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Some Additional Observations On HFT Stock Manipulation
Yesterday, Reuters ran an article "Traders Manipulating Cheap Stocks" in which it cites Jamil Nazarali, Knight's global head of electronic trading, who basically confirms what we have been saying for as long as we can remember, namely that: "Some traders are manipulating U.S. stocks that are worth less than $1 by taking both sides of trades in order to earn big rebates. It happens for hundreds of millions of shares per day." In other words, HFT algos that do nothing but churn and collect "maker-taker" liquidity rebates, are forcing fake prices in, yes, thousands of names. And what that the self-cannibalization fight between the eletronic traders and the HFT rebate seekers just got very real. But what is much more relevant, as Themis Trading points out in their response to the article, is that this is also true for all of the most liquid names, which as the latest Abel/Noser analysis demonstrates, includes such names as SPY, Apple, Intel and Bank of America. In other words, the market structure established by the exchanges to compete with alternative ECNs has now destroyed the very act of price discovery.
As we have already discussed this topic ad nauseam, we leave present Themis' latest views on this recent most tragic aberation of what was once a fair and efficient stock market.
Reuters: Traders manipulating cheap stocks, from Themis Trading
In our white paper that we released last week, one of the suggestions
we made was for the SEC to abolish the maker/taker model. We stated:
“Maker rebates encourage volume for the sake of volume. This has
generated high volume among the top 100 stocks, giving the illusion of a
deep, liquid market. A good percentage of this volume is from firms
engaged in rebate arbitrage, however.”
Yesterday, Reuters ran an article titled “Traders Manipulating Cheap Stocks” http://www.reuters.com/article/idUSTRE68P27W20100926 The article states:
“Some traders are manipulating U.S. stocks that are worth less than $1 by taking both sides of trades in order to earn big rebates,
according to an official at Knight Capital Group Inc. “It happens for
hundreds of millions of shares per day,” Nazarali said, adding that this
type of market manipulation is hard to prove. The gaming costs Knight
“tens of thousands of dollars” per day on some days, he said.
While the article deals with sub $1 stocks that are priced
in sub-pennies, rebate arbitrage also occurs in the top 100 stocks that
are priced over $1. Due to the disparate rate structures at different
market centers, it is very possible for firms to profit not from trading
but from capturing rebates. Recently introduced inverted fee schedules
for select securities will only exacerbate this problem (http://www.cboe.com/publish/cbsxfeeschedule/cbsxfeeschedule.pdf)
This “hot potato” volume that these rebate arbitrage strategies
creates is distorting average daily volume statistics and could be
distorting a key piece of information that many investors rely upon.
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This is life as we know it here at ZH.
How to Hide a Depression, ECON 1101, Professor Ben Bernanke.
Sorry to do this but where is ZH on this story?
Fed Will Boost Balance Sheet by $500 Billion: Surveyhttp://www.cnbc.com/id/39375217.
That's a lot of jack if you know what I mean
This is a survey, not that it is a sure thing they are going to actually do this. It is what folks believe will happen. Meanwhile soldier, you can butt in anytime.
good post kengland. been looking for something like this.
A lot of jack?
Yeah, $500 billion here, $500 billion there, pretty soon you're talking real money.
---Everett Dirksen, updated
Coming soon to an Asian stock exchange near you...
Hong Kong Exchanges & Clearing are building a HFT Co-Location Facility at Tseung Kwan O Industrial Estate for HK$26 Million
http://www.scmp.com
26 Aug 2010. (search for HFT on the site)
Ha! If you can't beat 'em, join 'em!
and little doubt that this week will be 21st consecutive with equity fund outflows
That should put us above 11,000 this week.
National Security Bitchez.
As in "All of this is done in the name of National Security......bitchez."
If they can exempt companies from proper financial reporting, I suspect the entire Ponzi has been declared a national security imperative....by post dated edict. Thus we shall not see any prosecutions ever. Unless, of course, there's a revolution.
http://www.businessweek.com/bwdaily/dnflash/may2006/nf20060523_2210.htm?campaign_id=rss_daily
Now, the White House's top spymaster can cite national security to exempt businesses from reporting requirements
President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006, that was opaque to the untrained eye.
It could all be Kabuki theater. National security. Or is that Notional security? CD, that's pretty fucked up right there. I have always wondered if we were at financial war with these folks, just as a sort of "standing" way of being. Our algos and traitors become foot soldiers. On the face of it the theater of politics, under the surface, a relentless game of financial, computer driven, "Risk," in an ongoing game of world domination.
Better than the Sims...
Remember that everything the German Nazi's, Italian fascists and followers of the Japanese emperor did was perfectly "legal" which is a sure sign of a population being pacified to accept the illegal simply because an "authority" says it is. Right up until they lost.
Of course, the "God fearing and righteous Allies" did many of the same things. But they/we won, so they/we were "legal" by default. Not only do the winners write the history books, but they get to declare what was and is legal or not. Since you lost, obviously everything you did wasn't legal.
We Americans are quite content to accept just about anything as a herd as long as it's presented as legal. And of course, all the i's are dotted and t's crossed. For those who wish to go along to get along, just flash a badge and some signed-by-a-judge paperwork and all is hunky dory.
"Well, the FBI had a national security letter and thus the unconstitutional search was in fact legal and constitutional. Besides, the SCOTUS said so."
