This page has been archived and commenting is disabled.
Institutions Now Actively Selling Into HFT Permabid
Ever wonder why the SEC, FINRA and all other regulators actively continue to ignore the flagrant quote stuffing, frontrunning (yes, Flash trading is still a perfectly accepted practice) and all other destabilizing market activities facilitated and performed daily by High Frequency Trading (when comparable such actions result in jail sentences in Norway)? Hopefully the chart below will explain it...
With the bulk of stock trading (over 70%) now executed by various algorithms, which in turn are programmed by 20 year old math Ph.D. who just happen to know nothing about P/E rations, debt leverage, interest coverage, PEG, balance sheets, and other such relics of an ancient fundamental-ist past, it is no surprise that momentum trading and a nearly 1.00 cross asset correlation is now the norm. What it also means is that HFT provides a permanent bid, as the computer algos are woefully incapable of "reading" between the lines of various press releases, and trade purely on keywords (a topic we have discussed previously), which we are confident the PR departments at major blue chip companies are all too aware of and have long-since reverse engineered. Yet the most notable consequence of the HFT perma bid is that it tends to provide a terrific "idiot" receptacle for all stocks that institutions want to dispose of. To wit: anyone looking at yesterday's trading would think that everyone bought all stocks equally. Not so - as the attached chart from Lazard Capital Markets confirms, this was certainly not the case, and in fact block transactions, i.e., those initiated by large institutions, saw a major unwind of Consumer Durables, Materials and Retailing stocks, even as stupid computers were buying up everything. In essence, institutions are now selling into the HFT bid, which manages to pull up the NBBO far higher than it would be without such an algorithmic thrust. And since the price is higher, retail momo chasers end up following, and buying into a market in which the smart money is actively dumping positions. The sad conclusion is that this will result in such a massive bid-side positional imbalance one day, that HFTs will be unable to sell to each other, and the May 6 redux will occur all over again.
The other scary observation is that the market is now so fragmented, it has to be thought of as HFT and "everyone else." And with implied correlation for the entire market already at record levels, north of 80, and since the block trades tend to be far more rational and balanced, it is probably fair to say that implied correlation for the High Frequency Traders alone is at or near 100, meaning that for computers, all stocks trade as 1 or 0. The entire market is now a binary on or off operation. And May 6 demonstrated all too well when the flickering 1 finally moves to a solid 0 position.
SkyNet may be sentient, but it sure is dumb.
»
- 13383 reads
- Printer-friendly version
- Send to friend
- advertisements -
Finally the proof. Who was the ass-hole on here last week I was trying to convince of the reason the SEC doesn't investigate this?
Come on, speak up...
Correlations up, Vol up all good when theres no volume - Buy em!
Permabid Bitchezzz
Or brilliant if your intent is to control the market as long as you can (or want) and then crash it quickly and efficiently when you wish to pull the plug and introduce a new economic reality to the world.
We never ever should consider anything that is done by the powers that be to be dumb, stupid or insane. There is enormous method to their madness. We just haven''t been read in on the planned and orchstrated madness.
CD,
The method to their madness is borne out of desperation (to maintain what 'they' consider 'normalcy') and psychosis.
A psychotic doesn't consider any other consequences than those for him/her/itself.
DavidC
There are many more layers to the onion my friend than you and I see and just as we are not read into what's coming down the pike, neither are many of our fearless leaders. They are for the most part sock puppets and most definitely not in "control", though they are given reason to believe they are.
Everything is not as it appears. We are looking at the world from within a thought and perception box. We must change our mindset or we can never see outside of the box. That applies as well to the puppets, though they are told they must stay within the box in order to do their puppet "jobs".
"We never ever should consider anything that is done by the powers that be to be dumb, stupid or insane." They are executing a script and helping to create the necessary tapestry. It is all very very controlled. The "sock" puppets we know don't even get a wrinkle in their 14th pair of golf slacks that is not supposed to be there.
Well said, CD.
Not to mention it provides the perfect cover for them, as they pretend to appease all the wishful-thinking do-gooders who believed these machinations are required in order to "save" everyone.
Meanwhile they execute the only play in their book, break things (while lying about them) in order to steal that which they do not yet own.
