SEC Begins Probe Of Flash Trading

Tyler Durden's picture


Next up: Dark Pools (hint, hint, Mary)

Update: From Bloomberg

July 30 (Bloomberg) -- The U.S. Securities and Exchange
Commission will review so-called flash orders used by four
equity markets, NYSE Euronext Chief Executive Officer Duncan

Charles Schumer, the third-ranking Democrat in the U.S.
Senate, told the SEC to review flash orders in a July 24 letter.
Regulators told NYSE officials they will examine them, and based
on those discussions it appears unlikely the SEC will impose
curbs on other forms of high-speed trading, Niederauer said
today in a conference call with analysts to discuss the New
York-based company’s second-quarter results.

“I don’t think there is any fear of them doing something
that would severely damage the displayed liquidity on U.S.
equity markets,” he said. “High-frequency trading is actually
the most consistent source of liquidity.”[TD: Time for one more of those "The Y in the NYSE stands for Trust" ads]

John Nester, a spokesman for the SEC, didn’t return a
telephone call seeking comment. Last month, SEC Chairman Mary
said the agency is concerned that electronic
indications of bids and offers are being disseminated to a
select group of brokerages.

NYSE’s competitors -- Nasdaq OMX Group Inc., Bats Global
Markets, Direct Edge Holdings LLC and the CBOE Stock Exchange --
give information to their clients about orders for a fraction of
a second before the trades are routed to rival platforms. NYSE
, the world’s largest owner of stock exchanges, told the
SEC in May that these flash orders result in most investors
getting worse prices.

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Anal_yst's picture

Proactivity FAIL

Gilgamesh's picture

Could have swore that said Flash Dancing.

Anonymous's picture

No, the SEC wouldn't know a flash dancer from a flash order anyway.

djchill2's picture

Watchout!!! The SEC is badass!...Nobody wants to part of them!....sarcasm off.

GlassHammer's picture

Markopolos: "If you flew the entire SEC staff to Boston, and sat them in Fenway Park, they wouldn't be able to find first base."

Just saying...

Screwball's picture

That was some of the best TV I have seen in years. 

GlassHammer's picture

Markopolos went for the jugular and rightfully so.


What ever happened to him?

Anonymous's picture

May be they should hire ex-GS people? It has done wonders for Treasury and we all know how they always have the interest of this great country and not their own

Anonymous's picture

Anybody notice Rosenberg has pretty much covered? Market is getting too overbought if all the bears have caved in. Its like the chicago bears are now playing basketball as bulls.
I'll pull a CR now and say that I bought FAZ near lows today.

Lets_Eat_Amen's picture

best of luck to you.  i wouldn't hold it for long since those leveraged ETFs reset and shed weight constantly.

Anonymous's picture

HA! I got it AT the low.

phaesed's picture

WOOOOOO! Did you see how the HFT-HK's (High Frequency Trading-Hunter Killers) just shook out all those stops? Poor people with investing discipline just paid the exchanges some more cash. Thank you T1000!

Dr Hackenbush's picture

Selloff.  The machines have detected the balance of humans are going long. 

Anonymous's picture

When will the Chinese and other countries start to trade in other markets? I am not saying that China is any better but is the US any better than CHINA?

Seriously at least China has money the NYSE and these exchanges are all ex GS employee's and politicians are all in bed together....

I hope you do the right thing Mary...there will be enourmous political pressure but don't let up!!! I have a feeling ZH (and its readers) won't let off these MF's necks until they are dead...I can promise you that...if the the politicans don't then our anger will go straight to them and i can tell you that won't be pretty....

Anonymous's picture

looks like somebody shit his pants exactly as you posted this; coincidence?

Anonymous's picture

I expected a selloff at EOD and here it is!
At least someone is cashing in on the rally!

Anonymous's picture

The CFTC hearings can cause a substantial drop in the commodities as Goldman and company begin soiling themselves on actual enforcement of their excessive commodity holdings.

disreputable cousin's picture

Duncan Niederauer said “I don’t think there is any fear of them doing something that would severely damage the displayed liquidity on U.S. equity markets,”  ..... “High-frequency trading is actually the most consistent source of liquidity.”

