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Prima-Facie Evidence The NBBO Is Broken Explains Why Senator Kaufman Is Getting Very Angry With A Corrupt SEC

Tyler Durden's picture





 

One of the key tenets of Reg NMS (which has always been the cherry on top of a long process that began with a bunch of Wall Street banks and quants bribing regulators and politicians to first roofie stocks, and subsequently culminating with the gang rape by pimply 18 year old math Ph.D.'s of the entire stock market) is the "sanctity" of the NBBO: whatever happens, whatever insanity prevails in the market, buyers would always be prohibited from crossing the best offer, and sellers - the best bid (incidentally, there are exclusions to the rule but they occur only in options paired strategies). Which is why we read with great (lack of) surprise the latest piece by Nanex (recently famous for their dramatic quote-stuffing "crop circles" which day after day exposes the thieving douchebaggery of the HFT community for all to see, not to mention the criminal complicity of the SEC), that puts the very validity and credibility of the most fundamental concept of the stock market into question. In brief - Nanex concludes, and we certainly agree with them based on the presented evidence, that " the
NBBO system cannot be relied upon and is meaningless
."

What has set off Nanex so much? An ultra-detailed analysis of the May 6 crash has revealed that in the seconds and minutes immediately following the initial slam in the market, the dissemination of the NBBO by the Consolidated Quote System (CQS) would at times lag real time changes in stock crosses (as disseminated by such premium products as NYSE's OpenBook) by as much as 24 seconds! For those of you who don't need to look up latency arbitrage this should immediately make it clear why unless you are on the thieving team, you should immediately shut down shop and get the hell out of dodge. As the chart below demonstrates, the pinnacle of US stocks (at least until bankrupt crap like FNM, FRE, C and CIT took over), GE saw its CQS timestamps lag OpenBook by almost half a minute. In simple terms this means that a few hundred people knew well in advance that the stock was really trading at $15 even as Bloomberg and other commodity price dissemination services that subscribe to the realtime CQS were still showing $16, or maybe more. This is a criminal abuse of the most basic tenet of the stock market, and indicates that in times of stress only those who pay millions for their trading infrastructure (collocation services, frontrunning everyone else via DirectEdge, OpenBook accounts, etc) have a realistic view of what is really happening with the market! Note the latency at 14:45:55 below:

The ramifications of this phenomenon for real time pricing, and therefore, for market intergrity as a whole are humongous. In essence:

THE NBBO, IN ITS CURRENT MANIFESTATION, IS IF NOT BROKEN, THEN UNSTABLE AND COMPLETELY UNRELIABLE!

In case of doubts, Nanex has been kind enough to present several other charts the highlights precisely this phenomenon. We present these, together with Nanex' observations side by side:

The following charts demonstrate how an exchange's quotes can be chosen as the
NBBO for that stock even when the quotes are woefully stale.

Chart 1 - 05/06/2010, Symbol LOW. The NYSE feed begins to delay at
approx 14:42:40. We take a close look at the exchange crosses at 14:43. From
peak to peak it is easy to determine the NYSE quotes are slightly behind
although the time stamps are current.

 

In the detailed charts below, when an exchange has the BBO quote it is tagged
with a circle on the exchange's price and size line in the exchange's
designated color.

Chart 2 - 05/06/2010, Symbol LOW. In this chart you can see a detailed
slice of time (from 14:43:00 through 14:43:24 and highlighted in the above
chart
) when quotes were initially crossing, CQS would choose NYSE, NSDQ,
BATS or PACF (not shown for clarity) quotes as the BBO.

 

Chart 3 - 05/06/2010, Symbol LOW. In this chart you can see the full
picture again from 14:41 through 14:46. Notice that when the price began to
plunge the NYSE quote was consistently picked as the best bid despite the fact
that during the plunge NYSE quotes were significantly behind.

Nanex' conclusions are all spot on:

Conclusion: Put simply, if CQS (Consolidated Quotation System)
does not determine that quotes from a given exchange are stale, the possibility
of it choosing those quotes as the BBO is inevitable. It is obvious from
these charts (and from those presented in out original
Flash Crash
Analysis
) that the NYSE quotes are stale. Furthermore, since the quotes
are time stamped when exiting CQS, other market participants could not detect
the NYSE quotes (and therefor the current BBO) were stale.

As small lags in time from quotes sent through CQS happen every day, the
NBBO system cannot be relied upon and is meaningless until the time stamping
mechanism has been fixed
. This situation also makes the potential for
latency arbitrage even more suspect as participants receiving premium
NYSE products (as opposed to CQS) can detect these delays where-as
others cannot. In the age of HFT's, where quotes can be sent at rates exceeding
5,000 quotes per second for one issue and can effect the BBO, delays of even
200 milliseconds (or less) become a lifetime.

