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Max Keiser: Big Banks Allocate Losing Trades to Clients, Keep Winning Trades for Themselves
Max Keiser - journalist, former Wall Street broker and options
trader, and inventor of the software which is now being used for high
frequency trading - claims that the big banks retroactively allocate
losing trades to their clients, and keep the winning trades for their
own proprietary trading desks:
This
is the second time in the couple of weeks that Keiser has made this
allegation. When he first brought this up, Keiser said that he has
first-hand knowledge of this unlawful activity because - when he was a
trader - he and everyone else did the
same thing.
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sorry but I think GS is trivial in this video, the more interesting part is the conspiracy to defraud municipalities through GIC's thats the freaking bomb!
I could tell stories about how brokerages screw their clients all day long. Here's one:
You're a broker. You see some marginally attractive bonds in inventory. You put in a bid for the bonds at the offering price. They disappear; no fill. A few minutes later, they come back into inventory with a markup. If I'm a broker, I already sold my clients on buying the bonds. Now I have to go back and tell them that the YTW just changed by 30 bps, or whatever. What do the clients do? They remember all of the good things you said about the issuer, and how well the maturity fits with their portfolio, and they buy them anyway.The client just made a contribution to the desk's bonus pool, and some amoral prick just earned his lapdance money for the evening.
This kind of stuff isn't illegal, and it happens *all* the time.
Some of the greatest saints once were the biggest sinners--we all make mistakes, but it is divine when we actually stop doing something when we realize it is wrong or unethical--
BRAVO MAX!!!
AND THANK YOU FOR YOUR PASSIONATE CRUSADE!!!
No doubt agrotera. Where have you been hiding yourself? Take care fire starter and here is to an awesome day! peace
crusade or jihad? :-) I'd say that since he's on Press Tv its more likely jihad. The station is owned by Iranian government after all.
by the way he stopped doing this when he stopped working on wall st, so its a stretch to believe he has only just figured out it was wrong or unethical.
That nice of Max to inform us he did this same illegal activity, but only raises it publicly now?!!
Pot, kettle, black - springs to mind.
If the "market makers" weren't doing it they would lose face with all of the other supposedly real go getters (like those that set BP's "rough necks in pinstripes" corporate culture) West end boys and Goldman envy meet once again with all too predictable results.
Sqworl, still got that red sharpie? I suspect that it would see greater use under existing circumstances than my green & blue ones would...
This is really not funny...What are we gonna do about it?
I always wonder why i never/rarely ever meet or hear from a succesfull ex prop trader from Wall street that runs a succesfull money management outfit. Surely as the basic material is just money it is very easy to go it alone and break away from this crazy institutions and abandon your bullying boss, avoid the blue suit on hot summerdays and flock into an office building in the middle of cities that have a very low quality of life. I am sure all those geniuses are either carry long traders untill something goes wrong or frontrunning based on Ehum macro or micro research or client flow. The last one is of course the reason that the most widely used benchmarks like the MSCI and FT acuaries are sponsored by MS and GS for exclusively humanitarian reasons :)
Just posted a EURO monthly chart ...
http://stockmarket618.wordpress.com
http://www.zerohedge.com/forum/latest-market-outlook-1
If you were a client of Goldman Sachs, they might have sold you bag full of dead fish with full knowledge. They also might have advised you to buy this or that bond or equity. If you bought that bag of dead fish or followed up on those bonds and equities, you probably lost your ass. And you paid them to do that to you.
Meanwhile their own trading desk has not booked a loss this year, or something as stupid and improbable as the New York Yankees not having lost a game this year, either.
So, are the banks fleecing their customers? Yes, of course, no other conclusion is possible. Are they following a different investment strategy than the ones they peddle? You can't seriously argue that they are not without being laughed out of the room.
Still asking. Do Primary Dealers/Brokers get expedited settlement inside of 3 days? Here's the answer I got from Rob Kirby (kirbyanalytics/financialsense.com) who answers all emails and questions, fyi:
"I’ve worked in both institutional and retail environments and deviations from regular settlement – while they can be done – are virtually NEVER done as they raise huge red flags for even the most useless and corrupt of regulators. If this were happening on a grand scale it would be like a policeman storing kiddy porn tapes in his locker in the precinct – in other words – not a smart move.
I would not suspect there are expedited settlements happening on any meaningful scale."
max also invented the internet
Forewarned is forearmed. Great information and confirms my intuition to leave stocks a decade ago. The question of “is there ANYTHING you can trust” is becoming more difficult to answer. Complete collapse of trust may not be a good thing.
