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NYSE's Latest Benevolent DMM Getco Slapped With $2 Million Fee For Improper FSA Reports, As SEC Begins To Track HFT Trading

Tyler Durden's picture




 

In an ironic twist for one of the biggest liquidity providers in the world, and now a brand spanking new DMM on the NYSE, giant quant trading firm Getco was just slapped in the UK with a $2 million fine for "failing to make accurate reports of transactions." It appears that these may very well have been purposeful transgressions masking some improper underlying trade activity, because as the WSJ reports, "the FSA said the errors were particularly serious because they took
place during a period of heightened awareness around transaction
reporting because of Mifid's implementation." In addition to Getco, Credit Suisse (which lately has been peddling its own algo product suite) and Instinet have both been fined. In other news, the farce that is the SEC is now threatening to tag HFT firms and keep a very much private and internal track of their trades. HFT algos in turn are shaking in fear in anticipation of their manipulative practices being uncovered by a bunch of transvestite porn aficionados... Not.

More from the Wall Street Journal.

Credit Suisse Group Inc. (CS) was fined GBP1.75 million Thursday by
the U.K. Financial Services Authority for failing to make accurate
reports of about 40 million transactions, mostly U.K. stock trades.

The fine is the latest in a series from the FSA for data failures
at financial firms, and was announced along with a GBP1.4 million fine
for market maker Getco Europe Ltd. and a GBP1.05 million charge for
broker Instinet Europe Ltd. All of the breaches came after the November
2007 introduction of the European Union Markets in Financial
Instruments Directive, known as Mifid, which required more and greater
standardization in transaction reporting
.

The FSA said Credit Suisse failed to report 30 million London Stock
Exchange transactions in the period between November 2007 and November
2008, because of the bank's mistaken belief that an external service
provider was making the reports on its behalf. A further 10 million
transactions were misreported by Credit Suisse's own systems, with many
of the reports listing the wrong counterparties, currencies or time
stamp.

In all, the transactions represented about 25% of the total Credit Suisse was required to report to the FSA in the year.

The FSA found that Getco either failed to report transactions at
all--again, because it thought a contracted third-party had--or that
transactions contained inaccuracies such as a wrong time stamp in a
period between November 2007 and March 2009.

A Getco spokeswoman said the company has taken actions to make sure
this type of error doesn't happen again, and that no investors or
market participants had been affected by the problems.

We wonder just how few market participants are being affected currently as Getco may or may not be using Flash to prescreen orders and reroute order flow between various exchanges. Oh yes, remember that whole Flash trading debacle? Well, after making a ruckus and saying it is banning it, the SEC still hasn't done anything officially from preventing the large liquidity "providers" from front running all institutional large blocks as Flash is still perfectly legal on all exchanges! And the exchanges wonder why so much traffic is moving to dark venues. Amusingly enough, say you do say enough to a manipulated exchange-based market and want to trade in dark pools (assuming you are a multi-million QIB and can afford Sigma X), well, then you get sub-pennied to death, as the algos front run all of your trades there as well, in blatant violation of the NBBO. The logical alternative, and the one we have been endorsing for months, to simply stop trading until things are fixed, just does not seem to compute.

Amusingly, the SEC is once again posturing and pretending it cares about the market which has not been efficient, or unmanipulated since about the early 1990's (and even then specialists would rape and pillage whatever they could - just ask Goldman and why it acquired Spear Leeds & Kellogg). In the latest itteration of its buffoonery, the SEC has announced it would now "track" High Frequency Trading firms and presumably isolate those orders. Why they are doing this is completely unknown - after all wasn't all HFT perfectly normal and nobody suffered as a result of massive momentum pushes away from equilibrium in either direction?

From Reuters:


Under the new plan, the Securities and
Exchange Commission (SEC) would give the trading firms unique
identifiers, which would tag every high-frequency transaction, the
newspaper said.

These identifiers
would also allow the SEC to keep track of traders who are not
registered market makers or broker dealers, the Journal said.

And just in case you thought that this is data that would actually be useful, think again - only the SEC will be privy to its contents. We hope it supplants the regulator's daily trafficking of such wholesome activities and transvestite and kiddie porn. But who are we kidding.

The tagged trading data, released a day after transactions were executed, would be available only to regulators, the paper said.

Lastly, it appears that the HFT qualifier would likely be applicable to exactly zero firms as even that is based on the SEC's discretion.

It is not clear which type of traders and transactions would fall under the SEC's tracking program, the paper said.

We hope that Senator Kaufman, in applauding this move, will continue his push for much more transparency, as in reality everything that the SEC has done over the past year in its effort to become more "efficient" and "transparent" has been a farce at best, and borderline criminal enabling of continued market manipulation and perversion of efficient market practices at worst.

Sen. Ted Kaufman (D-Del.) released the following statement today in response to news that the Securities and Exchange Commission (SEC) will consider on April 14 a proposed rule that for the first time would require high frequency firms that trade over a certain volume threshold to identify and report their trades to the Commission.  The rule is being considered under the SEC’s existing “large trader” reporting authority.

“I applaud the SEC for moving forward with a proposed rule to require tagging of high frequency trades. This is the first step to ensuring the SEC can better understand high frequency strategies and detect any manipulative algorithms. As I have said, the need for transparency and fairness trumps liquidity. 
 
“I further believe the Commission should mask the proprietary nature of this data and release it to the marketplace – or at least to academics and private analytic firms under ‘hold confidential’ agreements – so that independent analyses can be conducted on this data to assist the Commission in determining whether certain algorithmic trading strategies are illegal under existing anti-manipulation law.
 
“The Commission, Congress and industry all must work together — in the interests of liquidity, efficiency, transparency and fairness — to ensure our markets are the strongest and best-regulated in the world. But we cannot have one without the other — for markets to be strong, they must be well-regulated.”


 

 

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Thu, 04/08/2010 - 13:46 | 291764 JJP
JJP's picture

Hello my name is Jon and I am a serial short seller; I know I have a problem and I want to change my ways…..  There now iv said it I feel much better and I hope im now on the road to recovery

Thu, 04/08/2010 - 14:03 | 291788 JJP
JJP's picture

Turns out Im not cured cus im just trying one more….

Thu, 04/08/2010 - 14:04 | 291790 AR15AU
AR15AU's picture

HFT Trading is like an ATM Machine...  ;)

Thu, 04/08/2010 - 14:13 | 291804 carbonmutant
carbonmutant's picture

Do the algos have linking ports?

Will they engage in coop trading?

Thu, 04/08/2010 - 14:19 | 291813 RowdyRoddyPiper
RowdyRoddyPiper's picture

Transvestite porn! Now I gotta get a gov't job!

Thu, 04/08/2010 - 18:48 | 292243 omi
omi's picture

Cynic in me says something more serious was uncovered, delivered to top management of supervisory board, board had a chat with the offending party and said "Look, we have to fine you one way or another. Come up with something insignificant, pay a small fine and we close this right now."

Thu, 04/08/2010 - 20:01 | 292351 Buck Johnson
Buck Johnson's picture

Thats what I was thinking.  With that many trades not being tracked (which is BS, I know they had to know for their "front running accounts" with Goldman or whomever) they saw or did something.  Then decided to charge a 1 percent fee on the offenders or a certain dollar/pound amount on them so when the fine came (which is small compared to the hundreds of millions if not billions they transact) it wouldn't be enough to hurt them.  And at the same time they got away with throwing away the receipts with nobody except a few knowing anything.

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