CQS (Consolidated Quotation System) is the method in which 99.9% of all
US market participants receive their data and is also responsible for
calculating the NBBO for all listed stocks. There are however premium products
direct from the exchange which are not disseminated through CQS. One such
product is OpenBook from NYSE. In comparing time stamps of quotes from CQS to
OpenBook, it is clear this time delay exceeded 20 seconds in many cases.

While Zero Hedge has been discussing the various nuances of just how fragmented and outright broken the market has become over the past 2 years, we have never encountered an example which puts the very foundations of Reg NMS at question. For without an unquestionable faith in the NBBO, who knows just what manipulation and outright fraud may be occurring behind the scenes: in those times when the CQS is delayed, those on NYSE's OpenBook, for example, can sells dollars away from the delayed best bid (and buy away from the best offer, although during a market crash there is little worry of this happening). It also begs the question: how often does this form of latency arbitrage occur, handing our free money to all those who enjoy the benefits on secondary, Non-CQS disseminated quotation systems. Of course, OpenBook would pay off for itself in a nanosecond if the new client knew that the regulators not only endorsed but facilitated this kind of daylight robbery of the "dumb" tier of market participants.

This is the kind of stuff that makes one's blood boil.

Luckily, there is at least one person who still believes in market integrity. Below we present Senator Ted Kaufman's latest letter to the SEC in which the Delaware senator writes "once again out of concern for the credibility of our equity markets." The 11 pages that follow are precisely the reforms that need to be initiated for the vast majority of the investing public to regain some faith in what has become a criminal free-for-all, far worse than any casino that may have graced the LV strip any time over the past century.

 

 


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Wed, 08/18/2010 - 16:01 | Link to Comment unwashedmass
unwashedmass's picture

 

good for kaufman. of course, he shouldn't take any trips in small planes for the next year or two.

Wed, 08/18/2010 - 16:29 | Link to Comment Quinvarius
Quinvarius's picture

I have noticed bad things tend to happen to people in the ethanol or electric car business when they fly small planes.

Wed, 08/18/2010 - 16:58 | Link to Comment Careless Whisper
Careless Whisper's picture

and washington d.c. madams get suicided too.

http://www.prisonplanet.com/articles/may2008/050308_overwhelming_evidenc...

 

Wed, 08/18/2010 - 17:01 | Link to Comment dan10400
dan10400's picture

Don't dwell too much on oil spills as well if you plan to spend some time in your hot tub...

Wed, 08/18/2010 - 17:28 | Link to Comment Ricky Bobby
Ricky Bobby's picture

Fell off my chair. :)

Wed, 08/18/2010 - 20:37 | Link to Comment Phil
Phil's picture

TK is a lame duck in Nov.

SEC will not even read the letter

Thu, 08/19/2010 - 06:58 | Link to Comment Tense INDIAN
Tense INDIAN's picture

and small boats too

Wed, 08/18/2010 - 16:05 | Link to Comment egdeh orez
egdeh orez's picture

Angry, Bitchez!

Wed, 08/18/2010 - 16:09 | Link to Comment Jean Valjean
Jean Valjean's picture

I'm about to bid on an ebay auction.  Do you think the same thing is happening there?

Wed, 08/18/2010 - 17:00 | Link to Comment Careless Whisper
Careless Whisper's picture

u prolly o.k. there, the sec isn't involved. they protected bernie madoff for ten years.

http://www.digitaljournal.com/article/266642

 

Wed, 08/18/2010 - 17:21 | Link to Comment Noah Vail
Noah Vail's picture

Yes, the ebay system is rigged to keep forcing you to bid higher; the current high bid shown is usually fraudulent. Bid $1 dollar higher and it will tell you its already bid at that price.

Wed, 08/18/2010 - 18:00 | Link to Comment Ragnar D
Ragnar D's picture

The bid you see isn't fraudulent, it just isn't the high bid.  As with a live auction, ebay auctions are won by the 2nd highest bid.

That is, if you're willing to pay $100 for something and I'm willing to pay $200, we'll bid back and forth (75, 80, 85...) until we hit your max of $100.  After that I'll just bid one increment above that (101, 105, w/e) and you'll be out of the market.

ebay expedites this with autobidding.  We both put our maxes in, and it immediately takes the current "high" bid to the lowest it needs to be.  If the auction is at 50 your 100 will take it to 51.  Other bids above that will auto-bid you up to your limit of 100.  My limit of 200 will outbid anything up to that, stopping just above the next highest bid.

