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Schapiro Blames "Investor Pullback On Market Structure", Demands Changes, As Schumer Joins The Fray
Developing news from CNBC. And oddly enough, the SEC reads Zero Hedge: goodbye HFT - we hardly were frontrun nearly enough by ye. We will get you more as we get it. And sure enough, here is Schumer to piggy back with a just released press release, now that the legwork has been done. It is odd that the senator has a problem with HFT only when the market is crashing - how about when it is causing the daily no-volume melt up? Oh wait, that's all good for the administration, where GDP=DJIA. And inbetween all the euphoria, we have one small question: Hey all you SEC idiots: WHY IS FLASH TRADING STILL ALLOWED?
In the meantime, just in case there is any confusion, here is who is the biggest lobby contributor to Senator Schumer: could it possibly be the same lobby that is now expecting to post a massive drop in profits, now that retail refuses to be the idiot bagholder for Wall Street's sloppy seconds, as discussed earlier?
SCHUMER TO SEC: SLOW DOWN HIGH-FREQUENCY TRADERS WHEN MARKETS GET VOLATILE; SENATOR ALSO CALLS FOR PROBE INTO ‘QUOTE STUFFING,’ POSSIBLE BAN ON SUB-PENNY BIDS
In Letter To Schapiro, Senator Proposes Idea Of ‘Speed Bumps’ That Could Be Triggered Before Circuit Breakers Become Necessary
Schumer Also Suggests Requiring Minimum Quote Duration To Discourage Practice of Bombarding Markets With Thousands Of Orders That Are Not Intended To Be Executed
Senator: ‘High-Frequency Trading Provides Fewer Benefits Than Proponents Claim And Can Hurt Long-Term Investors’
WASHINGTON, DC—U.S. Senator Charles E. Schumer (D-NY) today urged the Securities and Exchange Commission to consider new rules to “slow down” high-frequency trading (HFT) during periods of high market volatility, and proposed curbs on particular techniques—such as “quote stuffing” and sub-penny pricing—that are used by these traders and may have contributed to the flash crash last May.
“While I acknowledge that technological advances, including HFT, have brought significant efficiency gains to our markets, I have come to believe that HFT provides less of the benefits to our markets than its adherents claim, and does so at greater cost to long-term investors,” Schumer wrote in a letter to SEC Chairman Mary Schapiro.
In calling for new rules to slow trading when necessary, Schumer said a system of speed bumps could slacken the pace of trading activity without resorting to the triggering of circuit breakers that would shut it down entirely.
Schumer then went further, proposing that the SEC place limits on two particular practices. To curb “quote stuffing”—which occurs when traders bombard the market with thousands of orders for only a split second before cancelling them—Schumer proposed that the agency require a minimum duration for any quote. Schumer also suggested the SEC should consider an outright ban on quotes in increments of less than a penny.
The letter was Schumer’s second in as many months confronting high-frequency trading. In August, Schumer urged the SEC to place certain HFT firms under a uniform set of rules to prevent them from pulling out of markets en masse as they did during the May 6 flash crash. Schumer said updating the agency’s 17-year-old “market maker” definition so that more of these traders had affirmative obligations when it comes to providing liquidity could go a long way towards preventing future volatility in stock prices.
A copy of Schumer’s new letter to Schapiro appears below.
September 7, 2010
Mary Schapiro
Chairman
United States Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549Dear Chairman Schapiro,
I write out of concern about the increasingly significant role played in our equity markets by so-called “high frequency trading” (HFT), and the impact certain practices engaged in by HFT firms are having on the integrity of the market. In particular, recent news reports have highlighted the ways in which certain high-frequency traders place thousands of orders within a fraction of a second, then cancel those orders almost immediately.
While I acknowledge that technological advances, including HFT, have brought significant efficiency gains to our markets, I have come to believe that HFT provides less of the benefits to our markets than its adherents claim, and does so at greater cost to long-term investors.
High-frequency traders claim that they benefit the markets by providing significant additional liquidity, and to some extent that is true: HFT now accounts for roughly two-thirds of trading volume in our equities markets. But, according to recent reports, much of the supposed liquidity is not real – when thousands of orders are sent and cancelled in a fraction of a second, it is clear that those orders were never intended to be executed. And some studies have shown that as little as 1% of orders posted are actually executed – the rest are cancelled.
