SIGMA X Rarely If Ever Discloses VWAP "Child" Orders To The Market

Tyler Durden's picture

Following up on yesterday's piece, demonstrating the SIGMA X Advance look (Flash order) nature, I would like to present the following research piece, once again written by GSES, which is even more self-incriminatory and demonstrates why the SEC should immediately ban SIGMA X, or at least should undertake a thorough investigation into the propriety of Dark Pools, especially those controlled by equity market monopolist Goldman Sachs.

Senator Schumer, Mary Schapiro, if nothing else, please take a look at the highlighted areas.

The increasingly disenchanted American investors thank you in advance.


hat tip SB

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Anonymous's picture

Highlights on PDF don't appear well on scribd

Anonymous's picture

Blah, Blah, bla... High Frequency this and that... Do you really think all this blather will scare away real traders?

46 days till BLACK MONDAY (Sep. 14th, 2009). You better pour it on TD. Get more articles on here to scare the traders away from short selling.

Get on it Bubba and stop spending all your time paroozing

Anonymous's picture

Not really. The remaining traders do not play with their money. They play with their clients money.

Anonymous's picture


This is excellent, do you think the same HFT / Bid-Rigging / Front Running exercise is being performed on fixed income securities?

Larry Doyle's picture

I worked in fixed income for 23 yrs and left JPM in 2006. The debt markets dwarf the equity markets. I both traded and sold (MBS), for a Fresh Perspective on Technology and Electronic Trading, 

Anonymous's picture

Why has no one filed a lawsuit against Goldman or the exchanges for allowing this to happen? We sue over everything else? Can a legal expert or ZH clarify this for me. It appears any one who does not trade via SigmaX has been harmed and I received no disclosure from the exchanges that allows Goldman to siphon off a piece for a trade I may make.


Anonymous's picture

Not too many protestants as lawyers, they have a conscience.

Eagle's picture

The mother of all class action suits! 

Anonymous's picture

nor is it a sense

Anonymous's picture

The 5 biggest banks - it's a 5 headed monster... you should know ;)

Anonymous's picture

The SEC's Mary Schapiro said in a speech on June 18 that dark pools are a concern:

Anonymous's picture

Tyler did I get this right?

Market going up on "NO VOLUME?" HMMMM....ANY BLOCK TRADES (parent orders)split into CHILD ORDERS then ARE ROUTED THROUGH THE DARK POOL FIRST ....if executed it is NEVER DISCLOSED TO THE "FREE MARKET".....if not EXECUTED (or frontrun whatever word you want to use) then it is kicked out to the rest of the public (who has financed GS trading account and bailout) who has no idea (or political influence to change anything)that this is going on.

Funny about the timeline ah, TD...AUGUST...Hmmm when did the markets start crashing???? Hmmmmm

You know what if the Schumer, the SEC or Barney Frank don't pick this up they are ABSOLUTELY INVOLVED NO QUESTION!!!

If they don't pick this up then I can almost be certain that there will be political unrest in this country the likes of which we haven't seen in 200 years......china will look like f*&king candy land once we get our hands on these MF's throats....first the banks and then the politicians if nothing is done....

Perhaps a little "BoonDock Saints" is in order

buzzsaw99's picture

Those mofos could gang rape little orphan annie on the white house lawn and get away with it.

Anonymous's picture

Could you elaborate on the timeline statement.

PragmaticIdealist's picture

Holy shit, the "evidence" they are using to prove the efficacy of their VWAP algo is on the order of 3 bps.

26.8 bps cost versus 23.6 bps.

And this is a regression analysis where they use multiple control factors and might have missed some, so it's almost as much art as science.

So bearing this in mind + data mining likelihood, its prob in the range of 1 to 2 bps.

Nice bang for the buck, eh tax payer / home owner?

Anonymous's picture

Help me out here. I'm trying to understand this. Are you that by trading in their SIGMA X dark pool they are able to pick up 3 cents per share? Thanks if you could explain in plain english.

Anonymous's picture

Yes and no. The no argument which GS will make is the order receives a 3 basis point price improvement which they will use as evidence that they are helping create a more efficient market place.

But if Sigma X is the route they use for their SLP trading GS takes the other side of the trade and ends up owning or selling the shares in their prop/algo trading account. Then GS can route out to the prevailing market and sell or buy the shares for a profit or loss. It's similar to market making but they don't have the regulations market makers do. Not a bad gig if you are the one running it.

Anonymous's picture

Glad you cleared that right up for us...100M a day on 3 bps spread? Wow you are a genius... well said ....Thanks for lowering the average IQ of the readers of this bloq.... GS would never be able to flourish without people like you..

PragmaticIdealist's picture

whoops meant to say it could be anywhere, not in 1-2 bp, regression analysis is pretty flawed a lot of time

Anonymous's picture

When you turn over $100M+ every day, as many hedge funds do, a few bps goes a long way. And that isn't meant to prove the efficacy of their vwap algo, its the price improvement they "claim" to offer customers in sigma x with the vwap strategy merely used as an example (probably due to its longer execution horizon on average, which makes analysis easier). With that being said, George Sofianos is a total hack when it comes to TCA. His position at GS is in direct contradiction to the 'best and brightest' stereotype. Try to find his paper on their piccolo algorithm. Its good for a few laughs.

