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Senator Kaufman: "The Market Is Currently Heavily Fragmented And Dominated By High-Frequency Traders"

Tyler Durden's picture




 

Zero Hedge fully supports all the points raised by the Senator. Some highlights from Senator Kaufman's speech delivered today (video will be posted tomorrow).

I am concerned that regulators are outmatched by the rapid advances in high-speed trading.  In a highly fragmented system where millions of trades take place in a microsecond, the ability to measure and enforce so-called "best execution" may be a vain hope.  The so-called Rule 605 forms, which purport to measure execution quality, are woefully outdated.  The first column for time for execution reads "0 - 9 seconds."  In a gap of 9 seconds, prices can change significantly.  In a world of 50 market venues, with structural latency issues being targeted by an entire industry of high-frequency traders, millions of trades reaping millions of dollars can take place before retail investors and the regulators who protect their interests can comprehend what happened.  We need to ask if regulators are looking through the wrong end of a telescope when they should be using a microscope.

Some argue that such innovations add needed liquidity to the market. But high-speed traders mainly target the most frequently-traded stocks.  Liquidity is light and spreads are wide on many lower volume stocks.  We must rigorously examine the degree to which rebates actually bring liquidity to the marketplace where it is needed and help the market function properly.

Under the current system, Mr. President, until empirical data shows up to dispel our concerns, we have little reason to believe average investors can compete with the high-speed traders they are up against.  We must question whether certain broker-dealers are acting in the best interests of their customers, under cover of flawed regulation and antiquated enforcement techniques.  And we have dark trading platforms that are insufficiently monitored by regulators and which undermine public price discovery. 

Moreover, unlike specialists and traditional market-makers that are regulated, some of these new high-frequency traders are unregulated, though they are acting in a market-maker capacity.  They have no requirements to "maintain a fair and orderly" market.  They trade when it benefits them.  If we experience another shock to the financial system, will this new (and dominant) type of pseudo market maker act in the interest of the markets when we really need them?  Will they step up and maintain a two-sided market, or will they simply shut off the machines and walk away?  Even worse, will they seek even further profit and exacerbate the downside? 

High-frequency trading, while not illegal, may operate in ways that undermine the legitimacy of our financial markets.  In order to restore investor confidence, we must effectively regulate unfair performance-enhancers.  We must shine a light on dark pools, conduct a searching examination of high-frequency trading strategies to ensure they are not manipulative, ban flash orders, and give regulators the tools they need to ensure that broker-dealers are acting in the best interests of their clients.

So on this anniversary of the Lehman Brothers collapse, I conclude by saying I look forward to working with my colleagues, not only to address the financial crises of the past, but also to scrutinize and begin to correct the financial abuses of the present, so we can avoid the problems of the future. 

This speech has been long overdue.   

The entire release by Senator Kaufman's office/link

Kaufman, On Eve of Anniversary of Lehman Collapse, Calls for Forward Looking Approach To Financial Regulation

WASHINGTON, DC - On the eve of the one-year anniversary of the bankruptcy that sent shock waves down Wall Street and throughout the country, Sen. Ted Kaufman (D-DE) will deliver a speech highlighting the failure to enact comprehensive financial regulatory reform in the 365 days since the collapse of Lehman Brothers. He will also detail the critical need for the nation's financial regulatory agencies to adopt a forward-looking approach to regulation - one that recognizes manipulation and wrongdoing before it metastasizes and leads to systemic failures or seriously undermines market credibility, fairness and investor confidence.

"For markets to have credibility and investors to have confidence, Congress and the SEC must act urgently to restore a level playing field for investors," says Sen. Kaufman, in prepared remarks. "We have vowed to shine a light on Wall Street ... but our actions have not yet followed our words."

"I applaud President Obama's efforts to address the regulatory problems that devastated our economy and I look forward to working with my colleagues to create a systemic risk regulator, regulate derivatives effectively and ensure consumer financial protections," Sen. Kaufman continues. "But we cannot simply react to problems after they have occurred. ... Because of the damage that was done to our economy by the prior financial scandals, the regulatory agencies and Congress need to catch up and redress prior mistakes - while at the same time focus on current questionable market practices before new problems arise."

In response to Sen. Kaufman's recent letter calling on the SEC to undertake a comprehensive review of a broad range of such market structure issues that currently threaten market fairness, Securities and Exchange Commission Chairman Mary Schapiro revealed that - in addition to dark pools and flash orders - the Commission is currently reviewing other market structure issues including Regulation ATS (alternative trading systems) thresholds, direct market access, high-frequency trading and co-location of servers.

Though pleased the SEC is stepping forward to address more of the questionable practices happening on Wall Street, Sen. Kaufman is increasingly concerned about potential conflicts of interest affecting retail order flow, as well as the antiquated regulatory measures and enforcement to govern "best execution" in a highly fragmented market.

With over 50 trading venues, some broker-dealer firms are directing "a sizable majority of their order flow to the exchanges that offer the highest payments and lowest fees."
"In theory, best execution is always the first priority, as regulations clearly state that even if the customer's order is routed to a market that does not have the best price, it must be rerouted to the market center that does," says Sen. Kaufman. "But I am concerned that regulators are outmatched by the rapid advances in high-speed trading.  In a highly fragmented system where millions of trades take place in a microsecond, the ability to measure and enforce so-called "best execution" may be a vain hope. ... We need to ask if regulators are looking through the wrong end of a telescope when they should be using a microscope."