As a senior Member of the Senate Banking Committee, I ask the Commission to reconsider the role that HFT plays in our markets, and take action to protect the interests of long-term investors. Last month, I requested that the Commission consider increasing the affirmative obligations of high-frequency traders who are de facto market makers, so the liquidity they provide in “normal” markets doesn’t disappear exactly when it’s needed most. I now respectfully urge the Commission to also consider the following proposals.
First, the Commission should undertake a formal investigation of the related practices of “quote stuffing” and “sub-penny pricing” to determine what, if any, role they played in the May 6 Flash Crash. The SEC should also identify market participants who frequently engage in these practices, and require exchanges and other trading venues to slow down those market participants – or even the whole market – when they detect high and increasing levels of volatility or stress in the markets. This would complement the individual stock circuit breakers recently put in place by the Commission, and reduce the likelihood that such drastic steps would be necessary. It would be analogous to requiring markets to operate under a “yellow flag”, rather than calling a time out by triggering the circuit breakers.
Second, the Commission should consider imposing a minimum quote duration, so that orders could not be sent and cancelled within a fraction of a second. This would increase the likelihood that any order would be executed, thereby incentivizing traders to refrain from sending thousands of orders they never intend to be executed.
Finally, the Commission should consider banning “sub-penny pricing”, in which several orders are placed in price increments as small as one tenth of a cent. As recent news reports indicate, this practice may have contributed to market volatility on May 6, by creating the impression that there was far more trading volume in certain stocks that there actually was.
I recognize that there may be benefits to some of these practices. But the fundamental purpose of our equity markets is to allocate capital to productive businesses, and I am increasingly convinced that the costs of reducing execution speeds by an extra microsecond here or there outweigh the benefits in terms of allocating capital efficiently. The May 6 Flash Crash was just the latest reminder that the high-tech, high-speed games being played in our markets have undermined the ability of those overseeing the markets to ensure they remain fair, safe and sound.
I applaud the hard work you and your staff have done on these and related issues and greatly appreciate your consideration of the proposals discussed above. I look forward to continuing to work with you and your staff to address critical issues in our ever-evolving financial markets.
Sincerely,
Charles Schumer
United States Senator
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Get rid of the subpennies.
I'll believe it when I read it here at ZH. I don't believe for one minute they will ban the practice.
Get rid of Charlie 'Sub-penis' Schumer.
HFT Algos in need of Prozac today...
I mean, can't you check the IP logs? Would make for a good post.
I am no computer whiz here, but if you are talking about backtracking to the quote stuffing and other shenanigans, I would wager these players are plugged directly into the exchange. They want to get machines are close as possible actually to make every millisecond count. No IPs going on here.
I think Brock might have wanted to see the IP's of who in Gov are coming to ZH. Perhaps then we can create an algo to find out the lag time these bought and paid for rat-bastards need to figure out what we are talking about and then make an "announcement."
Can only imagine what that curve would be called...
My bad.
Bulls-eye...
Why would anybody trust a system that is so rigged? Your better off flying to Vegas and putting all your money on the wheel! They simply spike it up to pull in the suckers, then take em out at the knees and skim the profits...over and over and over again. Sad part of it is, it's the 401k'ers and the people who have little control that are getting robbed daily!
The active retailer is running like a raped ape. The passive retailer (e.g. lots of 401ks, pension funds, etc.) are still largely in the game IMO and are the ones to get it in the rear at some point.
(moved down)
Mary, you ignorant slut.
I am generally long on ignorant sluts in my portfolio, but Mary was shorted many moons ago.
Kill quote stuffing ...
Kill sub human time frames.
Brings an image to mind of someone throwing a switch, and what looks like the Matrix suddenly turns into a game of slow motion Atari pong. Ohhhh, the panic.
More of the same from the Obama Administration.
Desperate people call for desperate measures.
HFT should have been stopped before it started.
It almost had to happen. HFT has (almost) nothing to do with Obama and it is the natural end game of technology satisfying official and market mandates for faster + cheaper = better. (More) Market fragmentation was also encouraged in the name of competition and what was gained by that ended up being overwhelmed by what was lost.