I actually heard a fairly credible rumor along these lines a few years back. I'm a CPA, with mostly 1040 clients, the overwhelming majority retired. I watched their brokers moving them into SMAs (separately managed accounts - like a mutual fund in that decisions were made centrally by a manager on Wall Street, but the actual fills were made in separate accounts in their names - in theory at least, there were certain advantages over a fund). What I noticed in 95% of the cases, these SMAs horribly underperformed their benchmarks year in and year out. But I had a few who undeniably outperformed - the only constant was that the 5% had vastly larger accounts. I had another client who was in fact a broker - and one of the rare good ones. He despised the SMAs for what they were. But every once in a while he'd inheret a new client that had one. He hated getting these things, always took time to work the client out of them. But what he noticed in the interim was that 90% of the stocks that came into the accounts came in with a tax basis that was higher than market price on the day it arrived - further the tax basis was always within the trading range 3 days prior. The manager of the SMA had discretion, but had to make allocations within 3 days. His theory was that the manager would buy a chunk of shares - say perhaps the day before earnings. At that point he had 2 plus days to decide which sets of clients got those shares. Earnings good - the A clients got them. Earnings bad, the C clients got them. You have to admit, to the extent this was the plan, it would be a brilliant plan. C clients are too stupid too notice. 99.9% of their brokers are too stupid to notice even if they really cared in the first place. And it completely explained what I was seeing on the very back end looking at a wide variety of clients, of different magnitudes of wealth. My wealthier clients were no doubt B- clients of the manager.
-All SMAs are not equal in the sense that they could have different directed broker relationships with different fee schedules at those brokers. Most retail broker commissions are low and transparent these days but older, legacy accounts (Merrill in particular) may have older, transaction-based fee schedules that wrap in the broker's "advisory" services. Back in the late 70's/early 80's retail fees were made purposely difficult to calculate and variable in response to government charges of price fixing when commissions became deregulated and there was a race to the bottom on retail trade commissions. $300 per trade commission (broker's "advice" fees are rolled in remember) is not unusual for one of these old-school accounts. A smaller account that is traded a lot will suffer the $300-a-trade cost more than a larger account will that pays the same amount per trade. Or, if the larger account has a completely different (and cheaper) system at a different broker (but same manager) he will outperform with the same trades too.
-So that's one thing but this wait-and-see allocation business is bullshit. It is legal to put together an ad-hoc block trade and allocate to SMAs after the fact. A legit example would be if the manager is trying to buy some fast moving and/or illiquid stock and is unsure how many shares he will be able to get. At this point a pro-rata allocation among many SMAs may not make sense because positions will be too small - so you can pick and choose only a few, as long as there is no regular favoritism. However, two days later is bullshit and almost certainly illegal especially if certain accounts are regularly favored.
My god.... and what was the average value of the portfolio of a C client?
Great post.
So the banks are going through the decks grabbing all the Aces and Kings then dealing out the rest to their clients. Neat.
This isn't a Casino, that implies that chance has some say. Nothing left to chance with these guys.
What part of "heads they win , tails you lose" dont you understand she was asked. She said the part where I dont find work or pays the bills. Oh yea thats the part no one talks about, just sit on the sidelines while they print up the money to save the banks you owe. Does that mean the bank will still take my house? I dont know but its unlikely that there are millions ofbuyers for all those houses so just stay in your house and plant a garden..
What part of "heads they win , tails you lose" dont you understand she was asked. She said the part where I dont find work or pays the bills. Oh yea thats the part no one talks about, just sit on the sidelines while they print up the money to save the banks you owe. Does that mean the bank will still take my house? I dont know but its unlikely that there are millions ofbuyers for all those houses so just stay in your house and plant a garden..
I like Max Keiser's energy, and wit (dramatic sarcasm). BUT I know he is morally corrupt, at judged against my values, so I have to watch what I'm getting from him. I think he really wants the world to go to shit fast so he can say he was right. Boycott Coke? come on, how arbitrary is that? a lot of good people make honest livings with that company. I like coke, and pepsi for that matter...
The only reason he advocates boycotting coke is because it's structure would work so well in a boycott then short tactic. Cant you see that Dupont would be harder to boycott and the boycott and short strategy would not work ?
"Can anyone confirm?"
I think we all know the answer to this one....
Go ahead and try placing a market order with Mercer. They fuck you so hard that you will pay the high end of the candelstick at any moment. I swear they change the market direction the minute I place any trade. I'm in cash now... Let it crash... On volume.
I want to knowif these SCUMBAG PRIMARY DEALERS windowdress, do they get PRIORITY SETTLEMENT IN LESS THAN 3 DAYS?Anyone?
THAT'S THE PAINTING OF THE TAPE TODAY, folks.
B-Hater
It's certainly tempting. At some firms it might be possible. In my last SEC exam, trade allocation was scrutinized very carefully. Since we pool all trades and allocate average price fills to everyone, no issue. Lots of wiggle room, though, especially in firms that aren't automated.
That was how Hillary Clinton made $100,000, as the bag lady (how apt) for bribes to hubby when he was governor in Arkansas. She claimed she just kept up on finance by reading the Wall Street Journal. But winning trades were credited to her and losers to others by the bribing institution, I forget who it was.
