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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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Thu, 07/30/2009 - 18:50 | Link to Comment Anonymous
Thu, 07/30/2009 - 20:06 | Link to Comment Anonymous
Thu, 07/30/2009 - 20:45 | Link to Comment Anonymous
Thu, 07/30/2009 - 18:52 | Link to Comment Anonymous
Thu, 07/30/2009 - 21:21 | Link to Comment Larry Doyle
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,

http://www.senseoncents.com/2009/07/a-fresh-new-perspective-on-technology-and-electronic-trading/ 

Thu, 07/30/2009 - 19:03 | Link to Comment Anonymous
Thu, 07/30/2009 - 19:10 | Link to Comment Anonymous
Thu, 07/30/2009 - 19:58 | Link to Comment Eagle
Eagle's picture

The mother of all class action suits! 

Thu, 07/30/2009 - 19:59 | Link to Comment Anonymous
Thu, 07/30/2009 - 19:13 | Link to Comment buzzsaw99
buzzsaw99's picture

Death to GS!

Fri, 07/31/2009 - 01:15 | Link to Comment Anonymous
Thu, 07/30/2009 - 19:32 | Link to Comment Anonymous
Thu, 07/30/2009 - 19:34 | Link to Comment Anonymous
Thu, 07/30/2009 - 19:35 | Link to Comment buzzsaw99
buzzsaw99's picture

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

Thu, 07/30/2009 - 19:44 | Link to Comment Anonymous
Thu, 07/30/2009 - 19:43 | Link to Comment PragmaticIdealist
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?

Thu, 07/30/2009 - 19:51 | Link to Comment Anonymous
Thu, 07/30/2009 - 20:29 | Link to Comment Anonymous
Thu, 07/30/2009 - 19:54 | Link to Comment Anonymous
Thu, 07/30/2009 - 20:14 | Link to Comment PragmaticIdealist
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

Thu, 07/30/2009 - 23:05 | Link to Comment Anonymous
Thu, 07/30/2009 - 19:43 | Link to Comment Anonymous
Thu, 07/30/2009 - 19:47 | Link to Comment Printfaster
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?

 

 

Thu, 07/30/2009 - 19:54 | Link to Comment Eagle
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!

Thu, 07/30/2009 - 20:00 | Link to Comment SloSquez
SloSquez's picture

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

Thu, 07/30/2009 - 20:01 | Link to Comment Printfaster
Printfaster's picture

You just made my point.

 

Thu, 07/30/2009 - 20:08 | Link to Comment SloSquez
SloSquez's picture

Oligarchy in force.  No DOUBT.  Nice.

Thu, 07/30/2009 - 19:48 | Link to Comment SloSquez
SloSquez's picture

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

Fri, 07/31/2009 - 00:26 | Link to Comment Anonymous
Thu, 07/30/2009 - 20:20 | Link to Comment gammaman
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)
http://www.sec.gov/rules/final/34-51808.pdf

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.

Sat, 08/08/2009 - 20:43 | Link to Comment Anonymous
Thu, 07/30/2009 - 20:29 | Link to Comment Pizza Delivery Man
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.

Thu, 07/30/2009 - 20:32 | Link to Comment Anonymous
Thu, 07/30/2009 - 20:55 | Link to Comment Anonymous
Fri, 07/31/2009 - 00:36 | Link to Comment agrotera
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.)

Thu, 07/30/2009 - 22:49 | Link to Comment aldousd
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.

Thu, 07/30/2009 - 23:07 | Link to Comment DebtorShredder
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.

Thu, 07/30/2009 - 20:39 | Link to Comment kote
Fri, 07/31/2009 - 08:18 | Link to Comment zeropointfield (not verified)
Thu, 07/30/2009 - 20:51 | Link to Comment Hank Rearden
Hank Rearden's picture

Tyler,

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?

 

Fri, 07/31/2009 - 00:19 | Link to Comment Anonymous
Fri, 07/31/2009 - 07:51 | Link to Comment Anonymous
Fri, 07/31/2009 - 10:49 | Link to Comment Anonymous
Thu, 07/30/2009 - 20:58 | Link to Comment PragmaticIdealist
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.

Thu, 07/30/2009 - 21:06 | Link to Comment Project Mayhem
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 http://goldmansachs666.com.  Feedback appreciated. 

Thanks in advance!

Thu, 07/30/2009 - 21:39 | Link to Comment Anonymous
Thu, 07/30/2009 - 21:58 | Link to Comment Quackking
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.

Thu, 07/30/2009 - 22:52 | Link to Comment aldousd
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?