Noting most of these practices are still legal, though on account of inapt rules and regulations, Sen. Kaufman likens their unfair presence to steroids in Major League Baseball. "It used to be that steroids were not banned ... In fact, they were great for business.  The game's biggest sluggers hit home runs at an unprecedented rate, enthralling fans in the process.  But the game was tainted; the competition was unfair; the power was not genuine.  Eventually, the game suffered a crisis of legitimacy."

Sen. Kaufman further suggests that Congress must undertake a fundamental review of the oversight responsibilities given to regulators and examine whether they have adequate tools to effectively regulate these "unfair performance-enhancers" in our financial markets.

"We have become complacent in thinking that continually updating our body of regulations is enough, when in reality we perhaps have failed to provide regulators with the necessary tools they need to observe these complex financial institutions," he says. "So on this anniversary of the Lehman Brothers collapse, I conclude by saying I look forward to working with my colleagues, not only to address the financial crises of the past, but also to scrutinize and begin to correct the financial abuses of the present, so we can avoid the problems of the future."

Full remarks, as prepared for delivery:

Mr. President, tomorrow is the first anniversary of the Lehman Brothers collapse, the largest bankruptcy in United States history.  Lehman's failure sent shock waves throughout the entire country. The resulting financial meltdown plunged the American economy into the most severe recession since the 1950s. Credit markets froze, investor confidence collapsed, stock prices crashed, and millions of Americans lost their jobs, their homes, and their savings.

Lehman brought about its own demise, Mr. President.  Once the nation's fourth-largest investment bank, Lehman allowed a culture of recklessness to engulf its firm.

But the blame for this downward spiral and the consequences for millions of Americans does not end with Lehman, Mr. President.  At a time when banks were taking on unprecedented risk, our regulatory agencies were taking their referees off the field. 

The SEC, like other regulatory agencies, has made many mistakes in recent years:  from failing to monitor the credit rating agencies, to permitting the banks to increase their capital-leverage ratios to as much as 30-and-50-to-1 to buy up what turned out to be toxic assets, to removing the uptick rule without putting anything effective in its place, to failing to put in place systems to monitor and adjust its regulations as the markets rapidly evolved. 

Mr. President, our nation has paid dearly for these mistakes. 

In response, we have vowed to shine a light on Wall Street, to enact financial regulatory reforms, to push for clearer and enforceable laws, to strengthen our oversight agencies - all in an effort to prevent history from repeating itself and to rebuild the credibility of and investor confidence in our markets. But our actions have not yet followed our words.

President Obama has proposed a new financial regulation plan that would enforce stricter capital and liquidity requirements for investment banks, revamp the disjointed regulatory system, and impose higher standards for risky products like credit default swaps. 

I applaud President Obama's efforts to address the regulatory problems that devastated our economy, and I look forward to working with my colleagues to create a systemic risk regulator, regulate derivatives effectively and ensure consumer financial protections.

But we cannot simply react to problems after they have occurred.  We must also adopt a forward-looking approach to regulation that recognizes manipulation and wrongdoing while it is happening and stops it in its tracks.  Because of the damage that was done to our economy by the prior financial scandals, the regulatory agencies and Congress need to catch up and redress prior mistakes - while at the same time focus on current questionable market practices before new problems arise.

Since I became a Senator in January, I have been spending much of my time in Congress asking questions and promoting regulatory solutions to current questionable practices on Wall Street.   And I have stressed repeatedly the need for the SEC to step forward as a strong and determined cop on the beat.

Mr. President, I believe that democracy and fair markets are the foundation of our American society.  They are both based on the notions of equality and fairness - the idea that all Americans have an equal opportunity to succeed. 

For markets to have credibility and investors to have confidence, Congress and the SEC must act urgently to restore a level playing field for investors.  If investors don't believe the markets are fair, they won't invest in them, it's as simple as that. 

Fairness may be an ever-changing and elusive concept when it comes to the financial markets, but it must be defined and then defended by the regulators.  Where abuses continue in our financial markets, those abuses must be addressed through clear rules with teeth and through tough enforcement.  Otherwise, we will be left with two financial markets:  One market for huge-volume, high-speed players, who can take advantage of every loophole for profit, and another market for retail investors, whose orders are seemingly filled as an afterthought without any special priority.

For example, since March, I have worked with a bipartisan group of Senators to push the SEC to do more about abusive or so-called "naked" short selling.  When Lehman Brothers began to go down, many believe naked short sellers drove it into its grave, profiting handsomely by manipulating the price of Lehman's stock down-down-down. 

The SEC will be holding a Roundtable on September 30th to discuss pre-borrow requirements and centralized "hard locate" system solutions that I and other Senators have proposed. I strongly urge the Commission to propose new rules addressing these issues, and begin to elicit serious comments about their effectiveness. At the very least they should set up pilot programs to test how they might work. 
 
