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Sen. Kaufman Urges SEC To Work Quickly On Uncovering Possible High Frequency Market Manipulation And Systemic Risk
Sen. Kaufman admirably takes on the windmills again, this time sending a much more sternly worded letter to Mary Schapiro to finally step away from the game of taxpayer funded Solitaire, and instead of waiting for twitters and bloggers to hand her agency cases of insider trading on a silver platter, to finally do something proactive, before her thoroughly discredited agency comprising of what are apparently some of the most inept government workers in existence, is responsible for not only the biggest ponzi blow up (done and done) but for the greatest market collapse courtesy of a few unsupervised Atari consoles.
Kaufman press release:
Senator Ted Kaufman (D-DE) today urged Securities and Exchange Commission (SEC) Chairman Mary Schapiro to take immediate steps to combat manipulative high frequency trading algorithms and end so-called “sponsored access,” which Kaufman and many market experts believe exposes the U.S. capital markets to systemic risk. Sponsored access permits traders – many of which are unregulated hedge funds – to trade directly on an exchange, circumventing risk checks that apply to broker-dealer trades.
“While it is clear that high frequency trading brings certain benefits to our markets, it is also clear that manipulative high frequency algorithms are almost certainly operating today and that sponsored access creates a systemic risk today,” Kaufman wrote in a Nov. 20 letter delivered to Chairman Schapiro and the SEC’s four other commissioners.
Kaufman has been urging the SEC to look more closely at market structure issues since he wrote the Commission on Aug. 21 calling for a comprehensive “ground up” review before piecemeal changes in the existing structure only increase concerns about unfairness or systemic risk. Last month he was the lead witness in a Senate Banking subcommittee hearing on a host of market structure issues, including high frequency trading, which uses ultra-fast computers, co-located servers and proprietary data feeds direct from market centers to make thousands of trades a second.
“Given that the Commission under current procedures is now blind to high frequency operations, the need for immediate action should not wait until the Commission has completed its comprehensive review,” Kaufman wrote.
An attachment to Kaufman’s letter to Schapiro spells out in detail his thoughts on three areas where further Commission action is needed for market fairness: consolidated surveillance authority, dissemination of market data and modernizing best execution reporting standards. “Fairness,” Kaufman writes in his attachment, “may be an elusive and evolving concept in the securities market, but it must be defined and then vigorously defended by regulators.”
“[G]iven the current lack of effective market surveillance,” Kaufman writes, “we simply cannot permit high frequency practices to continue unchecked without the ability of regulators to observe and stop manipulation or to avert systemic risks.”
Full Senator Kaufman letter attached
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Dear Senator Kaufman:
We ain't got no money.
Love,
Mary
http://www.youtube.com/watch?v=sYJhhKSXOBo
+10 (on multiple levels)
edit to add (Mary):
"P.S. There is no systemic risk, unless we say there is. Want proof? Today ICE 'whited-out' a systemic risk in DXY futures. XXOO"
Classic.Thank you Tyler.
Hand out trade data and bring in the academics, think tanks and market participants look for market abuses. Several other regulatory agencies make an exhaustive amount of data available for analysis by external researchers so why shouldn't the SEC?
As for consolidated surveillance, NASD wasn't terribly successful back in the 90s, was it? And the SEC hasn't been terribly successful either, to say the least. Make data widely available and you'll have thousands of eyes going through that data every day.
Kaufman is wasting his time. Geithner, Bernanke, and Summers seem willing to let the banks recapitalize by any means necessary, including using predatory algos to skin retail investors and their mutual funds.
Sounds right to me. The skim is a much more civilized and pleasant method for goosing up bank capital and puffing the equity market. A far more preferable method when compared to the noise surrounding TARPs and Stimulus.
And best of all is the plausible deniability surrounding the scheme.......horror that such things have been going on all this time.
Thanks for the heads up TD.
bold/ italics/ underline added to underscore the three basic rules of HFT as per Fight Club.
Much like all complex growth organisms (ie. "formological") and in true Fib fashion, Stamford only follows 3 of the 8 rules (#'s 1, 2 & 7) found within the basement of the Paper Street Soap Company.
