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Recapping The SEC's HFT Panel
Yesterday's SEC panel discussion on HFT was largely uncovered by the media, as it was for the most part a one-sided, lobbying effort of the HFT industry to make it seem that all is good with the market and to make it explicit that "once in a lifetime" events like the May 6th 1,000 point crash don't really occur and what was experienced (and will be again quite soon) was a statistical impossibility. Tell that to all those who got stopped out by the market's arbitrary 60% cut off for DK'ed trades and lost millions. For a good, clean, simplistic perspective on HFT, we present this most recent summary piece by the Daily Finance's Peter Cohan, called "What you need to know about HFT." As Cohan summarizes it, "All this so-called liquidity, which generally makes it possible for buyers and sellers to meet, suddenly disappeared because the high-frequency traders' books became too imbalanced. So the HFTs stopped trading, the liquidity dried up and the market plunged." For more sophisticated readers who wish to dig between the lines of naive explanations of industry participants whose primary goal is to escape scapegoating in this time of regulatory upheaval, here is the link to the SEC panel on HFT, which among other industry participants, includes Themis Trading's Sal Arnuk, arguably one of the most objective voices of caution when it comes to broken market structure. In the attached clip, Sal's prepared remarks begin 3 minutes into the video.
And for those short on time, here is Sal's summary of events from his point of view, as posted on the Themis Trading blog.
Thoughts June 3rd, 2010; June 2nd SEC Roundtable Synopsis
Some Thoughts:
But first, the important stuff. Detroit’s Galaragga had his perfect game blown by a ninth inning call by Umpire Joyce. It was terrible call, but perhaps the best part of this story is not even being focused on yet. Joyce apologized publically. He also did it profusely, privately. Galaragga hugged him and accepted it. Like men they both showed that we are all human, and they were an example for our kids to behold. Galaragga did not charge the mound. He didn’t hurl expletives or spit. And Joyce did something umps never do. He sought Galaragga out in the locker room and apologized with tears in person. A+ guys. A+.
Ok. So there was a Philly dude at the Roundtable (Gus Sauter of Vanguard) and there was a Chicago dude (Stephen Schuler of GETCO). And they were on the same side during much of the debate/discussion. What’s up with that??? And no, there were no blows. Phew. I’ll say this. I was humbled to be invited to partake in a discussion about the future of our nation’s equity markets.
Commissioner Mary Schapiro is an impressive person, and I was honored to meet her. She stepped into her position as the 29th commissioner of the SEC in the midst of the mother of all financial crises, and is undertaking the largest scale reform and examination of our markets, that any past commissioner has ever had to undertake. She is a War-time Consigliere, and that role requires a certain kind of person.
I thought I’d give you a rundown of Panel II, which I was on, and I’ll try to do it objectively as well. The panel included myself, Kevin Cronin of Invesco, Dave Cushing of Wellington, Michael Goldstein of Babson College, Richard Gorelick of RGM, Mark Grier of Prudential, Terrency Henderschott of UC of Berkeley, Stephen Schuler of Getco, and Jeff Wecker of Lime.
I know 14 investors watched on live web TV instead of Buffet on CNBC, so this is for all the other 94 million who didn’t. Here goes:
Sal: It’s like with ticket brokers; high frequency related firms and brokers, and they seem to get all the best seats to the Springsteen concerts. The overwhelming majority of us have to put in that code thingy on the website, complete a form in 2 minutes, and get seats in Section 3,467, Row YYZ, Seats 86, 87, 88, 89, and inexplicably 7. PS The world is ending.
Kevin: We are real investors, examining companies, etc. We don’t own stocks for 6 seconds, and we don’t have funds named Enhanced Institutional Elephant Order Neutralizer, like Rich does.
David: HFT has lowered my costs a lot. The market order is evil.
Michael: Chicago is not near New York. It takes an order 4 milliseconds to travel to Plymouth. The markets may be too fast. There should be one auction a day where Big Papi decides the prices.
Richard: We have this trading algo that picks off Kevin’s orders. What’s the problem? Anyone can get the public tools to do this; just call the exchanges with your credit card in hand.
Mark: These kids are all playing video games and need to go study history and cut this crap out (Mark was a big picture voice of calm and reason on our panel; sorry for poking fun at him, but what the hey anyway).
Terrence: Nasdaq gave me some data to study. I studied it. The markets are fine.
Stephen: If Sal shows his face in Chi-town, Me and Coach Ditka are gonna take him for a ride.
Jeff: Lime has no conflicts of interest, unlike G and G, and we give small guys the speed they need to play along side the G and G big boys. Bwaaaaahaaaaahaaaaaaaa. HAHAHAHAHAHAHAHA. Did I just say that? I just listened to myself. Scratch that.