 
Otherwise, if the SEC does nothing, I'm concerned that when the conditions for profitable naked short selling reoccur, there will be no enforceable rules to stop it - and the SEC will be unable to punish those who undertake it, just as the SEC has yet to punish anyone for the naked short selling events of last year.

More recently, several questionable market structure issues have come to light, threatening market fairness in ways we are only beginning to understand.  Wall Street has undergone a radical transformation in only the last few years, Mr. President.  Only a few years ago, powerful trading organizations, like the New York Stock Exchange, handled over eighty percent of all transactions. Today, the market is currently heavily fragmented and dominated by high-frequency traders.
 
According to research by the Tabb Group, there are now over 50 trading venues in the United States. Technologically advanced high-frequency trading firms - now represent over 61 percent of the daily trading volume in stocks.  Institutional investors prefer to trade in dark liquidity pools, which arguably violate the spirit of rules that require fair and non-discriminatory access to quotations. 

Mr. President, these innovations, from market fragmentation to high-speed electronic trading, have produced benefits, including increased liquidity, narrowed spreads, and lowered commissions for most investors.

But while competition and innovation have flourished, the fundamental fairness of our markets cannot be taken for granted.  Actions by the SEC over recent decades have had the unintended consequence of producing markets that now seem to favor the most technologically sophisticated traders, sometimes at the expense of ordinary retail investors.  Moreover, competition for market trading volume among market centers now includes questionable practices such as liquidity rebates, flash order offerings, co-location of servers and other inducement arrangements with broker-dealers and other market participants.

Congress, the SEC and the public they serve need to stand back and better understand what has happened.  Even for the skilled insiders, it is all very complicated and opaque, and the challenge we face is to understand the benefits, costs, and risks of these developments to long-term investors, in a market environment very different from just five years ago. 

This is why I recently called on the SEC to undertake a comprehensive review of a broad range of market issues, analyzing the current market structure from the ground up before piecemeal changes built on the current structure add to the potential for execution unfairness.  I am concerned that questionable practices threaten to further erode investor confidence in our financial markets and that our understanding and regulatory capability have not kept pace with those changes.  

To her credit, Mr. President, SEC Chairman Schapiro - for whom I have great respect as well as for the urgent tasks she confronts in this challenging era for the Commission - has begun such a review and has agreed to broaden it.  In her letter responding to my concerns, she too recognizes the trade-offs between liquidity and fairness, as well as the importance of standing up for the interests of long-term investors.  She wrote:  "If . . . the interests of long-term investors and professional short-term traders conflict, the Commission previously has emphasized that ‘its clear responsibility is to uphold the interests of long-term investors.'  I firmly agree that the Commission's focus must be on the protection of long-term investors." 

Alan Greenspan, the former Fed Chairman, in commenting on the fixed income markets, learned this lesson too late: technological developments without effective regulation do not always lead to the best interests of investors.  He wrote:  "All of the sophisticated mathematics and computer wizardry essentially rested on one central premise: that enlightened self interest of owners and managers of financial institutions would lead them to maintain a sufficient buffer against insolvency by actively monitoring and managing their firms' capital and risk positions," the Fed chairman said. The premise failed in the summer of 2007, he said, leaving him "deeply dismayed."

We are all deeply dismayed, Mr. President, and we don't ever want to be so dismayed again.  So while recent developments in the equity and options markets are very different from what happened in the fixed income markets, Congress must exercise its oversight capacity to lay out the issues and ask the tough questions about high-frequency trading and recent market structure issues. 

High-frequency traders have many tools at their disposal that give them significant advantages over regular investors.  The first is speed.  In order to receive information as quickly as possible, high-speed firms place their computer servers right next to the exchanges.  Co-locating allows them to receive information a few milliseconds before the rest of the world.  Because every millisecond is critical in the world of high-frequency trading, firms are willing to pay millions of dollars annually for this advantage. 

Information on price movement and market trends is routed directly to electronic algorithms, designed by top engineers to make trades automatically.  These programs rely on the rapid acquisition of information in order to read the markets and execute trades instantaneously, sometimes as many as one thousand times in a single second.

To prevent abuse, the SEC must ensure "fair access" for co-located servers at the exchanges and a method of allocation that does not disadvantage retail orders.

The second advantage for insiders in this new system, Mr. President, arises from what are known as market latency disparities.  Market fragmentation appears to permit high-speed traders to use the disparities in time, place, speed and price to advantage themselves over unsuspecting investors. 

Let me read from a recent article in The Economist magazine entitled the "Rise of the Machines" - "High-frequency traders attempt to uncover how much an investor is willing to pay (or sell for) by sending out a stream of probing quotes that are swiftly cancelled until they elicit a response.  The traders then buy or short the targeted stock ahead of the investor, offering it to them a fraction of a second later for a tidy profit."
 
While the cost to each individual might be slight, the Tabb Group estimates that high-speed stock traders banked about $8 billion in profits last year.  Let me repeat:  $8 billion with a "b."  How much of this profit came from legitimate practices that benefited all investors, and how much of it was a toll paid by the average investor?

We all know the old adage, Mr. President, that it is easier to steal a penny or two from a hundred million people than to steal a million dollars from one person.  We need to know if high-speed traders are proving this adage to be true in our markets every day.