Fred Hayek: your comment about Hillary Clinton reminded me of the wife of Inspector Clouseau in the first Pink Panther movie where inspector Clouseau is questioned in court as to how, with the moderate pay of an inspector, Mrs. Clouseau could afford a mink coat--Clouseau responds "yes, my wife is very frugal'
That $100,000 profit was in one day and she never did it again. That profit in the 1980s was when $100,000 still was worth $1.98. I used to read the Wall Street Journal but I always managed to take the losing side of the bet. I, once upon a time for example, bet the ranch that your government would do the right thing. Bye-bye ranch. No wonder I flunked the first grade.
This was also my first thought
I think it was called Whitewater but I have a fading memory so don't hold me to it
I think a couple of flunkies did some time but as everything else the Clintons stayed teflon even with totally absurd set of facts
Some flunkies did time while others that knew way too much either found small caliber bullets bouncing around their craniums or died mysteriously from heart attacks. Those that knew how to keep their mouths shut were graciously allowed to survive.
You know you're on the way to an Imperium based upon the number of dead bodies stacked up to form the steps up to the portico.
It was REFCO. A good, honest firm.
George, allegations to that effect re: Goldman Sachs have been all over Zero Hedge for the past year or so.
Dark Pools are dark on purpose. As he said, 7 out of 9 loosing trades for GS clients versus a perfect quarterly trading record suggests they are allocating winning trades to themselves and losing trades to clients. That many wins in proprietary trading is impossible in a free market.
The market is a money laundering scheme. Representatives that recently voted against making inside trading for representatives illegal have beat the market by 12% on average in a recent study.
Also with naked shorts on the derivative market and HFT round tripping trades, the price can be whatever they want it to be (like forcing the flash crash to threaten congress to change financial reforms).
There is a rumor of an Interpol investigation currently underway with many of the current who's who on the list of Wall Street names that are being questioned in the UK and US.
Just a minor disagreement: Interpol is NOT, repeat NOT, an international police force, with its own agents who could be sent anywhere in the world to start investigations. It is simply a coordinating agency. Police forces from all over the world send Interpol requests for information or arrest warrants, and Interpol then sends said information back to all its members.
For more information on Interpol, see: http://www.interpol.int/public/icpo/default.asp
For an example of international cooperation facilitated through Interpol, check out the Interpol front page, as they have several examples.
So, no. No arrest by "Interpol" agents is going to take place. What may happen, though, is that a governement that is seriously upset about market manipulation could send Interpol international arrest warrants for, say, a certain "Jamie Dimon" (because of, let's say, fraud and theft). Then, it will be up to national police forces to decide whether or not to arrest this person, if he is indeed found on their local turf.
"1 for me, zero for you, 1 for me............"
Interpol.
Don't tease me now...
How about Mossad.
I'm starting to wonder what purpose Wall Street serves at all any more. We don't allow gambling in my state, so why do we have to allow a crooked casino to sit atop the economy? It's long past time to make banking really really boring again.
+1
George asked if anyone can confirm. Actually, that's pretty easy. You don't need to subpoena meeting notes, nor a business plan, nor confirm "hallway conversations". Rather, look at "profitable trading days" for the banks at 100% of the time (suspicious by itself), and compare with the stop-outs and failures associated with "recommendations" by the firms for their clients.
The "recommendations" are easy to quantify regarding "value". They have been *so bad* lately that one of Tyler's classic quotes was something like, "Have Mercy on your clients and shut-the-f*ck-up!"
In short, a *very* simple statistical analysis shows that banks screw their clients, and keep the profitable trades to themselves. Further, IMHO, they intentionally mislead their clients so they can front-run the trades. Further, bucket shops work best when your client buys crap, you don't do anything, and you clear high profits since you never executed in the market (the whole purpose of the dark pools is to take the *other* side of the transaction, netting profit when the client loses).
Is this on purpose? Or by accident? Doesn't matter. It's true, and statistically demonstrable with a high "R-value".
The technical terms for how one deals with ones clients, from prop desk at large bank, are:
"rip their lungs out"
or
"rip their face off".
We are much too courteous to actually pull our pants down and screw them. Though it feels much the same, I suppose.
However, GS' 100% hit rate comes from providing liquidity, not taking it. Clients don't even get a chance at making those trades without an added spread or commission.
and the old game of transforming client assets into commission, fastest wins. The trick is shooting from the hip and tight stop loss. A winner... And as you know where your clients stops are double whammy. Heard Saxo bank being sued for just that.
The U.S. needed to torch the Euro to destroy the only alternative to the dollar--
it has worked,
and given the U.S. a reprieve,
allowing to continue to finance its deficits in its own currency.
well that would sure make it a lot easier to never have a losing trading day....and as long as you throw out predictions to your clients that are opposite of what you actually think they'll believe its legit
duh, call the order to the floor and follow up with the tickets with account numbers later. We used to do it all the time.