The "madness of crowds" now lives in a few metal cabinets scattered around the globe awaiting the keystrokes of [ Sys>: START MarketDay /doom ]
In light of the above, it's interesting to read this comment from Oslo Stock Exchange in relation to yesterday's heated HFT-debate in Norway:
“We can’t comment on a matter which is now handled by police, but we can say something general about market manipulation,” communication manager Guro Steine says in a email to the Econotwist’s Blog:
“New and faster computer systems allow for increased use of technology in the securities trade. This happens now in all modern market places and exchanges in the world. It also results in different trading patterns, which immediately may seem strange to us. We who are engaged in market places use a lot of time and effort to understand this, even better than we do today. We understand that it is frustrating for such a day trader to “compete” with lightning-fast computers and sophisticated algorithms. We humans are struggling to keep up with the microchips. However, we believe it is too easy to draw the conclusion that the market participants involved in the algorithm based commerce are thugs, or that they engaged in price manipulation, just because they act differently than we have been accustomed to,” she writes.
Oslo Stock Exchange Comments On Market Manipulation(She's a pretty girl, too...)
Where do I hook my computer up !??
11 Wall Street New York, NY 10005.
Or, strangely, Basildon. That heaving cultural pit east of London. This may have something to do with quite a lot of institutional traffic coming from SS15 c/o a Statestreet offshoot.
edit: http://www.ft.com/cms/s/0/15dcce7c-94cf-11df-b90e-00144feab49a.html
It seems that HFT is a practise they want to export, expand and extend.
I reckon the FSA would want to look into that. That's if they weren't in the process of being disbanded.
All of those shares of stock have to end up in a bag somewhere.
It has to be a damn big bag to hold everything that everyone has been selling for the past 2 years or so.
Who is holding the bag and is it their intention to gather up as much common equity as possible?
FED bag, has to be. Trillions of dollars worth of stocks in the FED's bag and no one to offload em to.
my dear comrad,
Vee own it all! De hole vorld! Vee own everyting!
It's a zero sum game, man. There is no bag, just bag algos.
Game on, bitchez!!!
The Fed has allowed stocks to be used as collateral against whatever the TBTF banks borrow. Boy, I wish I can go to BofA and ask them for $10 million on the next trip to Vegas..
Who is holding the bag?
Bend over and Barney Frank will show you.
I need some education here. Implied correlation is mentioned repeatedly by ZH. Why? Is it more important than the actual correlation. Are options dispersion trades (from which the implied correlation comes from) that important. And data implied from them more important than just historical correlation over various periods? Impiled variables from option price models are frequenlty wrong.
Because there should be divergence between sectors and within sectors, between well run companies and the 'other guys'.
Divergence leads to 'alpha' - but alas, poor alpha, it's dead ... the algos killed it in a hail of psuedo-bids.
g4i bitchez http://seekingalpha.com/article/156083-statistical-and-implied-correlation-sector-etfs
Correlation is a way to manage risk, i.e. less correlation then less likely to go down together. If everything is moving in nearly lockstep, then how do you mitigate risk?
[OT] holy crap look at the market run there from 11 to now. go-go gadget algos[/OT]
I know what correlation is, and alpha etc, but why is implied more imporatant the historical.
Duplicate
this isnt just looking the other way. it is active involvement by the fed, SEC and gov. in wrongdoing and manipulation. the current admin. sets the bad example and then expects healthy results.
the answer to the question of why hasn't anything been done about the HFT stuffing/flashing/manipulating .... is that the authorities are utilizing these tactics in their program that controls the markets -- DUH!
If it weren't "them" (GfS, JPfM, NYfFED), they'd have shut this shit down as soon as it was discovered.
We're living in a new feudalistic nightmare wherein our "leaders" (oligarchs) rape the public 24/7 via market manipulation
no different from operators of a crooked casino, only this casino has the entire world inside it
sick shit
"And since the price is higher, retail momo chasers end up following, and buying into a market in which the smart money is actively dumping positions. The sad conclusion is that this will result in such a massive bid-side positional imbalance one day, that HFTs will be unable to sell to each other, and the May 6 redux will occur all over again."
This is all anyone needs to know. It is inevitable.
And, quite unfortunately, the various authors of these HFT systems do not yet comprehend that they (collectively) have created a "complex system" whose criticality they do not monitor, nor anticipate - ie - They do not understand the chaotic behavior of the system as a whole, nor its possible collapse states.
It is entirely possible for this 'system' to either melt up or melt down in an uncontrolled fashion simply from "un-anticipated circumstances", in which case the entire system will lock into one or the other state until all the systems are taken off line and reset.
If 70 or more % of the market is HFT, and that trading ceases, what then becomes of the market?? What happens if the HFT algos come back on line and detect a market that is essentially entirely different due to their prior (HFT) absence?
What happens if an enemy nation intends to disrupt markets? Does not having a HFT dominated market make the market as a whole more vulnerable to malicious mischief?