Some market practices have also introduced potential conflicts of interest into the marketplace.  For example, trading venues offer rebates to investors who post limit orders, which bring liquidity to their exchange, and charge for market orders, which take liquidity out of the exchange.  Some broker-dealer firms direct a sizable majority of their order flow to the exchanges that offer the highest payments and lowest fees. 

In theory, best execution is always the first priority, as regulations clearly state that even if the customer's order is routed to a market that does not have the best price, it must be rerouted to the market center that does.

I am concerned that regulators are outmatched by the rapid advances in high-speed trading.  In a highly fragmented system where millions of trades take place in a microsecond, the ability to measure and enforce so-called "best execution" may be a vain hope.  The so-called Rule 605 forms, which purport to measure execution quality, are woefully outdated.  The first column for time for execution reads "0 - 9 seconds."  In a gap of 9 seconds, prices can change significantly.  In a world of 50 market venues, with structural latency issues being targeted by an entire industry of high-frequency traders, millions of trades reaping millions of dollars can take place before retail investors and the regulators who protect their interests can comprehend what happened.  We need to ask if regulators are looking through the wrong end of a telescope when they should be using a microscope.

Average investors must now wonder if their orders are being routed to a venue because it offers the best execution quality for them, or because it leads to the most revenue or lowest transaction fees for their brokers. 

Liquidity rebates paid by the exchanges have increased trade volume and thereby provided added revenue for exchanges.  Most of the traders who capitalize on rebates are high-frequency traders who execute millions of low-risk trades a day. These market participants are not investors.  Rather, they step in between buy and sell orders, trade on both sides of a security, and cash in on double the rebate. 

Let me again read from The Economist: "Another popular HFT [high-frequency trading] strategy is to collect rebates that exchanges offer to liquidity providers.  High-frequency traders will quickly outbid investors before immediately selling the shares to the investor at the slightly higher purchase price, collecting a rebate of one-quarter of a cent on both trades." 

Some argue that such innovations add needed liquidity to the market. But high-speed traders mainly target the most frequently-traded stocks.  Liquidity is light and spreads are wide on many lower volume stocks.  We must rigorously examine the degree to which rebates actually bring liquidity to the marketplace where it is needed and help the market function properly
 
Mr. President, I have discussed a variety of questionable practices that deserve and I hope will receive a searching examination by the SEC and by Congress.  While some of these innovations have produced benefits, they have also created wide disparities between high-speed traders and average investors.  We do not have a clear accounting of all the costs and benefits of these recent market structure changes.

Under the current system, Mr. President, until empirical data shows up to dispel our concerns, we have little reason to believe average investors can compete with the high-speed traders they are up against.  We must question whether certain broker-dealers are acting in the best interests of their customers, under cover of flawed regulation and antiquated enforcement techniques.  And we have dark trading platforms that are insufficiently monitored by regulators and which undermine public price discovery. 

Moreover, unlike specialists and traditional market-makers that are regulated, some of these new high-frequency traders are unregulated, though they are acting in a market-maker capacity.  They have no requirements to "maintain a fair and orderly" market.  They trade when it benefits them.  If we experience another shock to the financial system, will this new (and dominant) type of pseudo market maker act in the interest of the markets when we really need them?  Will they step up and maintain a two-sided market, or will they simply shut off the machines and walk away?  Even worse, will they seek even further profit and exacerbate the downside? 

Because our rules and regulations are so inapt, most of the practices I've mentioned today are still legal, but they are not fair.  It used to be that steroids were not banned by Major League Baseball.  In fact, they were great for business.  The game's biggest sluggers hit home runs at an unprecedented rate, enthralling fans in the process.  But the game was tainted; the competition was unfair; the power was not genuine.  Eventually, the game suffered a crisis of legitimacy. 

High-frequency trading, while not illegal, may operate in ways that undermine the legitimacy of our financial markets.  In order to restore investor confidence, we must effectively regulate unfair performance-enhancers.  We must shine a light on dark pools, conduct a searching examination of high-frequency trading strategies to ensure they are not manipulative, ban flash orders, and give regulators the tools they need to ensure that broker-dealers are acting in the best interests of their clients.

Mr. President, I know as well as anyone the benefits of free markets.  I know that technology, innovation, and competition are critical components of economic growth.  But we must balance those interests, Mr. President, against the values of fairness and equal opportunity.  We must bring back a level playing field, encourage long-term investment and help our economy grow. 

I am not here today, Mr. President, to stand in the way of progress.  I do not wish to return to a horse-and-buggy system.  High frequency trading and the "Rise of the Machines" - as The Economist called it - are here to stay.  I don't want to ban them.  I don't want to slow them down. 

Simply put, technological developments should not control our regulatory destiny; rather, our regulatory agencies should ensure that technological progress everywhere bring benefits to long-term investors.  And, where the interests of the two are in conflict, our regulators must stop the practices of professional short-term traders that harm the interests of long-term investors.   The market structure rules themselves should not enshrine or permit illicit advantages that a careful review, a surgeon's scalpel, electronically constructed solutions and effective enforcement can end. 