 

That's why your 100 will immediately get outbid at 101, and if you change your mind and put in 150 you'll immediately get outbid at 151.  You have to top what others are willing to pay (in this case 201) to keep the top bid.

Wed, 08/18/2010 - 19:04 | Link to Comment RockyRacoon
RockyRacoon's picture

You'll have to forgive those who speak of things they have no experience in.  I've been an eBay seller since 1998, feedback 100%, sold over 23,000 items and have never had a documentable incident of so-called eBay fraud.  I've had 3 bad checks, 2 of which were made good.  Sure, there are non-payers but they are easily dispatched.  I have a lot of beefs with eBay but fraud is not one of them.  I've used Paypal since the days it was free with not one glitch, none.  Those who tout it don't know the actual conditions.  So, what's new about people blabbing about stuff they don't understand?

Thu, 08/19/2010 - 04:57 | Link to Comment Pondmaster
Pondmaster's picture

The best way around bidder and eBay madness is to not start the bidding process at all , Driving prices too high . I use AuctionSniper.com . I place the bid for what I am willing to pay , and they take care of the rest . Its like a stock buy till cancelled order . Exactly , except , you may get out bought at the end of auction . But you avoid the emotion of watching the price move towards end of auction , and fear of not "getting what you want , when you want it" . My bid time is set 5 seconds before close . and my price bid is always , "$ xx.60 " . I win more than I lose . always 

Thu, 08/19/2010 - 12:51 | Link to Comment RockyRacoon
RockyRacoon's picture

Another smart eBay user.  I use esnipe.com and set my bid to post 7 seconds before closing.  If/when eBay gets smart and does an automatic extension of the auctions when bids are being posted near the end, these auto-post sites will be in big trouble.  Placing bids manually is suicide.

Fri, 08/20/2010 - 02:20 | Link to Comment Ragnar D
Ragnar D's picture

These still only work if you're higher than everyone else's high bid.  If the bid is 50 but someone else's max auto-bid is 100, your last minute 55 bid will immediately be topped by theirs, no matter how close to the end you are.

The advantage you're getting is that someone can't reconsider his high bid since the auction's over.

 

GunBroker, btw, already has the auction extension.  I believe it's an automatic 15 minutes tacked on after any new bid.

Wed, 08/18/2010 - 16:16 | Link to Comment Kaiser Sousa
Kaiser Sousa's picture

Tyler -

hey man i posted an exert from 1 of ur articles today as i do often n attempts to bring some gospel to the knuckleheaded masses.  i meant no disrespect if i violated copyright's man as i resect the work here.  but i thought u might find this amusing.  please tell if i should refrain from citing ZH n the futrue  as i will respect that...peace...

 

Hello KaiserSouza,

The comment below was deleted from the MarketWatch Community because it was a violation of copyright and/or our Guidelines.

http://community.marketwatch.com/faq#guidelines

Please do not copy-and-paste material found on another Web site.

While we understand that "fair use" means many things to many people, we take a very narrow view. If you think there’s a "must read" out there, tell folks why they need to read it, grab a couple of cool quotes, make sure you give attribution and then add the link.

That said, you should link out to credible news sites. Comments with links to sites spouting hate, propaganda, conspiracies or promoting sales and services will be deleted.

Regards,

MarketWatch-Admin

http://www.marketwatch.com/story/us-stocks-off-session-lows-bolstered-by...
"Behold - ur free, fair, and balanced markets...happy trading.....

"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 "@#$%&!" 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."

http://www.zerohedge.com/article/institutions-now-actively-selling-hft-p..."

KaiserSouza Aug 18, 2010 12:14 PM

whatever...Zero hedge  commentaries r not copywritten when from internal staff...
nice try - i meant lie....

MarketWatch-Admin Aug 18, 2010 12:30 PM

Shame they slap this on their Web site: copyright ©2009, 2010 zero hedge

In any event, moderators don't have the time to investigate every case of copy-and-paste to see if the originator allows the free dissemination of their property. We will yank copy-and-paste and we will yank accounts when it's clear that this rule is understood and being ignored.

KaiserSouza Aug 18, 2010 2:49 PM

"That said, you should link out to credible news sites. Comments with links to sites spouting hate, propaganda, conspiracies or promoting sales and services will be deleted."

1) u forgot 2 include propaganda, reporting devoid of insightful analysis, thorough investigation, and cogent commentary rooted n a clear understanding of all things financial, economic, and monetary...
but oh yeah, that would require deletion of the entire site let alone the nonsense ur "so called reporters" regurgitate on a daily basis to the clueless that unfortunately do not possess the sagacity to recognize ur propaganda for what it is...Propaganda.
2) i gave ZeroHedge its props n listing the link with the exert. so, as Gary Coleman would have said - "watch cha talking about MarketFarce"...