Tyler Durden: "Welcome to Fight Club. The first rule of Fight Club is: you do not talk about Fight Club. The second rule of Fight Club is: you DO NOT talk about Fight Club! Third rule of Fight Club: if someone yells "stop!", goes limp, or taps out, the fight is over. Fourth rule: only two guys to a fight. Fifth rule: one fight at a time, fellas. Sixth rule: the fights are bare knuckle. No shirt, no shoes, no weapons. Seventh rule: fights will go on as long as they have to. And the eighth and final rule: if this is your first time at Fight Club, you have to fight"
"...a much more sternly worded letter..."
It sent shivers down MY spine...
LOL
"...the current situation is a prescription for disaster."
At least Senator Kaufman is paying attention.
May I recommend a phone call to Mister Joseph Facciponti at the US Attorneys office as he may be aware of software that can "unfairly manipulate" stock prices.
There is NO such thing as "unfair manipulation" of stock prices or any other "free" market traded instrument/ vehicle.
Look to what Chris Whalen and Leo Kolivakis have to say about 'the other side' of "unfair manipulation", re: what's being held off-balance sheet.
agreed.
i observe the market moving toward dark pools or may i call them black markets for stock trading, or perhaps fight clubs in and of themselves. seems like the bucket shops of our age are evolving. evolving along the course of market progress and creative destruction.
300 years of market advancement masked by inflation...a correction was bound to happen. this is what the process of correction looks like.
is this a "free" market? what is a "free" market?
great comments, handle and pic, blackebitda.
Yeah, how 'bout he gets Sergei freedom from prosecution, gets him up to the Hill and lets him spill before a committee.
Oh. And he'll need the witness protection program.
this needs to be dealt with.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aJ26uaTZb8aU&pos=9
Get a rope!
Gregg is retiring his seat in 2010, so I guess he is "bullet proof" as far as defending the Fed goes. No re-election worries for him. I don't think he is alone though and the senate may be a tough nut to crack here as Obama really does not want this bill on his desk, he'll go all out to make it go away or go toothless.
Great points JohnKing. I humbly think that this very issue will be what causes/ why Obama's approval ratings will sink to 8-13% before he does NOT seek reelection. 100% pure speculative anal-ysis; thinking out loud.
I agree. And the spinfest over this has already started.
Mister Gregg has probably sent his resume over to GoldSach.
I guess this means I can refuse an IRS audit, because it would threaten my independence.
"possible market manipulation" - wow, I cannot even believe they still think of this as theoretical.
hint: set up 'avg oklahoma joe' retail accounts through various brokers, track and OBSERVE.
Let's all pat ourselves on the ass Barney style
Let's all pat ourselves on the ass Barney style
Well done, Doc.
Thank you sir may I please have another?
What makes you so certain? Almost all HFTs backtest their methods - how could manipulation POSSIBLY be involved if these methods work over backtested data and it is optimized in this way?
OBVIOUSLY, you are not a trader (fly in the matrix) and know nothing about what is really going on. try it some time - start by shorting a low(er) volume stock, on a low volume day, in the retail sector (for full effect), in the afternoon hours -- report back your losses! the tact is simple and requires NO back test.
on the macro level, phony market volume is part of the deception/manipulation THROUGHOUT the entire market.
Sounds like you are paying slippage for shorting a low volume stock on a low volume day... I don't see how this indicates manipulation. The fact that you don't need a backtest to show that you lose money for causing market impact isn't relevant at all to my comment. I was referring to HFTs profits are not derived from market manipulation if they are based on/optimized in backtest.
"Sounds like you are paying slippage for shorting"// "HFTs profits are not derived from market manipulation"
Idiotic assumptions, first to last. observing the actual behavior, of actual HFTs, in a micro environment, not the theoretical kind, which is all that you are seemingly acquainted with, seems like a logical place for the ignorant to begin observation of this profit magic (manipulation) in motion.
reality vs theory, what a concept.
You cropped part of my sentences and took them out of context to twist their meanings and make them sound like assumptions, which they aren't. My main point which you never addressed is the FACT that the vast majority of HFTs develop their models through backtest - how can it be based on market manipulation if they are based on backtesting over historical data? You haven't addressed this because you know it's true or you can't understand it, so you've resorted to childish name calling. I assure you my information is based on reality and experience.