Neither should needed solutions that protect investor interests, like reinstatement of some form of the uptick or bid test - or the need for a "hard locate" requirement to end naked short selling once and for all - remain unused primarily in deference to the desires and convenience of high-frequency traders. 

For our part, we in Congress need to undertake a fundamental review of the oversight responsibilities we give to regulators, examining whether they have adequate tools to carry out these responsibilities.  We have become complacent in thinking that continually updating our body of regulations is enough, when in reality we perhaps have failed to provide regulators with the necessary tools they need to observe these complex financial institutions. 

So on this anniversary of the Lehman Brothers collapse, I conclude by saying I look forward to working with my colleagues, not only to address the financial crises of the past, but also to scrutinize and begin to correct the financial abuses of the present, so we can avoid the problems of the future.       

 

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Mon, 09/14/2009 - 21:19 | 69418 RobotTrader
RobotTrader's picture

Hi-Fi Robots are having a field day with this one....

Mon, 09/14/2009 - 21:26 | 69422 lizzy36
lizzy36's picture

rumor has the government looking to sell 34% of their stake.

Citigroup Explores Bid to Pare U.S. Stake

http://online.wsj.com/article/SB125297355913210425.html?mod=rss_whats_news_us_business

i wonder if that means that there would be 34% more stock available to borrow?

Mon, 09/14/2009 - 22:33 | 69456 Howard_Beale
Howard_Beale's picture

With the huge option trading in Sep today for C $4 calls (37000+) and $5 calls (100,000+) and the C $4 puts a mere 27000 after much larger volume yesterday, something is up. There's the possibility of a roll into Oct for the $5 calls at a 79000 volume today although intuitively it makes about as much sense as AIG at $55.90. And there was 76000 in volume on the Oct $4 puts which makes more sense in my own forecast but that means diddly-squat. I am short the regionals.

Furthermore, if the gov were to set the shares loose, it would keep C off the Reg Sho list for a bit more time (and it hasn't been there for a few weeks). Even AIG left Reg Sho the last 2 days. Amazingly squeezed out lemon, that AIG.

Mon, 09/14/2009 - 23:11 | 69505 mule65
mule65's picture

AIG was 65 cents and now it's 2 bucks after years around $60 -- not really so amazing.

Tue, 09/15/2009 - 07:56 | 69511 Howard_Beale
Howard_Beale's picture

My comment was that it was an amazingly squeezed out lemon--off Reg Sho for 2 days. The short squeeze was one of the best ever. Not VW, but pretty up there in terms of squeeziicious because of the reverse split.  Looking at post reverse split levels, the low in March was $6.6 and it zoomed up to $55.90. The locomomo's are having a field day with it.  Up 10% today again as the dash for trash continues in the yo-yo land of trading this piece of junk. The casino is open at all times with AIG stock.  I might add the company is worth next to nothing at the current market price of $41.10.

Mon, 09/14/2009 - 21:29 | 69426 lizzy36
lizzy36's picture

Wow, it would seem that the Senator had some assistance putting his thoughts down on paper.

Nice work, Tyler.

Mon, 09/14/2009 - 23:20 | 69509 Anonymous
Anonymous's picture

He He He He! That was nice of you to notice lizzy. Thanks for the outing!

Mon, 09/14/2009 - 23:58 | 69530 Anonymous
Anonymous's picture

He must be getting ready to start drafting bills for the senator.

Tue, 09/15/2009 - 08:38 | 69646 MinnesotaNice
MinnesotaNice's picture

Thinking like you Lizzy... when I was reading it I thought to myself "We now know who Tyler Durden really is"...

Mon, 09/14/2009 - 21:31 | 69428 AN0NYM0US
AN0NYM0US's picture

Separated at birth? I would suggest that the Senator and Charlie Sheen have about the same odds of a full hearing of their concerns.

 

from the letter above from the Senator:

"Mr. President, I have discussed a variety of questionable practices that deserve and I hope will receive a searching examination by the SEC and by Congress.  While some of these innovations have produced benefits, they have also created wide disparities between high-speed traders and average investors.  We do not have a clear accounting of all the costs and benefits of these recent market structure changes. "

and from Charlie Sheen just a few days ago on a different topic?

"Mr. President I am not suspiciously implying anything. I am merely exposing the documents and asking the questions that nobody in power will even look at or acknowledge. And as I stated earlier, I voted for you, I believed in your message of hope and change. Mr. President I have come to you specifically hoping for a change. A change in the perception that our government has not yet made itself open and accountable to the people. These are your words Mr. President not mine. The lives of thousands were brutally cut short and those left behind to suffer their infinite pain are with me today Mr. President. They are with me in spirit and flesh, and the message we carry will not be silenced anymore by media fueled mantras insisting how they are supposed to feel. Deciding for them, for 8 long years, what can be thought, what can be said, what can be asked."

http://www.infowars.com/twenty-minutes-with-the-president/

Mon, 09/14/2009 - 23:21 | 69510 Anonymous
Anonymous's picture

Just when the depression ends twenty years from now we should actually see some action from Congress.

Tue, 09/15/2009 - 01:30 | 69573 keehotee
keehotee's picture

Sheen never spoke to POTUS.  The whole "interview" was imaginary- not sure what to make of it, except that I believe Alex Jones is a phony- i.e. an "asset".