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Aside from it providing the fundamentally necessary liquidity , it's impossible that it had anything to do with it so there's no reason to worry about it at all any more because even if it happens again which is statistically impossible because it doesn't ever happen that much and it just did so it never can again and in any case it had nothing to do with it (Did it, eh? Campaign contribution deposited.)it will all take care if itself because its in good hands with us itsers, isn't it.
There is absolutely nothing quite so beautiful as the Product of Syllogistic Logic founded upon Faulty Assumptions.
Bucket shop humor. Like a bunch of used car salesmen sitting around laughing about how badly they just fucked their last customer. And it's all good.
We all know the catalyst for the flash crash was the Fed Audit amendment vote. After the markets crashed Senator Sanders completed a 180. This needs to be the focus of the investigation. What was the discussion in the backroom between Sanders and others and who compelled him to accept a watered down amendment. The odds that a 1 in a milion event occurs during a key vote when we know the Federal Reserve has threatened market collapse in the past is the only indication we need.
The questions need to be:
1)Can the programs of the machines be adjusted on the fly such as, Sell on low volume, Buy on low volume or Idle.
2)If these programs can be set to become idle who gives such orders or reprograms on the fly?
3) Would an event such as the Federal Reserve selling 20% of their equity holdings instantly cause machines to piss their pants and spur not only idle action but selling across the board?
What other evidence is needed aside from what occurred when they were trying to pass TARP and when the Federal Reserve Chairman is actively making rounds to Senators to dictate legislation. I thought we had a separation of powers? We do not see Congress lobbying the Fed for accommodative or hawkish monetary policy right?? I mean is that not the purpose of their independence? So what aspect of their independence permits the Fed Chief and White House to make private calls to influence vote under direct threat?
There is no other story, explanation, complex code and Greek images which would spur a market crash. This market hs digested GS fraud charges and atrocious fundamental data and if there is no chance a few men charging a parliament would cause this sort of financial event. Ironically the only proof that this was an orchestrated event is locked away unable to be seen because an audit of a Federal trading desk is prohibited. That is the nation we now live in folks. The United States which is meant to protect liberty and modern day tyranny (Finance) is deemed off the books for common consumption. Amazingly the same power which created this exemption is not authorized in the constitution. The Congress is in charge of the nations money and is supposed to be 100% autonomous from even the President of the United States. Yet a tool who read a few text books is permitted to operate in secrecy.
The Federal Reserve and banking institutions influenced legislation of the United States. That is treason. No investigation needed aside from the Federal Reserve.
You are right on it, JM. Well done.
When treason becomes accepted as a common everyday occurence, we are in the deepest of shit. Also see Arizona's illegal immigration crackdown and the resulting boycotts and WH venom.
Under a new Constitutional Convention there must be a Court of Treason. It will be operating 24/7 and still not be able to keep up with the infiltration of traitors operating in the USA.
TY. I am just overcome with sadness that the country I grew up with is half fraud and I am literally so sad I could cry and feel so defeated I give up. However there is another side of me that at the same time or shortly after that becomes angry and wishes to do something and so I speak to friends and family anf I try to get them to come here and then I read the comments of every ZH poster and just know that for the love of God rational and intelligent thought exist an it is so rare a dualistic trait that it can only be found here on ZH.
And the minds of most on here are capable of seeing through everything instantly and decipher the true purpose, events and results of all aspects of not just finance but political events. This is a special place and the best collection of revolutionary, moralistic, conservative, rational, pro Liberty and inherently good men(+ Marla & Velo) that has been seen since Thomas Jefferson dined alone.
Zero Hedge is America and nobody sees that. America is not about Hot Dogs and Baseball nor Stars and stripes. It is the freedom of all thought. Many may get angry for Tyler returning to the Flotilla incident but the discussionis necessary. How can a topic that has divided such a unified community on nearly all issues be so controversial?
It is because many here adhere to their alliances. Those that are angered and likely Jewish and any who oppose are deemed conservative anti-semities. Right will always be right and wrong persists as wrong. There is no Gray and only laws of men permit or gray.
We do not want Tyler filtering his posts because than he is no different than CNBC. His posts should be considered the anti propoganda and no true result will come from shackled opinions or emotions. We at ZH should be able to discuss the Middle East and Isreal freely becaae we are the rational. If we cannot come to peace on the Middle East at Zero Hedge than those motherfuckers are hopeless.
JM that is the most refreshing thing i have read on ZH. You are not alone though. Im a broker living in Australia, we have simalar porblems here although not quite as bad. Until i found ZH i had totally given up on your country as bunch of spiless wimps letting the currupt parasites in power destroy your great country. There are alot of good American patriots out there (most of which are on ZH it seems) and you need to keep fighting the good fight.