3) as i stated earlier...Whatever. spend more time encouraging ur "journalist's to undertake some real journalism and less time lecturing the likes of those who c thru this mainstream media disinformation hub.....

Wed, 08/18/2010 - 16:50 | Link to Comment Tyler Durden
Tyler Durden's picture

While we certainly could not care less, perhaps you should follow Market Watch's advice and link only "to credible news sites. Comments with links to
sites spouting hate, propaganda, conspiracies or promoting sales and
services will be deleted
." In the future, to make sure the moderators at MarketWatch do not ban you, you should only link to theStreet, CNBC, and, of course, parent company WSJ, where critical financial articles have to be precleared by the Federal Reserve.

Wed, 08/18/2010 - 17:01 | Link to Comment cougar_w
cougar_w's picture

+11 FTW!

Wed, 08/18/2010 - 17:39 | Link to Comment Kaiser Sousa
Kaiser Sousa's picture

Thanks for the response & guidance...

now, sarcasm off - right...

Wed, 08/18/2010 - 18:35 | Link to Comment MichaelG
MichaelG's picture

+quadrillion x10 It is coming to something when Tyler Durden is your day's inspiration. I say 'your'; I mean 'my'. Let's hope it's just me.

Thu, 08/19/2010 - 05:03 | Link to Comment Pondmaster
Pondmaster's picture

Touche !!!!

Wed, 08/18/2010 - 17:29 | Link to Comment DarkMath
DarkMath's picture

Kaiser Sousa,

CBS Market Watch doesn't want you posting Zero Hedge articles because if people found out how much better ZeroHedge is they would leave Market Watch en masse.

Wed, 08/18/2010 - 17:46 | Link to Comment Kaiser Sousa
Kaiser Sousa's picture

D-Math:

nice thought but doubtful as there is a serious density defict on display over there....

Wed, 08/18/2010 - 18:51 | Link to Comment _Biggs_
_Biggs_'s picture

See if they'll keep a link to deepcapture.com over there.  I've had that removed from website comment sections on several occasions.  No replies, no explanations...my comments just evaporate into thin air like a fart in the wind.

Wed, 08/18/2010 - 18:10 | Link to Comment JonNadler
JonNadler's picture

In any case they don't let anybody say anything bad about me in Marketwatch. Try quoting me (with proper citation) and poving am an arrogant fool and your account will be deleted. I rule MW baby.

Wed, 08/18/2010 - 16:19 | Link to Comment Kayman
Kayman's picture

Tyler

Is the whole system now corrupt ??  Is the nation entirely corrupt ?? Tell me it isn't so Joe...

Wed, 08/18/2010 - 16:38 | Link to Comment NotApplicable
NotApplicable's picture

How do you corrupt a nation when only people exist?

Wed, 08/18/2010 - 17:03 | Link to Comment cougar_w
cougar_w's picture

Wait that made me think.

Smart ass. Now I need to go watch some Gilligan's Island reruns.

Wed, 08/18/2010 - 18:38 | Link to Comment MichaelG
MichaelG's picture

Corrupt 10% of the people and make the others idiots? Dunno. That's what I'd do.

Wed, 08/18/2010 - 16:24 | Link to Comment Amsterdammer
Amsterdammer's picture

Maybe Sen.Kaufman should get this letter to Gary

Gensler, at CFTC, under the Fin-Reg, also seemingly

able to 'intervene', they are also investigating

the 'flash'  and were lecturing the S.E.C these

days,'Joint Advisory committee on Emerging Regulatory

Issues', whatever that is...'HFT for Dummies'

 

 

 

 

Wed, 08/18/2010 - 16:30 | Link to Comment septicshock
septicshock's picture

I said it before and I will say it again.  Robbery should be punishable by hanging. 

Wed, 08/18/2010 - 16:35 | Link to Comment jonnyy40
jonnyy40's picture

You have more to worry about regarding markets than you seem to know. 

www.theterroristswhodestroyedthemarkets.com

Wed, 08/18/2010 - 16:32 | Link to Comment Waterfallsparkles
Waterfallsparkles's picture

Shame is no one is listening to Kaufman.  Maybe because he will not run for his seat next election. So, SEC thinks just ignore him until he leaves and they can get someone else to turn their head.