Truth seems to be bustin' out all over.  By the way, twoof = truth, sorry.

Tue, 09/15/2009 - 02:13 | 69584 Anonymous
Anonymous's picture

(as to Alex Jones being an "asset")
Maybe. That was my first thought about 7 years ago.

I have watched him quite closely, but he has given a pretty good account of himself. Not like some of these guys who build up credibility for a few years just to throw it all away.

The Joker make-up was too much, and that might be the problem with how he is perceived, as too passionate. But if he didn't fill that role, you know someone else would.

Tue, 09/15/2009 - 08:00 | 69634 Anonymous
Anonymous's picture

Aye. Bewawe the twoof.

Mon, 09/14/2009 - 21:57 | 69443 Sqworl
Sqworl's picture

Here is an interesting prospective from the retail defense side:

http://www.brokeandbroker.com/index.php?a=blog&id=241

Mon, 09/14/2009 - 22:08 | 69452 Anonymous
Anonymous's picture

5 billion shares traded on NYSE today, 2 billion on NASDAQ. That's 7 billion shares in a 6.5 hour trading day, ~1 billion shares per hour, ~180 million per minute, ~300K per second, 0.3 shares per microsecond. Figure the average trade is 200 shares, and you get 0.0015 trades per microsecond. Senator Kaufman claims you can have millions of trade per microsecond. Try an average of 0.0015. Only off by a factor of a few billion.

But hey, why worry about being factually correct when you have an axe to grind?

Who has their pitchforks left over from AIG?!?!?!?

Tue, 09/15/2009 - 11:50 | 69778 Anonymous
Anonymous's picture

Exactly, anon. Saw his claim of "millions of trades per microsecond" and it's ridiculous. Please get your facts straight, even if you're trying to scare people with big numbers. It's an outright lie. But then again, that's what politicians do.

Tue, 09/15/2009 - 13:25 | 69893 Anonymous
Anonymous's picture

Okay, so you seem to be picking on one mathematcial error in the speech, when you know the point he was trying to make. What did you think of the rest of the speech and all the important points he did make (in a substantive and rational voice)? I don't get the hyper-criticism of one little point when the gist of the speech was dead-on, in my view.

Wed, 09/16/2009 - 10:46 | 71026 Anonymous
Anonymous's picture

Being off by that magnitude isn't "one little point". If he overstates the scale of HFT by that much, who is to say he's not way overstating other aspects of the claims he's making. It's not ok to validate your claims with grossly inaccurate data.

Mon, 09/14/2009 - 22:14 | 69459 jbeyer
jbeyer's picture

Today, NYSE-listed volume was 5 billion shares, 2 billion for NASDAQ.  7 billion shares in 6.5 trading hours is ~1 billion shares per hour, ~18 million per minute, ~300K per second, ~0.3 per microsecond.  Assuming the average trade is 200 shares, that is 0.0015 trades per microsecond.  Kaufman throws around the suggestion of millions of trades per microsecond.  Off by a factor of a billion or so.

 

But who cares about being factually correct when you have a political career to further?

Mon, 09/14/2009 - 23:29 | 69516 Anonymous
Anonymous's picture

What about the other exchanges? Just HFT on NYSE?

So he exaggerated a little, that's why my girlfriend is so dissapointed!

Tue, 09/15/2009 - 00:22 | 69541 Anonymous
Anonymous's picture

So what's your point?

Tue, 09/15/2009 - 08:16 | 69638 Anonymous
Anonymous's picture

ya, you can make numbers say anything you want to...can't ya.

anon

Tue, 09/15/2009 - 09:12 | 69668 Careless Whisper
Careless Whisper's picture

jbeyer, why are you assuming that trading volume is even throughout the day? It isn't. Look at the charts, most volume is in the first hour and last hour, sometimes, its just the last 10 minutes. Your analysis is completely flawed.

Tue, 09/15/2009 - 09:35 | 69683 jbeyer
jbeyer's picture

Careless Whisper, of course I realize that trading is not constant throughout the day.  But do you really believe there are instantaneous trading volume increases of a factor of a few BILLION over the average?

For the August FOMC release, the largest spike for SPY was a 1-second period in which 270K shares changed hands.  Assuming 200 share trades (which is actually way too low for a burst like that), that comes to 0.00135 trades of SPY per microsecond during what should be a period of enormous volume.  Using my prior calculation technique, and the volume of SPY on Aug 11th, we get 0.00003354 trades per microsecond.  So my estimation technique is perhaps off by a factor of 40 for the periods with most volume.  Senator Kaufman is off by a factor of a few billions.

Show me a period where there were millions of trades per microsecond and then you will be allowed to speak again.

Tue, 09/15/2009 - 11:21 | 69754 channel_zero
channel_zero's picture

Show me a period where there were millions of trades per microsecond

This is a common problem in client/server computing, sometimes called the 'thundering herd.'  Yes, it's real. This is why there are mainframes with n-way network connectivity.

Countless Engineering man-hours go into solving this problem regardless if your application is an http server or a trading platform.