Things need to change in the USA, good people all over the world depend on it. Its people like you that will ensure this change happens.
Keep up the good work of getting the message out there, you are making a difference!
Well said.
John, you hit the nail on the head. Precisely my thinking too.
They look down on us as we would look down on an ant bed. Our fate is in their hands. The last window of hope we have is term limits and shifting all your money into small local banks. Do your homework on which are safe and dont forget the credit unions. I did it , dont fear small banks , thats what they want ....all money in the big 5.
Dont give up and dont give in. Look into credit unions today! Put your money there! Its the people's bank not the oligarchy's! They cant rule there! Do It!
There seems to be a lot of "once in a lifetime" situations happening lately.
+1 Spot on.
Unfortunately, that audit bill was the Fed boys’ last best chance to save themselves from a disastrous personal fate. I do not advocate violence in any way, but I do understand history and human nature. When the unemployed Joes and Janes and just ordinary citizens realize they’ve been thoroughly screwed, they will lash out in particularly nasty and brutish ways. Think here, eviscerations, heads-on-pikes, public immolation types of stuff.
It’s understandable why the Fed and the IBs lobbied against the bill. They simply cannot admit that what they’ve done is and has been wrong. They’re caught up in a gigantic continuing fraud (some have even convinced themselves it's all good). But to dismount the runaway fraud horse means injury or death, but not to do so means an especially grisly outcome too. A Hobson's choice. Given that the bill perpetuates rather than arrests the fraud, one can also understand (without condoning it) the violent backlash Fed personnel and their IB accomplices will personally feel meted out on their own hides. Sad. Sad, because it’s so completely predictable.
All is not FUC#IN good ! all day long these SOB's buy stock in front of my bid for .001 ...this is really pissing me OFF !
Its a free Fn country and I pay my taxes so I will pull my Fn bids when I want to and screw your liquidity.
HFT FAIL....May 6th proved beyond all reasonable doubt that there is no real market absent FED invented Trillions that allow the survivors to skim the forced pension, annuity creators, and 401-Kers. The financial engineers are not manning up and resigning their fraudulent enterprise and the bottom-feeders that remain never will. They are lower than whale sheit and will never know better than they "rule".
A case could be made that the top five bulge bracketeers, GS, MS, MER, BSC, LEH were in fact the five families in Godfather I and it was the FED or Rothchilds the whole time.
Where is Elliot Ness when you need him. At least he was able to take down the Gangsters.
Now they operate in suits on Wall Street. Completely legit operation.
Amazing to watch the meltdowns when things are not going their way. The only 10% correction from March of 09 was when it did not look good for Bernankies reappointment. The Banksters shure know how to put a dead horses head in someones bed.
Less than 5 days before May 6th crash, I predicted in a comment here that stock market will be 'nuked' after one ZHer posted "China is secretly purchased physical gold in Mid East market' and Dubai installed 1st Gold ATM. Right after May 6th crash, I also posted here that Gold and emerging markets will be 'nuked', since than Gold stopped crazy rising and Shanghai index slipped further much low. This will continue for at least six months, than complete story starts, let's see. Thanks ZH for valuable info.
One ZHer said ' I am paper crusader', I don't mind that because I just submit my insight about market according info provided by ZH. I drink nutritions from ZH and return fruit back to ZH. If Tyler can print all my posts, he will know my accuracy.
really folks? should i go by a tin foil hat? it seems to me some of the comments are wandering off topic to god knows where. i personally know a couple of people on that panel, thought it was fascinating, just how far we have come from historical intermediation, a whiz-bang nasdaq mm 10 years ago, wouldnt have know wtf the panel was talking about. i think some were definitely blowing smoke, protecting their book, i didnt think the LIME ceo had much to say at all except lemme keep makin' money.
One thing was true, the flash crash was not a topic at all, and where the so-called liquidity provision of the hft's went on may 6, well, that didn't come up, GETCO made a pass at it, but it rang a little weak to me.
I was in an IBank in 1987 and these guys were right, dmm's and others thru up their hands and said, not today, i don't know if there is a solution to that one. Arnuk's translation was the best piece of parody i have read in a while, and he even took a good shot at himself, and probably a fair enough translation of what went on.
Wish I had Sal's summary before watching the video. :)
Having been on a few D.C. panels in the past I'm not sure what meaningful change can or will come from this panel? I really hope Sal's analysis of Mary Schapiro is correct; all I know is that she played a key role (via misguided, costly and bulk regulation) in the destruction of the independent broker/dealer network. Just saying...
I'm not hopeful.