I quoted you in full. Blaming your sheer lack of articulatory skill on Moi' is what is childish. Inability to communicate abstract concepts, your own hang up. Getting bogged down in one very simple concept, absurd.
From your FULL quotes, we can assume that you think HFTs do NOT manipulate.
These statements fly in the face of common knowledge (example, see article/letter above). The oweness is on you to provide documentation supporting this ‘lame assertion’ THAT back testing historical data rules out the possibility of manipulation.
Being a trained systems eng, I contend that backs testing historical data can assists with the manipulation process. But what do I know, as with any scientist, I anxiously await any DIRECT documentation to the contrary.
Living in the real world – priceless.
"I was referring to 'HFTs profits are not derived from market manipulation' if they are based on/optimized in backtest."
You did not quote me in full - you cropped out the part that I said "if they are based on/optimized in backtest". Anything methods based on historical data is, by definition, not based on manipulated. Actually, you are the one that asserted something as fact, with no evidence to back it up. Your example of losing money from slippage after pushing an illiquid stock around on a illiquid day, therefore it "must be HFT" is a ridiculous leap. You just sound like a bitter trader, desperately trying to find something to blame.
"Anything methods based on historical data is, by definition, not based on manipulated."
incomplete sentence aside, could you site your source of the definition. I do not think it means what you think it does. Your logic has gaping holes. Perhaps you should do a venn diagram before continuing on your course of non-sense... please...
http://en.wikipedia.org/wiki/Venn_diagram
Meant to say manipulation. In order to manipulate something, you must be able to change it - you can't change historical data. I agree my assertion of "by definition" may be a little strong, but the general process of backtesting is finding stastically profitable trades over historical data - there is nothing inherently manipulative in this.
psssst
*whispers*
utopia doesn't exist, it's an unobtainable concept, kind of like perfection.
ah...historical data is not where you do your testing. You plug into live feeds. You can plug into more than one feed to test your predatory stuff. Play the "inefficiencies off of each other.
((Actually, you are the one that asserted something as fact, with no evidence to back it up))
I did not. In passing, I only suggested some real world research on the part of the SEC and other ignoramuses, such as yourself. -- big earth shattering concept there. However, your thesis requires some backing up.
Put up or shut up.
BTW, I am fine with an investigation in HFT practices, and trying to find illegal/problematic trading behavior, as I am supportive of finding illegal human trading behavior - it will make for a better marketplace. I assume they may find some abusive practices (nowhere did I unconditionally say HFTs never manipulate markets although you cropped part of my sentence to make it seem that way)... but will also find this is not norm in HFT. What I don't think is OK is wild assertions of "fact" of how destructive HFT is, based on sparse anecdotal evidence.
"What I don't think is OK is wild assertions of "fact" of how destructive HFT is, based on sparse anecdotal evidence."
Very true. Which begs the question, where are all the facts? Perhaps it's time for an investigation [what a novel idea]. This is, obviously, the only rational course of action that will end all the speculation at what HFTPs are and are not capable of doing.
So let me get this straight, your argument is thus:
Most HFTP models are develepoed using historical data, therefore NO HFTP can be used for market manipulation.
Is that what you are trying to say?
No - that is not what I'm trying to say. I tried to say that a model that was built/optimized in backtest, isn't based on market manipulation. I wouldn't be at all surprised if there are HFTs who are trying to manipulate markets, as there have been human traders who have tried to manipulate markets as long as there have been markets. My point is this isn't remotely the core of HFT.
"I tried to say that a model that was built/optimized in backtest, isn't based on market manipulation."
This is, of course, assuming [ass + u + me] that manipulation wasn't present during the creation of said data. I can learn to play poker by reading the rules, and watching the WPT on tv, however, that certainly doesn't prevent me from cheating at a game of poker. How is the HFTP different?
I wouldn't be at all surprised if there are HFTs who are trying to manipulate markets.
Neither will I.
My point is this [market manipulation] isn't remotely the core of HFT.
You have yet to make that point, but I will be patient... Try again...
"assuming [ass + u + me]"
Did you really just say that? Anyway, you and, more so, Dr Hack have yet to establish that market manipulation is at the core of HFT.