Thu, 07/30/2009 - 22:57 | Link to Comment Anonymous
Thu, 07/30/2009 - 22:55 | Link to Comment Dr Hackenbush
Dr Hackenbush's picture

"reduce execution shortfalls"

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

Thu, 07/30/2009 - 23:04 | Link to Comment Anonymous
Thu, 07/30/2009 - 23:05 | Link to Comment Anonymous
Fri, 07/31/2009 - 07:49 | Link to Comment Anonymous
Fri, 07/31/2009 - 10:53 | Link to Comment Anonymous
Thu, 07/30/2009 - 23:06 | Link to Comment Anonymous
Thu, 07/30/2009 - 23:15 | Link to Comment Anonymous
Thu, 07/30/2009 - 23:17 | Link to Comment Anonymous
Fri, 07/31/2009 - 01:04 | Link to Comment Project Mayhem
Project Mayhem's picture

People come to Zero Hedge because they are tired of the drivel we are fed day in and day out from the garbage media syndicates like CNBC, Bloomberg, etc.  Anyone with a brain and a pulse knows there is no recovery and things will get worse before they get better.  The only question really is the nature and chronology of the future problems.

 

If you have a technical issue with Tyler's post here (regarding Sigma X), as it seems you may -- then by all means expound upon your objections, and make them clear to the audience.  But please don't denigrate the discussion (calling headlines 'bullshit' etc). This just makes you look like an ass.  How about you explain WHY it's bullshit? Write a clear and concise explanation why -- for example, draw up a sequence diagram for Sigma X trade execution. Write a rebuttal paper or extended post and email it in. I have no doubts Tyler will post it. He posted my rough analysis even though it was both controversial and disputed.

 

People come here because it is intelligent and edgy -- and an open forum for discussing finance at a high level.  Please let's keep it that way so we get an assortment of minds to analyze what is going on these days in the markets. 

 

Fri, 07/31/2009 - 07:47 | Link to Comment Anonymous
Thu, 07/30/2009 - 23:28 | Link to Comment Anonymous
Fri, 07/31/2009 - 00:42 | Link to Comment Anonymous
Fri, 07/31/2009 - 07:45 | Link to Comment Anonymous
Thu, 07/30/2009 - 23:30 | Link to Comment Anonymous
Thu, 07/30/2009 - 23:34 | Link to Comment Anonymous
Thu, 07/30/2009 - 23:53 | Link to Comment Anonymous
Fri, 07/31/2009 - 00:24 | Link to Comment Anonymous
Fri, 07/31/2009 - 12:23 | Link to Comment Anonymous
Fri, 07/31/2009 - 00:07 | Link to Comment Anonymous
Fri, 07/31/2009 - 00:42 | Link to Comment agrotera
agrotera's picture

Awesome!

 

And, Tyler, please do the same with this info, as you did with the info you sent to Schummer. 

Fri, 07/31/2009 - 00:44 | Link to Comment i.knoknot
i.knoknot's picture

To those that think this effort is a silly over-reaction to 'the way it is'... come re-join the ZH fight for honest markets.

ZH is simply providing more proof that the game rules are written one way out front, and played another way in the back rooms. Just because you are used to it and it's been going on for years doesn't mean it's ever been OK...

If average Joe tells the market he'll sell XXX for $100, and I say I'm willing to pay *UP TO* $101 for XXX, is it OK for some guy between us to secretly take my buck? Have I been robbed if I don't know it? I believe many out there really believe that the answer is "no, if you don't know, it won't hurt you...". In fact, to them, my trust in the broker's honest management of this transaction is my folly, and somehow for my trust, I deserve to be "taken"... some sort of 'price to play' sensibility.  By all moral standards, which are the backbone of voluntary transactions, they are wrong, even if they maintain the upper hand.

Sure, if 'extreme fees' are published as 'part of the deal', we can choose to engage in this sort of distorted transaction (e.g. shipping and handling charges...), but unless the middle-man (market-maker) provides value, transparency, and auditability that we can all see (and then decide if we wish to continue to use him as our transaction broker), he has the potential to rob all participants.

It's not the amounts, it's the lack of transparency. After-hours spreads run 50+% and folks still play, knowing full well the costs. All the power to them. This HFT dark-pool cruft seems to be enabling wholesale theft. Outing those who are actually stealing is both noble, and critical, to the survival of the markets.

 

I'm liking the Aynd Rand-esque protest to take my resources out of the game, and hope the rest follow. We don't need the NYSE. COMEX. CBOE... you may think we do...

 

Remember, "If you don't play, they can't win" - join us.

Fri, 07/31/2009 - 08:04 | Link to Comment Arm
Arm's picture

Exactly.  Just because you authorize your agent to pay "up to" a certain. It does not mean that you expect him to pay that price.  He has a fiduciary duty towards you, because you pay a fee for his services.

Of course don't say that on any trading floor.  They will laugh at you and make you buy the next round of beers.

Fri, 07/31/2009 - 01:20 | Link to Comment Anonymous
Fri, 07/31/2009 - 05:22 | Link to Comment Anonymous
Fri, 07/31/2009 - 07:54 | Link to Comment Anonymous
Do NOT follow this link or you will be banned from the site!