (where it's perfectly acceptable to violate the letter of the law).
They are merely trying to set the stage for rationalizing why the law won't be enforced to a "few selected players".
Most specifically, HFT works BEST when it's only done by a "few select players". Too many HFT players decrease its viability totally (so this can wean the field to the "proper" winners).
Or, although probably a loser, argue that the law is illegal/unconstitutional/improperly applied/etc.
Boooooorrrrring!
Just make the algos settle the trades that they actually made. If the bureau-tards at the exchanges would just allow the market mechanism to function, it would slough off the too-cool-for-school mathemagicians into the Ch. 7 dust-bin and make a couple of old-school meat-bag traders rich. Smells like just desserts to me.
Damn -- I got junked for advocating the market mechanism? Y'all are a tough crowd.
You most likely got junked for your language, not for the message.
These junks are meaningless.
I junk myself, throws the NSA for a loop while monitoring the posts on this site.
Will add to the drama at my mock trial.
What mock trial? If you're on ZH you are guilty by association per the Nazi....oops.....Ponzi mind.
False flag operation by a soverign individual against himself! That's almost as good as hillary authorizing state dept. personnel to steal u.n. reps credit card #s. And tells us just how incompetant the nsa and cia really are. Gezze... send in the state dept.
I junked you. No reason.
+1410
"meat-bag traders"
USSA confirmed! THIS shitpile of news, and stocks straight up? There is NO 'playing this', its a pure damn FARCE!
The whole market is a SPOOF!
But the silver rocket has launched, good bye JPM
how much does a silver eagle coin cost now ? am curious since I'd like to get some.
APMEX didn't have much 1 oz. left. 9/10 were "sold out", we'll get back to you.Take profits on miners and buy physical... It has a certain symmetry.
until it breaks down on its own weight none is going to fix anything...its just that corrupted...lets hope they will though, but, myself would not bet any money on that hope.
and to all the douche bags that contacted me looking for a software developer to participate in creating algo's for this shit..
1. fuck you again if it wasn't clear the first time
2. how's that shit sandwich taste now?
3. fuck you a third time for good measure
Oh, goody. Fuzzy definitions to be left to the enterpretation of the regulator so they can go after anyone who isn't politically connected by claiming that they are being "disruptive" and doing things "intentionally".
Goldman Sachs will be exempt from all of this.
+1
People here keep talking about Banana Republic and USSA, missing the point that one of the conditions that applies in such places is laws that make it impossible to know in advance if your action is legal, or illegal. Therefore the authorities have the power, after the fact, to decide who to destroy. And they use this power selectively.
If a particular law is vague and does not reasonably inform people what is or is not illegal, then it may be void for vagueness... there are numerous examples through the years of laws overturned on this issue...
DEMOCRATS are cleaning up HFT?
No. Cant be.
We all Republicans Never Touch Wall Street.
747 all their asses ...
Laws without enforcement. Were have I seen that before?
Inaction of the law needs to be a crime unto it's self.
Up until three days ago, a broken rubber was a good example.
In my experience, Swedes are as much fun as a cold fish in the sack (ask Tiger), it doesn't surprise me that they had rules to obfuscate and create "cookie-jar-crimes" enforced by Retard-pol to try and hide that premise.
There will be "regulatory capture." Resistence is futile.
Can someone please explain exactly what kind of legitimate intent would justify this kind of predatory activity?
There's a surplus of intent but the definition of the word legitimate is so hard to nail down these days.
Of the three choices (A through C), intent is only mentioned by B... and, even then, intent can be derived from a myriad of ways and is naturally presumed through repeated use. In other words, if a computer program does something for you daily and you fail to correct it in a timely fashion, you have the intent to do whatever the program does... this isn't some giant loophole or something...
Fuck you, asswad; get a real job.
Blow the dog douche bag, I live of my well earned stash. What do you do?
Fraud-Dank is toothless. they have no intention of going after the only players in the market.
NYSE is broke without these fees
As the old saying goes; The road to Hell is paved with good intentions. I expect that is doubly true for claims of good intentions.
Start by having major criminal syndicate Wall Street firms reveal their short positions on the VIX futures. This is today's S&P levitaton tool.
Selling shares that do not exist is supposed to be illegal.
USSA
United States of Soviet America
United Socialist States of America
United Soviet Socialist America
High Frequency Trading World USA 2010
http://www.terrapinn.com/2010/hftusa/
We eben gots er own trade shows, Beeachiz! Bwah!
Five Silver Eagles to the first person that hacks the website above and puts Tyler Durdens avatar and profile up as one of the speakers as seen on the home page.
CFTC Commissioner Bart Chilton will be the keynote speaker at the High Frequency Trading World USA 2010 Conference.
When: Wednesday, December 8, 2010, 9:15 AM (ET)
Where: Park Central, New York, NY
Topic: Speed in the Markets
Last Updated: December 2, 2010
plain white T with "Gold Bitchez" and the TRAV777 avatar.
One bill 3000 thousands pages? The theory, that Americans became lazy, must be simply false.
And unionized teachers can easily teach every child to read and understand this legislation in one day, but only if their salaries go up by at least 100%. Bud greedy and short seeing citizens do not want to invest in own future, and buy instead gold and silver. What a stupidity.
Political Cover.
If they really wanted to stop this crap they would charge a fee for each cancelled order.
Indeud. Problem solved.
When it comes to fraud, 'intent' can be the toughest thing to prove.
Walk softly, but carry a big stick...
...See, we have this big stick that shows we're serious about regulation. Of course the stick will only be used to beat anyone who asks critical questions about the complete lack of evenhanded enforcement.
So if I steal $100,000 dollars, but give $99,999 back and only keep one dollar, is it still petty theft? Since I never "intended" to keep anything but the one dollar...
And if I repeat this another 99,999 times, only "intending" to keep one dollar per "transaction", that turns a "potential" theft of $10,000,000,000 into an "intended" $100,000 theft...
Wow, I'm dizzy.
So to further this logic, I could feasibly nuke an entire city of one million people, to kill just one person and only be charged with one count of murder since I only "intended" to kill a single individual.
Weeeeee!
All right, put the Brain down and back away slowly, so no one gets hurt! :>D