Mon, 09/14/2009 - 22:22 | 69465 Anonymous
Anonymous's picture

8 out of the TOP Ten richest congress members are Democrat.

http://www.huffingtonpost.com/2009/09/14/richest-congress-members_n_2864...

Yeah - We understand poor people - NOT!!

Mon, 09/14/2009 - 22:27 | 69469 Bthewee
Bthewee's picture

8 out of the TOP Ten richest congress members are Democrat.

 

http://www.huffingtonpost.com/2009/09/14/richest-congress-members_n_2864...

 

Yeah - We Dem’s understand the poor people in this country - NOT!!

Mon, 09/14/2009 - 22:59 | 69494 Anonymous
Anonymous's picture

People who *are* rich tend to behave differently than people who *want* to be rich. Therein lies the difference between republicans and democrats.

Tue, 09/15/2009 - 09:16 | 69671 Bob
Bob's picture

Add the people who have no expectation of becoming rich--because they have both feet firmly in reality rather than some "American Dream"--and you've got pretty much all of society. 

It seems to be investment in a dream that separates the non-rich into identification with either of the two parties.  Not that, as you say, it matters which one at the end of the day. 

Mon, 09/14/2009 - 23:26 | 69513 Anonymous
Anonymous's picture

Shhhh! It's not a matter of understanding the poor people in this country as much as it's taking advantage of the poor people in this country to enrich ourselves further.

Poor people = uneducated masses = filthy lucre for us.

Tue, 09/15/2009 - 19:10 | 70462 Marshal Ney
Marshal Ney's picture

The Democrats actually have a higher percentage of voters with college degrees. But the Republicans vs. the Democrats debate has gotten so painfully tedious because even if I win the debate, all I've proven is that my thieves are less bad than your thieves.

Mon, 09/14/2009 - 22:43 | 69482 Anonymous
Anonymous's picture

Pretty sure that he's not talking about a "microsecond" as in 1e-6, rather more like the common "fraction of a second". It's more compelling that way. Also your time-averaged comparison is skewed because it does not account for spikes such as hft.

Tue, 09/15/2009 - 09:38 | 69686 jbeyer
jbeyer's picture

See my reply above to Careless Whisper.  I fully understand my method isn't perfect, but to be off by a factor of a billion over the average?

Tue, 09/15/2009 - 12:11 | 69801 Anonymous
Anonymous's picture

Okay, so you seem to be picking on one mathematcial error in the speech, when you know the point he was trying to make. What did you think of the rest of the speech and all the important points he did make (in a substantive and rational voice)? I don't get the hyper-criticism of one little point when the gist of the speech was dead-on, in my view.

Tue, 09/15/2009 - 15:25 | 70074 jbeyer
jbeyer's picture

My point is that if he can't be bothered to get facts like that straight, why should anyone trust his other opinions?  If some expert on CNBC made a glaring mistake, wouldn't you discount everything else that they say?

We've been through one of the most vicious economic downturns, caused by lax regulations on investment banks, regulated banks, derivatives, etc.  We've seen the largest Ponzi scheme in history sail under the nose of the SEC.  We've done NOTHING to fix those problems.  So why are politicians creating a strawman in HFT, and ignoring those much graver issues?

Tue, 09/15/2009 - 16:48 | 70231 Anonymous
Anonymous's picture

Kaufman's speech began by saying we need to fix the old problems and nip the new problems in the bud, that's why. You're being hyper-critical, I would guess because you're in the HFT industry in some way.

Tue, 09/15/2009 - 19:32 | 70483 jbeyer
jbeyer's picture

I run a LFT (low-frequency trading) hedge fund.  We use quantitive strategies, which refresh every 10 seconds.  We don't use and don't give a flying f!@# about co-location, powerful processors, flash orders, etc.  Our servers sit in central NJ with a laggy DSL line.  Every strategy we run is mean-reverting, so we dampen the market.  We NEVER follow a trend.  We will likely not be affected whatsoever by any potential new regulations that Kaufman is proposing.  But I'm being hyper-critical because I actually understand this shit, unlike TD and most of the other commenters here.  And I understand this is much ado about nothing, while we are ignoring much bigger problems.

I am disgusted by the role that Wall Street played in causing this crisis, and want to see regulations created that will help prevent a recurrence.  Fight for that legislation before you make a strawman out of HFT.

Wed, 09/16/2009 - 01:41 | 70809 theadr
theadr's picture

Close down Moody's and S&P for fraud.

Mon, 09/14/2009 - 22:56 | 69492 Anonymous
Anonymous's picture

Mr. Durden,

I'm sick of this one-sided bullshit you've been posting. Got a problem with co-location? Ok change that. But you post tons of populist one sided bullshit on here and you're beginning to sound like cnbc. In fact, like cnbc content, we could probably just trade contrary to most of the themes you post about and make a killling.

Tue, 09/15/2009 - 15:23 | 70069 Anonymous
Anonymous's picture

BEST COMMENT OF THE MONTH!

Tue, 09/15/2009 - 17:32 | 70315 MinnesotaNice
MinnesotaNice's picture

Dennis, Dennis, Dennis...

Mon, 09/14/2009 - 23:00 | 69495 Anonymous
Anonymous's picture

"Even worse, will they seek even further profit and exacerbate the downside?"