"The absence of evidence is not the evidence of absence."
http://www.youtube.com/watch?v=30x8VTCaOws
Again, without a complete and public investigation the subject is moot. However it can be said that; whereas the capabilities and limitations of a human trader are known and understood, an algorithm suffers no such distinction. Until each and every line of every HFTP code has been combed through by knowledgeable and honest (*crickets chirp, the crowd giggles*) professionals and the results made public, it can be reasonable to assert that; in the arena of market action, an HFTP is capable of anything.
I stand humbled by D.O.D.'s style and sense of humor (+10 )
((…Dr Hack have yet to establish that market manipulation is at the core of HFT)
Not sure I need to, as this has been presented over and over and over, by ZH and others far more credible than I. My simple suggestion to ‘OBSERVE’ merely hearkens one to begin the scientific process of Re- Re- Re-Discovery.
Salluzi’s latest white paper:
http://www.themistrading.com/article_files/0000/0508/What_Ails_Us_About_...
Finally, we are still awaiting the source of your theoretical definition, surely you have not forgotten.
Deleted - out of thread sequence .
Meanwhile, Aldridge is quoted by FT (http://ftalphaville.ft.com/blog/2009/11/19/83751/a-gold-rush-moment-for-...):
“HFT is nothing more than the automation of the traditional trader functions. It’s not doing anything that wasn’t already done. Even flash orders are just an automated version of those who used to sit on the exchanges and had immediate access to information. You had to pay a lot to put someone like that on the exchange.”
What do you think of this?
in theory/ concept? definitely true ... in practice/ reality? um, not so much though
I think a fi dolla ho deserves a fi dolla foot long.
http://www.youtube.com/watch?v=sZ3k8wCk5AQ&feature=related
A "trader on the floor" is still human, with human reaction times and human doubts. A human can make mistakes, a human might decide to wait, a human might need to take a leak just when something moves.
The problem is not just access. It is not just methods. It is the confluence of sub-millisecond reaction times combined with massive data mines combined with never having to take a leak EVAR.
A lot of things in society that would be okay under human conditions, totally suck wind when handed over to a machine. Machines simply do not give a fuck and will happily blow your world to ratshit to make $.02 a millisecond.
Just like their masters.
[And before some smartass chimes in with "yeah but the GS prop desk doesn't give a fuck either" I would add that they not giving a fuck is balanced out at least in part by them being able to make actual mistakes, be distracted by the big-chested lady trader the next monitor down, make bad trades because they are pissed at their boss, and perhaps even work so hard to make money that they have a heart attack and die on the trading room floor, taking their extensive knowledge of how to trade and their lightning reactions with them to the grave. It ain't much, but in a world of human limitations it is just enough friction in the gears to keep your world from being blown to ratshit every three hours. Without that you are toast, brother. You just burn.]
cougar
Market data fees makes this little world go around--Sen K
lol, that plus:
12 b-1 fees;
12.5 bps/ month wrap account fees;
... and chiefly (while this list is certainly not exhaustive), the distinction between TD's (time deposits) and TR's (transaction deposits) within the financial intermediary system ... T+3 isn't just to prevent trading of small accounts etc. ... it is also because the notional "value" within YOUR savings account AND 401(k) has effectively been leveraged and managed behind the machinations of internal accounting functions ... without ever effecting a single change to your actual account ... just loaning out your 14 shares of **ittygroup earns a hedge fund, err, broker, err "bank", c. 30% a year in interest income that you never see a dime of. sucker.
Kaufman has been urging the SEC to look more closely at market structure issues since he wrote the Commission on Aug. 21 calling for a comprehensive “ground up” review...
The SEC? Comprehensive? The SEC is a waste of oxygen.
Nothing will change. There is too much money being made by flash and HFT. There is no one with the unshakable character that is required and who also has the ability as well as motivation to change anything. The haves get their way the have nots do not. If there was any progress or changes made they would have loopholes figured out before they conceded anything. The smartest and richest guys against who? It is like trading against the flash traders. What is going to happen if you trade against a flash trader? Keep in mind a flash trader only trades if he has an edge. If you trade against someone that only trades when they have an edge you will lose money. Your equity chart will look like a dollar chart. Flash traders are locking in the frees penny. Stock+Call+Put....no risk, free money lock the door. Who gives up free money? Certainly not the greediest fuckers in the world. So go cause some riots and bring the real rukus or sit back and take the free health care and welfare they throw your lame ass.