That sounds like a threat to me. Screw with us and we'll burn it all down.

It also sounds arrogant and calculated to intimidate. Logically, if HFT didn't create an advantage greater than the cost of creating and continually modifying the programming required to keep current, nobody would care about regulation. Since the cost of HFT is extremely high, the benefits must be commensurate with the costs. If one second barriers were required or flash orders were banned, would that significantly diminish the value if the investment? If not, then why are they even concerned?

These are fraudsters who are in the process of institutionalizing the fraud. The SEC will undoubtedly be intimidated by the iBanks and exchanges and defer to their cover stories and fraud.Perhaps they are even stupid enough to confuse textbooks with reality (Yes, I know they are)

Altruistic liquidity is something I can approve of in the same way I am willing to pay for an insurance policy. If you're there when I need you then I'm willing to pay the premium.These fraudsters are only interested in the economics of the bubble and the related ponzi economics associated with a market that is biased upward due to computers and management that makes bonus money on trading profits.

Hank Rearden's picture
"a market that is biased upward due to computers" Computers aren't biased, unless they are programmed by humans to be biased. As such, any perceived upward bias is initiated by humans. Besides, high frequency books don't build positions, they are in and out and are flat or relatively close to flat at the close (most often hedged). Some positions are built by index arb etc. but they are hedged with futures and options. Don't forget, one of the key reasons why HFT has grown in popularity is that it doesn't generally occupy much space on the balance sheet, which most banks/funds don't have.
Anonymous's picture

RAlly what rally?
Just as expected.
The SPARC servers must be scared of another fierce drop in CHINA overnight and the GDP trade tommorow morn.

Anonymous's picture

That is one ugly looking candle on the daily SPY. Of course this should be considered a buy signal by now.

Anonymous's picture

SEC is on the case.
SEC+Schmucker = Be very scared.

Gilgamesh's picture

C is for CONfidence.


Not going to mention how it stands for Barney.

ptoemmes's picture

S - Securities

E - (and) Exchange

C - Commission_of_a_crime_will_not_be_punished

Anonymous's picture

Last of the bears has now gone away.
No more bears, economy is right on track, Obama saves the USA with his massive spending programs.
The sun is shining.
All is good across the land.

Anonymous's picture

Somewhere Madoff is snickering.

Anonymous's picture

The SEC has just now demanded that anyone or any entity that has used HFT to illeagaly manipulate the markets to turn themselves in at their local SEC office immediately. Those that do so now will not risk the possibility of a severe wrist slapping.

ShankyS's picture

Is that dudes name Niedermayer - Like from Animal House - Sure he fits the description to a T. 

Anonymous's picture

Dean Wormer: "Put Niedermayer on it, He's a sneaky little shit"

lizzy36's picture

Notwithstanding the lovely SEC press release, examine and probe are not synonymous.

And perhaps the SEC should look into the president discussing the q2 gdp  data right NOW! - and not examine but a bend over probe.

Anonymous's picture


texpat's picture

Tighter spreads! What's not to like.

Anonymous's picture

The financial STD's that go with it....

Anonymous's picture

In other news, SEC now taking applications for "Flash Trading Fall Guy".

Requirements include: Loyalty to your company; willingness to believe your corporation's lawyers' advice; something you did that you never thought was significant but you'll find out it was; a boss you trust; and young children you'll never a risk long prison term over and will plea bargain your way out, saving your bosses.

Position will stay open until final Health Care Debate in October.


Anonymous's picture

If obama knows, Wall Street must have known about it earlier than him

Anonymous's picture

the link's a dud

Gilgamesh's picture

And by examining, we can assume they are typing FLASH in the Search feature on MySpace and Facebook? 

Eagle's picture

"...the DISPLAYED liquidity..."


Is that the same as BOGUS or PHANTOM liquidity?