Anonymous's picture

7:38pJapan monthly household spending down 1.7% in June

8c077dc4-5ad2-4f73-b9c3-a381c5fece05:635067:34pJapan's June jobless rate 5.4%, vs. 5.2% in May

8c077dc4-5ad2-4f73-b9c3-a381c5fece05:635057:33pJapan's June CPI deflation fastest ever: reports


Japan's June core CPI falls 1.7% on year



Printfaster's picture

Actually I don't see the concern.  It is no different than all the current exchange routings.  My broker does not display all my orders to all the various exchanges.  Sigma X acts like a proprietary exchange.  Free enterprise.  Why should all exchanges have names?

I applaude GS for its ability to arbitrage and create exchanges out of thin air.

This is just like the mutual funds that yield 5.5% for accounts of $1M, and 5.2% for accounts of $5,000 or more.  How is what GS is doing any different?  The rich get better margins, better clears in the market.  What is the point of being rich, if you cannot get a better deal than the little guy?  Hey Canada does it with our drugs?  Why shouldn't some rich SOB get a better deal through GS?



Eagle's picture

"What is the point of being rich, if you cannot get a better deal than the little guy?  "


Then don't come begging with hand-in-hat to joe little guy taxpayer when you BLOW UP!

SloSquez's picture

No Shit.  GS would have been gone back in October.  Suck it till it's dry Printfaster.  AIG anyone?

Printfaster's picture

You just made my point.


SloSquez's picture

Oligarchy in force.  No DOUBT.  Nice.

SloSquez's picture

Tyler's like a freight train.  You can see it coming, but no way in hell can you stop it.  LMAO!

Anonymous's picture

He may well stop himself when he gets found out for blatantly manipulating the truth. Read the document.

gammaman's picture

TD, I am still trying to figure out when executed cross-trades (dark pools) transactions are suppose to be reported (ie, "diseminated") into "consolidated tape" (time between transaction and requirement to report transaction quote to public). Back in 2000-01, based on fidessa implementation, I recall cross-trades not being required to be reported by firm until later in day. I assume this has changed under new rules.

Can anyone provide clarity on this question?

Below is closest paragraph I came across within new rules:

SEC Regulation NMS Final Rules (523 pages)

For the reasons discussed above in section V.A.1, the Commission is retaining the current consolidation model and adopting the consolidation requirements of Rule 603(b) as proposed and reproposed. All of the SROs currently participate in Plans that provide for the dissemination of consolidated information for the NMS stocks that they trade. The Plans were adopted in order to enable the SROs to comply with Exchange Act rules regarding the reporting of trades and distribution of quotations. With respect to trades, paragraph (b) of Exchange Act Rule 11Aa3-1 (redesignated as Rule 601(a)) requires each SRO to file transaction reporting plans that specify, among other things, how its transactions are to be consolidated with the transactions of other SROs. With respect to quotations, paragraph (b)(1) of Exchange Act Rule 11Ac1-1 (redesignated as Rule 602(a)(1)) requires an SRO to establish and maintain procedures for making its best quotes available to vendors. 

To confirm by Exchange Act rule that both existing and any new SROs will be required to continue to participate in such joint-SRO plans, adopted Rule 603(b) requires SROs to act jointly pursuant to one or more NMS plans to disseminate consolidated information for NMS stocks. Such consolidated information must include an NBBO that is calculated in accordance with the definition set forth in adopted Rule 600(b)(42).* In addition, the NMS plans will be required to provide for the dissemination of all consolidated information for an individual NMS stock through a single processor. Thus, different processors would be permitted to disseminate information for different NMS stocks (e.g., SIAC for Network A stocks, and Nasdaq for Network C stocks), but all quotations and trades in a stock must disseminated through a single processor. As a result, information users, particularly retail investors, will be able to obtain data from a single source that reflects the best quotations and most recent trade price for a security, no matter where such quotations and trade are displayed in the NMS. 

*Adopted Rule 600(b)(42) of Regulation NMS defines “national best bid and national best offer.

Anonymous's picture

It looks like they report once a month: "VortExSM is a unique dark liquidity pool...", that uses BNY Convergex whose report is at under

"Dark pools must report trades monthly on SEC Rule 605" p. 7

The Thomson site does not list Goldman's dark pool, however.

Pizza Delivery Man's picture

Signs of an Economy Destroyed;

Trains and Plane traffic down 10% to 50%.

Gambling, casinos, cruise ships, hotels are slammed 20% to 70%.

GM and Chrysler (manufacturing) slammed--BBBBOOOOOOOOOOOOOOMMMMMMMMMMM!!!!!!!!!!