Will they????? No! They just couldn't. Say it ain't so Shane. Say it ain't so.

It's the whole damn reason stocks like ZOOM will be renamed to KAPUT when the market can no longer justify the sheer volume of new 52 week highs hiding under the radar because of the ridiculous weighting system used to mark indexes.

Adding fuel to the oxygen deprived fire is the fact that, from here on, because of the Lehman effect, almost nothing that reads 52 week high will remain from a year ago as the sand timer flips over and then shatters.

Soon, there will almost literally be no where else to go but down (or ever upward) and the lower it goes the more oxygen it'll find.

Unless the extent of the wealth destruction, the credit reduction and the implosion of leverage were all grossly deceptive exaggerations, there is no way to explain what we are witnessing without a show on Fox to "reveal" it.

http://www.federalreserve.gov/releases/z1/Current/Disk/btabs.zip

Mon, 09/14/2009 - 23:42 | 69524 WilliamShatner
WilliamShatner's picture

Talk of a Tobin Tax on all trades made on Wall Street has been getting some MSM traction lately.
It's something I think everyone in the nation could get behind. Wall Street would mount a huge scare-tactic campaign against it and if it passed they just use it as an excuse to raise commissions and transaction fees.
Damned if you do, damned if you don't, but I'd rather we try and see what happens.

http://en.wikipedia.org/wiki/Tobin_tax

Tue, 09/15/2009 - 00:43 | 69552 Silver Bullet
Silver Bullet's picture

I agree.

At the very least, the rebate side of HFT would hopefully be less worth while for Wall Street.

Tue, 09/15/2009 - 07:16 | 69622 Anonymous
Anonymous's picture

Oh yeah, Tax it! That's always worked so well in the past.

Mon, 09/14/2009 - 23:47 | 69526 Anonymous
Anonymous's picture

HFT is a bogeyman.......

Tue, 09/15/2009 - 00:51 | 69556 andrew123
andrew123's picture

Does anyone really think this is going to go anywhere?  I think Tyler should find a very prominet journalist, if there was one, and become their deep throat.

Tue, 09/15/2009 - 02:18 | 69557 putbuyer
putbuyer's picture

This troubles me so deeply. Far away on the other

side, I feel far away. I don't know how much more

of this I can take.

http://www.youtube.com/watch?v=8YyiFhfzQRA&feature=related

 

And crown thy good with brotherhood from sea to shining sea

Tue, 09/15/2009 - 02:20 | 69585 Anonymous
Anonymous's picture

LOL at Ted Kaufman

"I hate the banksters, but these drug-running oil guys know whats up"

Co-sponsor of: "Enhanced Partnership with Pakistan Act of 2009"

Tue, 09/15/2009 - 07:23 | 69623 lizzy36
lizzy36's picture

On the anniversary of Lehman's death, Rod Blagojevich is the the guest on Sqawk Box trying to sell his fricking book.  People suck!

Tue, 09/15/2009 - 07:26 | 69625 Mediocritas
Mediocritas's picture

What the hell are you doing watching Squawk Box? Slap yourself immediately.

Tue, 09/15/2009 - 08:19 | 69641 Anonymous
Anonymous's picture

I second that motion.

One of the things I hate is that as much as everyone (here) hates CNBC TALKING HEAD syndrome...ya try to get away and they (you) keep dragging me back...fuck them...get out of my head...

anon

Tue, 09/15/2009 - 08:40 | 69647 MinnesotaNice
MinnesotaNice's picture

I'm going out on a limb here, but I am guessing you didn't order a copy :-)

Tue, 09/15/2009 - 09:08 | 69661 Anonymous
Anonymous's picture

The broken records are back out in force!!

Tue, 09/15/2009 - 09:09 | 69662 Anonymous
Anonymous's picture

The solution is simple....

All venues should de-fragmented....and utilize the BATS technology model....for all public securities....

A modern exchange is nothing more than an electronic direct access program whose task it is to change ownership name via a time stamp basis....whether it is for a second or 10 years....The cost of this used to be several hundred $ per thousand....now it could be 20 cents....with a bid ask that used to be 3% ...is now .01 %....

Furthermore the likes of BlackRock threaten the "public exchange" by trying to make "public securities" a private affair....This should not be allowed....

Also regs could be very simple and easy to implement....

Information could be in a wiki type format...

The exchange for all public securities could be BATS
modeled first come first served....one second minimum....

May the best management win....

This is very simple....low cost....and CORRECT....

Tue, 09/15/2009 - 09:16 | 69670 Careless Whisper
Careless Whisper's picture

"unfair performance-enhancers"

Tue, 09/15/2009 - 10:48 | 69736 Anonymous
Anonymous's picture

My computer is slower than yours...waaah....waaah...waaah

Tue, 09/15/2009 - 10:49 | 69737 Anonymous
Anonymous's picture

Your computer is faster than mine....waaaah....waaaah..... waah

Quit crying

Tue, 09/15/2009 - 11:26 | 69761 channel_zero
channel_zero's picture

Senator Kaufman's next reelection will probably be a loss for him.

Whatever party this guy belongs to won't fund his reelection campaign in a manner that 'current members' normally recieve.

He's biting the hand that feeds him.

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