Wed, 08/18/2010 - 16:40 | Link to Comment Bankster T Cubed
Bankster T Cubed's picture

if all this wasn't being done primarily by the PDs/Fed as a critical component of their manipulation scheme, they'd have shut it down long ago.

The villians and the authorities/regulators are one.

Wed, 08/18/2010 - 16:41 | Link to Comment Waterfallsparkles
Waterfallsparkles's picture

Unlet they ban HFT and consolidate all trades the Market will be broken.  Just a Machine to take everyones principal over time.

I do not believe that they will do anything as it is too profitable for the Big Banks.

Wed, 08/18/2010 - 16:43 | Link to Comment KevinB
KevinB's picture

I had to laugh yesterday on CNBC when they were talking about investors' lack of confidence in equities. They blamed this, that, and everything, but there wasn't word one about rigged markets. I think individual investors are smarter than Wall St. is giving them credit for; they know the game is rigged against them, and so they're moving their money into bonds and other instruments where the manipulation isn't so blatant.

Wed, 08/18/2010 - 17:02 | Link to Comment Calculated_Risk
Calculated_Risk's picture

Or at least to a market where the upside is better if the rigging fails.. Got PMs?!

Wed, 08/18/2010 - 16:46 | Link to Comment Careless Whisper
Careless Whisper's picture

24 second delay? puhleeze, that's the oldest "sting" in the book.

http://movieclips.com/watch/the-sting-1973/this-is-a-class-joint/

 

Wed, 08/18/2010 - 16:49 | Link to Comment Kaiser Sousa
Kaiser Sousa's picture

Tyler -

im being persecuted over at MarketWatch for divulging my ZeroHedge affiliation man..

can i get some back up????

Hello KaiserSouza,

Felling Censored:

The comment below was deleted from the MarketWatch Community because MW censorship complaints are off topic. We accept that some folks may be upset about having their comments deleted. That’s why we have a Censorship discussion group:

http://community.marketwatch.com/groups/censorship

Comments complaining about censorship and reposted deleted comments (yours or someone else’s) will be deleted -- as will most likely your account -- so tread lightly.

Check out the Guidelines for more tips on keeping your comments in Community:

http://community.marketwatch.com/faq#guidelines

Regards,

MarketWatch-Admin

 

response

 

KaiserSouza Aug 18, 2010 3:41 PM

Felling powerful???
sure seems that way..."tread lightly" or what? oh yeah, u'll censor me on this cite? to funny...
not even trippin off ya'll..
ur reputation precedes u...propagandist do what propagandist do...
so do what u feel u gottal...
shaking n boots over here..."tread lightly" hilarious....
tread lightly...that is to funny

 

 

Wed, 08/18/2010 - 17:00 | Link to Comment PhotonJohn
PhotonJohn's picture

Their moderators can be Nazis some days. They got into a mode where they were going crazy on my comments. I rarely go there any more. Leave the ill-informed to their rosey markets.

Wed, 08/18/2010 - 17:32 | Link to Comment Mercury
Mercury's picture

Ha ha.  These Marketwatch guys are a little full of themselves with their "censorship" and "censorship discussion group" malarkey.  Do you get to wear a special badge for that?

Technically it's called editing fellas.

Wed, 08/18/2010 - 18:02 | Link to Comment Kaiser Sousa
Kaiser Sousa's picture

guess i got junked cause someone was disinterested...all good just letting the community know about it..carry on...

Wed, 08/18/2010 - 19:01 | Link to Comment anony
anony's picture

M/Watch is some amateur's idea of what a financial blog should be.  Their headlines on any given day contradict one another, the best corresponders moved on a long time ago when they realized that the forum was driven by a cut and paste mentality from the contributors, editors and topic choosers.

Some of their writers are simply incompetent. It reads like a Wall Street Journal that someone like Rupert Murdoch might order it to be written, dumbing down a brand that was already dumbed down to a boring, uninspiring, white bread soporific to the establishment.

Being banned from the site is an honor to be cherished.

Wed, 08/18/2010 - 16:56 | Link to Comment Caviar Emptor
Caviar Emptor's picture

I was trading the flash crash. I can attest to all that Nanex describes. It was true and served to profit the thieves on Wall Street. I was long put options beginning at 1PM and into the crash. Needless to say my position was mighty, mighty lucrative. That is IF I could place cash in my winnings. My order was filled 22 minutes after the order entry time. It sat frozen while the exchanges played a game of routing and re-routing orders, each claiming they were overwhelmed, each failing to honor the NBBO. 