Bring back the Central Limit Order Book, disallow sub-pennies and implement minimum quote display times (probably around 1 second). That would more or less solve the whole problem.
We've learned our lesson here regarding more/faster/cheaper (or we still can before it's too late). It's time to go back to the kind of centuries-old market structure that enables and promotes liquidity, price discovery and information dissemination. Cutting edge technologies can still serve important functions in areas like facilitating access, processing information and reducing frictional costs without compromising the above.
Had to google Flash Trading. Wikipedia mentions ZH as the lead in accusing GS of Flash Trading and 'discovering' the practice for the MSM!
http://en.wikipedia.org/wiki/Flash_trading
funny how nobody even mentions naked shorting anymore. Nothing was ever done about that either. Thanks SEC, you worthless porn watching incompetent colluding criminals. Now you get the exact market you deserve.
AND your friends who 'helped you' get to hold the bag...
schapiro is an ignorant slut....i expect nothing but more obsfucation, temporizing, and deceit from the sec and its bankster bought staff including the whore-in-chief....
speaking of slut, what is the most popular porn site at the sec this week?
www.goatse-trannies.com
In other related news:
Mary Shapiro sends here resume out via "linkedin" to any interested HFT companies now hiring...
Schumer is a douche royale. The only reason he is humming is (a) his Wall Street masters are worried about the dramatic lack of sucker money and (b) he wants their campaign money.
F.T.D.
MEANWHILE AT THE SEC...
http://williambanzai7.blogspot.com/2010/09/sec-gets-wired-up.html
NITEMARE ON WALL STREET
http://williambanzai7.blogspot.com/2010/09/nitemare-on-wall-street.html
Oddly enough the SEC reads this blog? Aw hell there isn't nearly enough tits and ass pictures here.........someone give robo a buzz for some daily t&a pictures
So the Wall Street firms have found that the HFT shops have:
1> Discouraged retail people from trading (lowers WS profits)
and thus...
2> Fewer people trading means no bagholders when TSHTF
So they let their Senator know it is time to kill HFT.
That's my take too. Schumer doesn't take on Wall Street. They need the mom and pop mutual funders back.
" ... specifically, dark pools have become" eot EEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEE (ad inifinitum)
mark the time and date - Skynet interrupted the broad cast and removed the link from he CNBC site
Barliman
Tax every quote change - problem solved.
HFT is the beast they used to pull this bitch out of the nose dive in March '09........now that the beast has turned against them it's time to euthanize.
The F-16 was designed to be aerodynamically unstable and without its computers making micro-adjustments it would fall from the sky.
There are other designs where the airframe itself provides stability (as in planes that came before).
The blind and dumb fascination with mathematics and technology, especially where there is a crossover to LIFE, is not without consequences. Collectively we now believe that mathematics = thought.
It simply does not. A part of thought, an important part, but not ALL of thought. And perhaps, ironically, only an infintesimal part.
Actually the F-16 was neutrally stable. The X-29 was dynamically unstable. It was so unstable that a pilot would not have time to eject if the computer failed - so the computer would command the eject!
I thought it could fly w/ a certain number of computer fails but not all and that it was unstable in pitch ...
Anyhoo, you get the point. Maybe the HFTs are more akin to the X-29 ...
I agree. Math has been used to obfuscate fraud.
Mathematics shouldn't have a large footprint on Wall Street. Nothing beyond addition, subtraction and a little multiplication and division. Anything more than that is a fucking recipe for disaster.
Current Market Structure:
Dark Pools --> High Frequency Trading --> Flash Trading, Quote Stuffing, Naked Shorting
Just imagine this nasty mechanism. Dark pools slice and dice orders through high frequency trading algorithms on servers deployed at the NYSE. With such a predatory system, the sharks (banks/brokerage houses) attempt to draw in guppies (retail investors) and turn them into chum.
Sharks: "Let's create some fake quotes (quote stuffing) by using the dark pools to slice block trades up into tiny segments and serve them rapidly through high frequency trading algos. The little guppy retailers will think there are lots of other guppies bidding. Then they'll jump in and we'll eat them up by front-running their orders."