FEDX and UPS down 50%--pppppplllllluunnnnnnnggggggeeeeeeee.

Banks---now 7 to 10 each week get FDIC' ed and big banks are broke and not lending.

Media companies & newspapers are going broke.

Glut of oil on the market--people are not traveling.

All of the Consumer sectors are destroyed and smoking.

The only thing up is the stock market------don't cry bulls--you had a chance to run.

Anonymous's picture

Why are these private exchanges legal?

Anonymous's picture

So OK.

Goldman Sachs runs a dark pool, a proprietary trading desk where they speculate for profit, manipulates oil prices, recieves rebates from the official exchanges for the trades their bots make, gets a free 13 billion from AIG, and free capital from the Fed to do all this.


agrotera's picture

..and perpetual immunity

( unless we can all change that major detail, and their crimes are finally brought to the Hague for trial, as Max Keiser insists.)

aldousd's picture

I think a private exchange should be fine, so long as they don't come asking for tax payer bailouts. I mean, listen, you can sell whatever you want in your basement to whomever you want, as long as you don't come and get in the unemployment line and collect my tax money because you made a bad deal under the stairwell.

DebtorShredder's picture

As a gambler, would you have had a more fair chance gambling in Vegas during the 60's or today?

Why or why not? (Think about the casino owners at the time)

Therefore, you may change your answer to public/private exchanges.

zeropointfield's picture
zeropointfield (not verified) kote Jul 31, 2009 7:18 AM

Funny, street smart issue 28, 29, 30 seem to be missing. wonder where they went...

Hank Rearden's picture


Either I'm missing something or you need to have another look at the document you posted. The title of your post is "SIGMA X Rarely If Ever Discloses VWAP "Child" Orders To The Market", but at the bottom of the first page I read this quote:

"In August, Goldman Sachs introduced its new Liquidity Enhanced VWAP algorithm and SIGMA X crossing jumped to 30 percent. The Liquidity Enhanced VWAP algorithm looks to execute targeted volumes by placing non-displayed child orders in SIGMA X at the mid-point prior to going out into the displayed market."

So, 70% of the child orders are going to the market place. What gives?


Anonymous's picture

Tyler is not really playing fair. He doesn't know what he is talking about, but if you notice his rabid pitchfork posters know much much less. Stay away from this place.

Anonymous's picture

Sorry those posters are tax payers...

Anonymous's picture

First, you missed the line previous, which says:
"Until August 07, the average crossing rate was 11 percent."

It also says:

"To quantify the SIGMA X crossing benefit, we use a sample of client VWAP algorithm orders executed by Goldman Sachs between August and December 07. Our sample consists of VWAP
orders and excludes orders where the client specified a limit price.
For each parent order in our sample, we calculate its actual execution shortfall and SIGMA X crossing rate. Some orders have zero SIGMA X crossing, some execute 100 percent within SIGMA X and some execute partially within SIGMA X."

That tells me 30% is the average of orders sampled between August and December 07. It doesn't say anywhere that only 30% of all child orders cross over to Sigma-X.

And the document also qualifies what can cause lower shortfall, which means it increases the Sigma-X crossover. So there are orders that can cross at a much higher rate than the average rate back at the end of '07.

PragmaticIdealist's picture

GS trader reads this document: "Hmm... 'Child' orders streamed into the market... *creates algo to monitor flow of small order flow and front-run the back/mid end chunk of the order flow*

And that's without being able to access the dark pool info, which they possibly can (at least historical data and then guestimate which sectors/equities are prone to child order routing).

Ofc I may be entirely off base, I'm not actually in the trading business.

Project Mayhem's picture

Project Mayhem Reserach has just released a new dark-pool financial trading program titled 'VampireSquid.c'.  Harnessing the seething energies of Lucifer -- using the patented Dark Squid Liquidity Engine™ -- our program is the first specifically designed to compete with billion dollar funds with an initial trading balance of only $1000 USD.  This is a beta version we are releasing for testing among the wonderful audience of Zero Hedge.  VampireSquid.c is designed to directly compete with Sigma X for global market liquidity.  Via the network-enabled 'Dark Squid' engine, our program issues fraudulent bearer bonds in the denomination requested by the user -- which are then posted as collateral for zero-interest loans in either Yen (BOJ option #1) or Yuan (BOC option #2). You can download VampireSquid.c from  Feedback appreciated. 

Thanks in advance!

Anonymous's picture

GS+JPM, the twin horns of THE SATAN.

Quackking's picture

Off topic, but my classy Zero Intelligence t-shirt just arrived (early!) and I must say, this is a fine addition to any wardrobe. I plan to wear it exclusively as I host numerous future Beer Summits.

aldousd's picture

Beer summits for the win! We need to have some of these with Iran and North Korea, right? ... What do you mean Iran doesn't drink? What do they do while they're watching Letterman?

Anonymous's picture

Shop online for goofy jackets?

Dr Hackenbush's picture

"reduce execution shortfalls"

Mobspeak for: "we insure that nobody else makes a damn dime"