I was one of the few who pursued a grievance as far as it can be taken up: with the exchanges themselves and the SEC and can report that the green wall of silence was fully maintained. I did manage to get some partial satisfaction from my direct access broker after yelling for 2 days. Each of the exchanges acknowledged boldly that the order was clocked in, but they each just re-routed to the other. The final exchange waited 17 minutes and simply stated they were "overwhelmed". 

The game was this: things in the market are not what they seem. Exchanges can act in an arbitrary and capricious manner to simply not honor prices that are established through the laws of supply and demand. In other words, the laws of supply/demand can be suspended at any time, are subject to revision, opinion, bias and what I call "The Troll Rule": If you're a troll who controls a bridge, nobody gets across the bridge unless you fleece them. 

Gold is your only friend.

Markets crash and have gone nowhere for 12 years, treasuries don't keep up with the cost of living, real estate will be in the tank for a generation, bonds can blow up. It's gold.

Wed, 08/18/2010 - 16:58 | Link to Comment Caviar Emptor
Caviar Emptor's picture

I was trading the flash crash. I can attest to all that Nanex describes. It was true and served to profit the thieves on Wall Street. I was long put options beginning at 1PM and into the crash. Needless to say my position was mighty, mighty lucrative. That is IF I could cash in my winnings. My order was filled 22 minutes after the order entry time. It sat frozen while the exchanges played a game of routing and re-routing orders, each claiming they were overwhelmed, each failing to honor the NBBO. 

I was one of the few who pursued a grievance as far as it can be taken up: with the exchanges themselves and the SEC and can report that the green wall of silence was fully maintained. I did manage to get some partial satisfaction from my direct access broker after yelling for 2 days. Each of the exchanges acknowledged boldly that the order was clocked in, but they each just re-routed to the other. The final exchange waited 17 minutes and simply stated they were "overwhelmed". I still managed to make money. But I got ripped off.

The game was this: things in the market are not what they seem. Exchanges can act in an arbitrary and capricious manner to simply not honor prices that are established through the laws of supply and demand. In other words, the laws of supply/demand can be suspended at any time, are subject to revision, opinion, bias and what I call "The Troll Rule": If you're a troll who controls a bridge, nobody gets across the bridge unless you fleece them. Once they have your money, they are not fully obligated to give it back. Recourse is mighty, mighty thin and actually only theoretical.

Gold is your only friend.

Markets crash and have gone nowhere for 12 years, treasuries don't keep up with the cost of living, real estate will be in the tank for a generation, bonds can blow up. It's gold.

Wed, 08/18/2010 - 18:56 | Link to Comment _Biggs_
_Biggs_'s picture

You had me interersted until you started pumping gold.

Wed, 08/18/2010 - 19:13 | Link to Comment RockyRacoon
RockyRacoon's picture

Kinda like meeting a great looking woman in a bar, you're getting along great, and then she quotes the Bible, eh?  What a drag.  That blind faith can be a boner buster.  Truth is that both gold and the girl put out like your high-school fantasies. 

Wed, 08/18/2010 - 19:35 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Since when did you let your (non) religious beliefs get between you, your boner and mother natures parking garage? :>

Wed, 08/18/2010 - 20:05 | Link to Comment RockyRacoon
RockyRacoon's picture

I was just funnin' with _Biggs_.  I try not to discount someone's views just because they like chocolate ice cream and I like vanilla.

Wed, 08/18/2010 - 21:13 | Link to Comment TraderTimm
TraderTimm's picture

effin' hilarious Rocky. Really, I truly laughed loudly at that one.

I needed that today!

 

Wed, 08/18/2010 - 16:58 | Link to Comment PhotonJohn
PhotonJohn's picture

As a software engineer specializing in embedded system design of networking devices this is very easy to do. These HFT frauds could easily implement campaigns to flood particular "pipes" of trash packets that must be dealt with and causing all other traffic to be lagged signicantly if not completely shut down. There are devices that allow this to be easily done from any where in the world that has access to the Internet's core. I wonder if they have operations in non extradiction countries doing exactly this? There are operations, for hire that regularly blackmail gambling sites on their busiest days, that will shut them down. Even some script kiddie capable of botting up a bunch of unprotected PCs could have the same effect if they knew the IPs to hit. Of course this could all have just been the HFT algos gone crazy and nothing else.

Wed, 08/18/2010 - 17:07 | Link to Comment Calculated_Risk
Calculated_Risk's picture

DoS or DDoS

Wed, 08/18/2010 - 17:10 | Link to Comment cougar_w
cougar_w's picture

It's hard to imagine they (NYSE IT blokes) haven't firewalled all that hardware from each other. And if they have, they should be dropping malformed packets and junk traffic, otherwise yes one organization could easily execute a DoS against another at any moment they so choose. For example if the market is falling/rising at a certain (steep) rate. In that case the first blackhat to hit the panic button probably wins.