Anonymous's picture

So Obama announces that GDP will show a contraction but that is what everyone was 'expecting' so why say it? Unless it is really bad and he had to forewarn so people will then go, ah, yes but not as bad as we thought you meant............

Rally back on after sucking in lots of shorts tonight at close and longs stopped out.

Evil incarnate

deadhead's picture

you beat me....i see that obama pulled out some ky to make the friday number a little easier to January/Feb he would have done that DURING market hours and the obama short would have been a great play.

I guess he has finally figured out the bad news delivery must be after market closes, after a big run up.

he also said job losses are "huge".....



disreputable cousin's picture

Duncan Niederauer said “I don’t think there is any fear of them doing something that would severely damage the displayed liquidity on U.S. equity markets,”  ..... “High-frequency trading is actually the most consistent source of liquidity.”

Or, it might mean, in addition to my above analysis, that the SEC is a tame and willing pet and they are under control. The exchanges and iBanks have nothing to worry about. The blogs and politicians are just noise and the ponzi plan will continue unabated. CNBC will carry their water and the WSJ is also providing quiet support.

jedwards's picture

Question:  If Goldman is involved in 25% of all daily trades, how can they ensure that they aren't trading between themselves?  Wouldn't that be illegal?  Can they really ensure that they aren't both counterparties to a trade?  


Because if they are, they can easily move the markets up or down without costing themselves any money.


What do they have in place to make sure they don't engage in this, and who is stopping this?

disreputable cousin's picture

They put little red dots on their orders. This sets them apart so nothing unsavory might occur.

Anonymous's picture

That is actually one of the reasons they built Sigma X, to avoid trading with themselves in the open market. They can match orders internally and they don't have to pay exchange fees. You are right, markets can be easily manipulated if you trade with yourself, but the exchanges have been all over that for years and years, so you wouldn't get very far with that approach.

Anonymous's picture

and here is the Rosenberg Bloomberg clip from an hour ago where David Rosenberg responds to Kathleen Hayes (sort of like responding to Dennis Kneale) that "Yes, we are getting to the very tail end of the recession"

its at the 10 minute mark of the interview -- the best comment is that the market has already discounted this - I would love to see a clip where Rosie gave his loyal followers that heads up back in March.

(hopefully the link doesn't get truncated)

Anonymous's picture

I have discovered a direct correlation to the number of ZH posts to the performance of the stock market.

Artie13's picture

Have you noticed that 'somebody' has set the propaganda wheels in motion? Both articles below are from today.

From Advanced Trading:;jsessionid=JYVZWP4GH2ZACQSNDLRSKH0CJUNN2JVN?articleID=218900109&_requestid=371746

From Wallstreet & Technology (Larry Tabb video):;jsessionid=EYK4FYBQYCXEGQSNDLPCKHSCJUNN2JVN


Anonymous's picture

How is Mr. Ratterman's letter propaganda? He is the CEO of an exchange that started two years ago and now has 10% market share. BATS is arguably more responsible than any other market force in decreasing the cost of trading and forcing the NYSE to bust up the old floor specialist monopoly, which, by the way, was far more responsible for scalping the little guy than any flash order would or will be. BATS gives its real time market data away for free. The NYSE had a hair salon and members dining room. BATS is based in Kansas City far away from the incest of New York and Washington and it is run by people that truly, emphatically want to have an open and fair competition, not one won by regulatory arbitrage. They have addressed modern challenges of the market and forced others to innovate.

I do not work for BATS nor any other exchange. However, as a professional that is well educated on market structure I am not sure if I should laugh or cry at the outright lies and distribution of misinformation on this site. Mr. Ratterman puts forth a reasoned argument backed by facts. To call it propaganda is childish.

As an aside, the humor of an anonymous blog asking a Senator to take action on "its" behalf is indescribable. Advocacy is great thing when steeped in reason, openness, and the willingness to admit when you are wrong. But if you want to petition the government, do it like the rest of us, with full disclosure. To do less is cowardly.

lsbumblebee's picture

"Okay, okay. We'll look into this flash order thing. Jeez. What next?"