Well said. The same goes for invoking God or whatever higher power as the primary motivator behind one's actions. Popes in the past, our last president and Goldman Sachs' CEO come to mind as just a few Western examples. It seems to be a common theme among these sociopaths...manipulate the systems that most everyday people cherish and believe in. Lay the groundwork and poof! complete the bamboozle. It's prestidigitation of the mind...MAGIC. I keep wondering when the day of reckoning will arrive and the sheeple will realize that just because one claims that they are doing God's work does not make it so.
Yeah, I remember Rob Kirby covering this story in-depth a few years ago as too did the original Moneyfiles.Org Website(no longer exists)R.I.P....Recall the header/slogan from that particular site:
'Exposing Corruption In The Global Monetary System'.... yep,the good ol' days.
Could some HFT algo please front run IMDS.OB higher please? The past attempts of the CEO to frontrun this stock through insider trading using family members as a proxy just ain't working like it used to.
Porn Surfing F*#ktards does not do justice to the SEC's state of uselessness.
Why would anyone risk buying shares of a small or medium sized public enterprise if this is what they can expect.
This is a prime example of capital deformation.
No doubt, the Hi-Fi Robots have brought the stock market into the 5th diminsion, allowing certain hot names to reach previously unacheivable heights...
LOL...
No HFT algos here. Just look at the insane amount of purchase volume there that correlates with the stock's increase.....oh wait a minute.
excellent, excellent point
AIG ramps... too funny
http://www.dailyfinance.com/story/credit/government-close-to-announcing-...
Who pays these rebates? The NYSE? Why are they not calling BS?
If you were the NYSE or whichever market is paying the rebate for HFT traders to use your market over other markets, would you admit that your entire market and volume is just a sham? Obviously not. There are two possibilities:
a) those running the markets are poor schmucks caught in the middle (unlikely).
b) the entire volume/rebate thing is backstopped by a higher power and those insiders running the markets are being paid off to play along with the game (most likely, the Fed and banks creating money our of thin air to support the fraud).
And, one can see how this is national security because the ability of the government and banks to pull off their plans depends on a docile nation (at least for now or until they get to a "next step"). We can guess at those plans, but not being insiders to the BIG plan, we can only determine what it looks like by the shadows it leaves on the wall.
Collapsing energy prices is causing a boom in consumer spending.
Check out Nordstrom's today.
...and an equally whopping 1.5% pop in the charts!
I had always blamed these guys on running up stocks like DTG. The problem is the IDIOTS out there buy into the rallies in these crap companies and take them even higher. They got lucky on this one...although the share holders of HTZ won't be so lucky when they close on this turd of a stock.
Oh me, oh my.
SHAM TAX TRANSACTIONS?
Lemme see here. I take both sides of the trade and therefore loose money on each transaction, albeit I set the spread nearest a micron of a penny possible, in order to collect a rebate greater than my loss.
Thence, I further take the loss and utilize it as a tax deduction to offset the income generated by the transaction. (That's the question before the house.)
If so, that's a sham transaction.
Hello? IRS? Anybody looking into this?
Gosh, could we get BP for a sham tax transactions too? I better not wait or hold my breath. Hope you are on to something.
Pretty sure there is nothing funnier in this world than an HFT firm's tax filing, with its tens of billions of pages of tax year closed transactions. Do you actually believe anyone at the IRS would go through such a filing...
How quaint an idea that these HFT firms, who are obviously getting a free ride from the SEC and the DOJ, would be audited by the IRS.
"This is a National Security matter. Stuff it if you don't like our tax return. Call Rahm if you have a problem."
http://www.businessweek.com/bwdaily/dnflash/may2006/nf20060523_2210.htm?campaign_id=rss_daily
Now, the White House's top spymaster can cite national security to exempt businesses from reporting requirements
President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006, that was opaque to the untrained eye.
It is how they finally got Al Capone. Not very sexy, but a case someone could really prosecute.
Fascism, plain and simple. (because it's the structure)
Otherwise I'd say it's just greed, or a singular crime. But nope, it's the structure.
When such a structure is allowed and even encouraged, especially with rebates....it's FASCISM.
OT: New Laws coming to allow Internet wiretapping of all emails and communication of all websites by .GOV
http://news.yahoo.com/s/ap/20100927/ap_on_hi_te/us_internet_wiretaps#mwp...
Lol ... just making what is done every day "legal" after the fact. The indication to me is that this means that they will make the practice public either as a scare tactic (more government sponsored terror, in addition to TSA and FEMA) or they want to use what they have collected in upcoming prosecutions. Actually it seems somewhat redundant because the Patriot Act already allows any and every power to the government with no oversight or recourse.
As if we did not already know that big brother is watching.
Just had a flash crash in an energy stock, can't remember the name, but the "circut breakers" did not activate and there were 160 trades. The Chare price went from $4X.xx down to $4.xx
RICO RICO RICO RICO RICO RICO RICO RICO RICO RICO RICO
It seems to me that the SEC will never be able to keep up with how technology allows firms to "front run" the market. Might I suggest the SEC raise their trading fees (as a fixed amount per share) to (1) pay for increased oversight and need to attract better talent and (2) higher trading costs will make it way too expensive to flip & manipulate low cost stocks.
This is one time where a fee or tax can serve a number of GOOD purposes.
We all know a higher SEC fee will never happen as Wall Street regulators will do nothing to harm the earnings of Wall Street.
S&P 500 FINANCIALS INDEX - an important chart:
http://stockmarket618.wordpress.com
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