One wonders. One certainly does.

Thu, 08/19/2010 - 09:29 | Link to Comment PhotonJohn
PhotonJohn's picture

Certainly they are firewalled and VPN'd every where but the Chinese have definitely hacked some of our most sophisticated systems. They do not have to be packets exploiting flaws in the protocols, they would probably look like legitimate orders with flaws in the data that would cause them not to execute. If one were to sniff out GS or C traffic data and crack their VPNs, the packets could look like they come from them.

Wed, 08/18/2010 - 17:05 | Link to Comment Perseid.Rocks
Perseid.Rocks's picture

Yeah a corrupt SEC, corrupt Executive and Treasury, corrupt Congress. They don't call this the great unravelling for nothing. This is an example of a debt deflation gone wrong, and we also get the government itself unravelling, from the top down. I am speculating that 15% of our Congress is orchestrating the looting (and receiving those requisite bank kickbacks), the other 85% are being cowed into voting submission by threats of chaos and anarchy.

Wed, 08/18/2010 - 19:37 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

I agree with everything except its 85% thieving and 15% being threatened. So let's compromise at 50-50. :>)

Wed, 08/18/2010 - 17:24 | Link to Comment 24KGOLD FOIL HAT
24KGOLD FOIL HAT's picture

Same game-different speed.

1500: Magicians created extra goldnotes knowing they had weeks or months.

2010: Magicians trade faster than the eye or mind.

But those that dance with the devil get their toes stepped on[or worse].

 

Thu, 08/19/2010 - 04:57 | Link to Comment Hephasteus
Hephasteus's picture

I really wonder if the whole alchemy thing about lead to gold was some bullshit some banker pulled out of his ass when some angry person came asking math questions about thier economic system.

Wed, 08/18/2010 - 17:31 | Link to Comment MrBoompi
MrBoompi's picture

Although I am pleased Sen Kaufman drafted and sent this excellent letter, I can't help but think the SEC read it, laughed, and tossed in the garbage.

 

They are working with the very firms and trading strategies he warned about.  And they aren't working with everyday Americans best interest in mind.

Wed, 08/18/2010 - 17:59 | Link to Comment Mercury
Mercury's picture

Good Grief, how fucking hard is it to have one single, electronic exchange where all, out-loud bids and offers are posted for all to see and follow a few simple rules with EZ transparency?  Make it a national public utility instead of a private monopoly if that's more appropriate but this fragmentation in the name of competition business hasn't really worked out so well has it? 

You can still have your dark pools or whatever just as long as you print the cross inside the spread, as it happens, on the tape, where everyone can see it.  Commissions and access used to add up to a lot of friction but now they don't and this is what happens when explicit execution costs approch zero.  It was worth the experiment, it probably had to happen, but the experiment has served it's purpose, we've all learned a thing or two and it's time to go back to a transparent and centralized marketplace that can still be cheaper, faster and simpler than it was in the old days.    America's capital markets used to be a national treasure and now they're a joke.  This bullshit has got to stop.

To the extent that Kaufmann has to sell HFT reform to laypeople I think he should say something like this (no charge).

Either that or just bring back paper tickets.

Wed, 08/18/2010 - 18:06 | Link to Comment Caviar Emptor
Caviar Emptor's picture

You don't get it. HFT provides profits that support pay packages, spa vacations, ski vacations and houses in foreign resorts. And anybody sticking their greedy hands in Wall Street's cookie jar will get their hand chopped off. 

Wed, 08/18/2010 - 18:48 | Link to Comment Mercury
Mercury's picture

Maybe but old cookie jars were broken before this one which allowed the present F-d up system to come into being.  A major revamping of market structure is not without precedent.  Plus, this way politicians could claim they're "sticking it to Wall St." and actually do some good.  It probably won't happen but it could.

Wed, 08/18/2010 - 21:14 | Link to Comment TraderTimm
TraderTimm's picture

Makes you want to start your own open-outcry marketplace. And yeah, I wouldn't mind - sure some unemployed people wouldn't mind being market makers.

I know, just let me dream....

 

Wed, 08/18/2010 - 21:39 | Link to Comment Mercury
Mercury's picture

Maybe when The Cubans finally wake up to the fact that they are ideally positioned (in more ways than one) to be offering medical services to those Americans who will be "underserved" by Obamacare and have the means to fly 100 miles south of Florida for that just rejected procedure.

Someone will have to be the Al Swearengen of the Havana's nascent capital markets damnit.