Almost no money is being made by flash trading - it started only this year, it's a tiny percentage of the market, and most exchanges don't even have it any more. Flash trading is completely misunderstood - the entire motivation of it is to avoid an order from being routed to the "NBBO", because the NBBO is often stale and takes forever to get routed, just to find out that there was no fill. The people who can get "gamed" or "front-run" are the ones that CHOOSE to place the flash orders, hoping to get filled quickly rather than being routed. Also, flash orders are not some proprietary or secret feed... all but one exchange that had it, automatically offered it as a another feed which is easily available to anyone who has the primary feed.
Its used to gain information and information is worth money.
http://blog.themistrading.com/wp-content/uploads/2009/01/toxic-equity-tr...
The article you posted doesn't mention flash trading.
Yeeeah--Almost no money is made by flash trading...
Put down the Johnny Walker, Mary Shapiro--and just step down already. How many more trillions is your incompetence going to cost America??
It's beyond anoying ITS CRIMINAL at levels never before seen in this nation.
It's 1% of the US equity market - I really don't think people are making that much with it. I'm not saying it shouldn't be banned - there are potentional problems with it. I was just saying it's badly misunderstood. Many people seem to think HFTs derive most of their profits from it - however, it just started this year and it's a trivial percentage of HFT trading. Also, the intention wasn't to game the market - it was to avoid getting your order routed to some stale NBBO - and by the time your routed order misses, the original order you wanted is no longer there. Finally, if you don't want your order potentially gamed, just don't send it as a flash order - most orders aren't.
The SEC ain't gonna change anything under all their buddies suck every last dime out of the market. Then there will be change...can you say pitchforks and torches?
3 parts
Asia Confidential – Bernie Lo interviews Bill Murphy, Chairman of GATA November 2009 Part 1
GATAChannel
November 20, 2009 |
GATA Chairman Bill Murphy appeared on Bernie Lo’s program Asia Confidential on Bloomberg TV on November 19, 2009.
http://tinyurl.com/yjtyqxw
i have mentioned before that i am a delawarean...
kaufman is, unfortunately, a seat-warmer for beau biden, the sycophant opportunist who who has leveraged minimal experience into an absentee attorney general-hood. you will note that his wikipedia page begins: "Joseph Robinette 'Beau' Biden III is an American lawyer, soldier, and politician..." actually, beau is a jag lawyer, not a soldier, in the air national guard, who ran for his post as delaware ag knowing that his deployment was likely around the corner. sweet! double points!! i don't think you even have to play paintball on the weekend to be a jag lawyer in the reserve.
fortunately he has formidable opponent, mike castle, longtime congressman, who recently voted yea on the federal reserve audit bill. as one of the very few remaining republicans who does not pander to the socially radical wing of the gop, we can only hope that mike will defeat this anointed joker aka beautiful biden.
until then, carry on, ted. you are doing god's work
MARY----Time to step DOWN!!
Why you still have a job anywhere but Dairy Queen is the mindfuck of the century.
Your best friend Bernie Madoff is lonely, and you belong together.
throughly amused at the "jettison ballast" tag.
its pretty obvious that flash trading coupled with HFT enable the operator to push a stock around like a caterpillar D8,and collectively they can push the whole market to a considerable degree yesterday, one of the biggest gainers on the NYSE traded only 700 shares. I don't remember share price. but lately under $5.00 turd stocks on low volume move the whole index
" before her thoroughly discredited agency comprising of what are apparently some of the most inept government workers ..."
BUT, in the eyes of her superiors (the privately held federal reserve owners, agents and cartel members who run our goverment, own more than half of the DOW, and buy all elected officials, who then sanction criminality) she runs the finest best and the most capable organization, doing a superior job of protecting the government sanctioned criminality that now defines our capital markets. But, like so many people involved in this massive crime syndicate, she probably does have a conscience and it may be that little by little, she tries to do the right thing, even with the dark evil that lurks as a constant reminder to never question the BIGGEST boys.
You keep using that word honorable. I do not think that word means what you think it means.
Inconceiveable (spoken with a slight lisp, apologies to Wallace Shawn)!
+10. Honorable would be like Iñigo Montoya.