Chucky Chu, the lowest of the lowest, at least I'll get to vote against him in Nov
Zero Hedge is the Neo of the Matrix.......Bitchez
"I don't see a double dip" is the new "Subprime is contained"
sound and fury signifying nothing. and that's precisely what will be done about HFT and the like...nothing.
don't be fooled.
Shumer is a prick non-peril. Read his last paragraph. Must be all the inactivity he is inexplicably applauding the SEC for didn't effect his personal portfolio in a negative way like hft trading has.
i wish there was a different state out there for him to wreak havoc in instead of mine - though i suppose his vote affects them all.
The first rule of professional communication is to NOT begin the letter with "I write.."
WHY IS FLASH TRADING STILL ALLOWED?
Because the SEC is afraid to admit that the market is out of control and they have no influence over it any more.
Simply by watching (even kiddie & tranny porn) the SEC has an effect...
http://www.sciencedaily.com/releases/1998/02/980227055013.htm
SENATOR GOLD DIGGER
http://williambanzai7.blogspot.com/2010/09/senator-gold-digger.html
Geez, how's a bot supposed to make money in this market?
I suspect there are those wondering why Schumer & Schapiro aren't working this smoothly...
http://www.youtube.com/watch?v=P-cje17OGnQ
Here's who paid for Grandpa Munster's 2004 campaign:
1 Goldman Sachs $282,090
2 Citigroup Inc $243,100
3 Merrill Lynch $147,000
4 Bear Stearns $146,900
5 UBS AG $140,750
6 Lehman Brothers
7 Morgan Stanley $124,500
8 Metlife Inc $120,999
9 Morgan Stanley Dean Witter & Co $111,000
10 Ernst & Young $108,800
11 Credit Suisse First Boston
12 Newmark & Co Real Estate $101,200
13 Kasowitz, Benson et al $100,250
14 Deloitte Touche Tohmatsu $97,749
15 JPMorgan Chase & Co $92,800
16 New York Life Insurance $86,000
17 KPMG LLP $82,948
18 JP Morgan Chase & Co $79,000
19 Paul, Weiss et al $77,000
20 Viacom Inc $74,700
http://www.opensecrets.org/politicians/contrib.php?cycle=2004&cid=N00001093&type=I
"Our esteemed Senators and Congresspersons are well paid to rob us.
RED ALERT, RED ALERT, the Chumps have figured out they were the Chumps. EJECT EJECT EJECT. Quick who was developing the new "strategy"?
Need more suckers, the market (ponzi) is crashing. Call in favors to our bought and paid for congress schmucks asap!
Welcome to the republic, citizen.
Can we pool money to buy advertising on porn sites that flashes "Ban HFT/Flash Trading Now"? I am guessing we get our best bang for our buck on tranny sites.
Schumer seems bought and paid for. I wouldn't be surprised if the financial industry itself writes Schumer's letters to the SEC. How would Schapiro expect to receive lucrative consulting deals from Wall Street if she rains on their parade? I have no doubt she will express her concern in upcoming speeches she may make.
None of them have any incentive to actually do anything about it. They, however, have a lot of incentive to write public letters and give speeches with their concern about whatever random scam on Wall Street is making the press this quarter.
WHY IS FLASH TRADING STILL ALLOWED?
Could it be a replacement for the SEC's pipeline of porn? Now all traders have to expose themselves on the floor of the exchange after executing a trade.
If team geithner (includes G(f)S and JP(f)M) weren't using HFT dirty tricks to rig the market and steal billions from the people for those criminal banks, those two banks and the madoff-complicit SEC would have shut this shit down a long time ago. dark pools, etc are all completely incompatible with fair and free markets. it's all just completely f***ing ridiculous.
Schumer has no interest in HFT. He is interested in his own political behind. He is playing to a public which is raging against a criminal, corrupt and illegitimate government. The problem with Schumer is that he is part of that criminal, corrupt and illegitimate government.
Schumer is a dog like the rest of them!
DOW/S&P500/FTSE/EURO short signal continues :
http://stockmarket618.wordpress.com
All your quotes are belong to us!
Nice article thanks.
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