Wed, 08/18/2010 - 18:25 | Link to Comment Racer
Racer's picture

I have just been watching a 1948 film, and it had a shot of a bank window and in big letters under the bank name showed

ASSETS $350,000 and on the other side of the window LIABILITIES $400,000

!!!!!!!!!!!!!

no wonder the 50's and 60's were boom years! Banks did what they were supposed to do!

 

Wed, 08/18/2010 - 18:54 | Link to Comment Rainman
Rainman's picture

Yeah......a big fail economy followed by a big World War had a dramatic effect on sensibility.

Wed, 08/18/2010 - 19:12 | Link to Comment Racer
Racer's picture

Well we have the first part of that, I suppose they are trying to go for the WW3 as an encore now cos that is the only way out again.

WMD and the war on terrorISM (no wonder he didn't succeed he couldn't do graammaaar eevuh) didn't last as long as they hoped!

Wed, 08/18/2010 - 18:35 | Link to Comment redpill
redpill's picture

I'm so glad we have the SEC to protect us small time traders.   What ever would we do without them?

Wed, 08/18/2010 - 19:14 | Link to Comment SqueezeMe
SqueezeMe's picture

I don't get how this Shapiro bitch is so untouchable, is she CIA?

Wed, 08/18/2010 - 19:41 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Well............they did give her an honorary patch and tin badge and a set of monogrammed pajamas with the CIA seal on the front and the NSA on the back. But other than that, no she's not CIA.

However, she's just been voted in as the next patsy that will be sent to Times Square with another car load of poorly wired explosives. Hope that helps.

Wed, 08/18/2010 - 22:31 | Link to Comment Nikki
Nikki's picture

Kosher Nostra.

Wed, 08/18/2010 - 20:57 | Link to Comment you enjoy myself
you enjoy myself's picture

i think there's just two changes needed to bring back retail confidence and severely dampen all the criminal front running and HFT nonsense. 

1) ban dark pools.  or at least force their quotes to also go through the CQS.

2) make every bid and offer valid for 2-3 seconds. 

the insanity of having what, 90% of all bids and offers being cancelled would end immediately.  actual investors don't give a shit that they were saved half a penny through HFT "liquidity", not when current price discovery is likely an algo just baiting you. 

 

 

Thu, 08/19/2010 - 06:53 | Link to Comment Mercury
Mercury's picture

I don't think dark pools are bad per se.  How is anonymous price discovery a bad thing if it results in a trade, within the current market on a centralized exchange?  Isn't an old-fashioned human broker who knows where all the bones are buried in XYZ functioning as a "dark pool" himself when he puts up a cross after privately working the phones away from the quoted market?

Something like #2 needs to happen though, even a half a second would probably do the trick.

Wed, 08/18/2010 - 21:05 | Link to Comment arthur darrell
arthur darrell's picture

I've been disgusted with a particular brokerage house's promised fixes ("our programmers are working on it" ) for 5 years relative to mysterious prints based upon a NBBO system that is flawed and an excuse (in writing no less ) to scamn and steal from the public. Someone must have bought aapl @ 199.25 May 6th and P&G at 39 and change but what of those who were ripped off? Recall the 6 excuses given by those who "studied" the May 6th events and NONE MENTIONED NBBO ( except me but I lose my job speaking up ). I've observed this flash crash behavior ever since NBBO began. Let's face it with decimilizatiuon there is no reason for a human to step in and make a market, and brokerages don't have the software ( as promised to SROs-self regulatory orgs ) to prevent greater than 1% drops or rises within ONE SECOND in a decimized world! I have no trust for this scam.

Wed, 08/18/2010 - 21:28 | Link to Comment BlackBeard
BlackBeard's picture

Did he scribble out Mary Schapiro's name and write in blue pen "dirty fucking whore"?  It's a little hard to read...

Wed, 08/18/2010 - 22:50 | Link to Comment Implicit simplicit
Implicit simplicit's picture

Once the Nas and Ny went public, they started selling their souls to the highest HFT bidders to make money; this is when the market started to become full of stinky shatner.

Wed, 08/18/2010 - 23:50 | Link to Comment loub215
loub215's picture

A plethora of douchebaggery. You got the copy right on that!?

WTF

Thu, 08/19/2010 - 00:23 | Link to Comment Miles Kendig
Miles Kendig's picture

Predation as the default setting are the Prima-Facie facts of life.  The only item of note is that all pretense of social structures of mutually sustaining symbiosis to maintain "integrity" have been stripped away from the macro & micro aspects of financial endeavor.

Sat, 10/02/2010 - 06:49 | Link to Comment Herry12
Herry12's picture

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.
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