We already have been given a glimpse into the HFT's going offline to save their money. It was May 6th, 2010.
Yep. Every HFT algo ran to one side of the boat at the same time.
Excellent post.
Yes it is clearly a massively insecure way of running a market, but it desnt even need attacking for this to end in a massive fireball. The chinese just have to wait, HFT will eat itself.
No, HFT developers dont have any idea of the big picture. Why should they? Citadel makes well over 1Bn USD per year doing this, so being the guy in the meeting asking philosophical or moral questions doesnt make you very popular or get you paid, it gets you fired.
I'll write that again for the hard of reading: Citadel makes well over 1Bn USD a year on this.
And if you have ever traded index futures by hand, on any index in the world, they took that cash from you. There is around a 15% chance they were your counterparty. Think about that.
Entirely agree, the social culture of greed FAR out weighs the individual's voice calling for consideration...which casues me to be very concerned about malicious intent.
We managed to eff the economy in a few short years just being collectivey stupid. What happens when someone who does not love you recognizes the opportunities you are presenting them on a silver platter?
That right there. Thats it. Not having an HFT dominated market does NOT make the market.
The 10yr Bund is so NOT buying this repeated pumping of stocks - at highest level since 2000
and still it continues, a total disconnect between stocks and reality
But actual price discovery is so boring, large irrational swings of volatility make much prettier stock charts.
Govt (sec) over a rock and getting it hard. Come down on this crap and the market tanks, taking all the pension funds with it - and all hell breaks loose. Short sided politicians not going to have that as thier legacy - or bite the hand that feeds them. So, the bankers, insurance companies, etc. continue to rape and plunder. The irony is that the endgame in inevitable and the longer it goes on, the worse the outcome will be.
An HFT dominated market will end badly, IMO.
Or backed up by Benron.
I say we close in the green by EOD up about 1pt on SPX. It is about time for the crappy midmorning melt up to begin.
Would be interesting to see if or how they make stock HFT machines interact with trades in futures, options and ETFs (or not possible to distinguish perhaps?). About 40,000 CAC40 futures were traded around the close of EU markets, that's huge... On-loading or off-loading, that's the question.
I find it hard to believe that HFT's are stupid recipients for stock offloading by "smart" investors. Yes, they buy everything at certain moments, but only if they are mathematically sure that they can dump them at marginal profit later on. We tend to think that matched trades occur within fractions of seconds, but perhaps a part of the trades is postponed minutes, hours or even days...?
Man if I were running money and I had any kind of leeway as to how large my cash position could be, I'd be whacking those bids like it's going out of style...because someday it will, and there will suddenly be no bids.
Will this cause the market to drop? That's nice. The fed will be there to make it rise using the patented pump button.
What exactly does the Material section include? Gold?
If this means less unwashed masses will get burned when SkyNet itself goes to the Hamptons (or has a simultaneous hard drive and UPS failure), then let the 'smart money' dump their entire portfolios on these alpha-slaying bluffer-stuffers.
Perhaps the expiration price target of coming Friday is 1100 on S&P, it seems they will succeed again...
gullible computers - mans only hope of survival
Come on!
Is there not one person here who thinks that this is just the most efficient system in the whole world?
These people are just making trading, and losing all your money, so much easier.
A nation of whores, hustlers and pimps.
Yes we are.
This certainly explains why certain stocks are selling at ridiculous valuations and have heavy insider dumping....if I were an insider at one of thes companies, I too would be selling as fast as permitted....feed it to the machines.
Mitigate risk ? What for in an ZIRP environment and FED buying long end ? A model only works as long as the parameters are identical. Parameter change = model change. You want to make alpha ? Squeeze it out of HFT algos. Lesson learned: don´t fight HFT algos and FED. Move on.
Cash out your chips and leave the casino people.
Keep it physical...keep it safe.
For me, we're in a trading range (Dow) that will break down eventually. Would I change my bias if we were higher? Sure, but we'd have to be materially over 11,000 for me to even consider it.
I've been putting on put option positions, fencing with the writhing beast as the bids fly and I nearly get skewered (thanks Fed!). In the end I think the final gasp will be issued, and as always - I'll be positioned for a good swing trade.
It is an exhausting road, but there is going to be an event that will clean out more than the market - it may break the HFT algos as well.
Good trading, everyone...
There are certainly a lot of details like that to take into consideration.I read and understand the entire article and I really enjoyed it to be honest.
virtual server hosting
windows 2008 vps hosting
mssql hosting
windows vps server