Where Was Goldman's Supplementary Liquidity Provider Team Yesterday? A Recap Of Goldman's Program Trading Monopoly

Tyler Durden's picture

In addition to having said many things about HFT in general in the last year, over the past 12 months Zero Hedge has focused a lot of attention specifically on Goldman's dominance of the NYSE's Program Trading platform, where in addition to recent entrant GETCO, it has been to date an explicit monopolist of the so-called Supplementary Liquidity Provider program, a role which affords the company greater liquidity rebates for, well providing liquidity (more on this below), and generating who knows what other possible front market-looking, flow-prop integration (presumably legal) benefits. Yesterday, Goldman's SLP function was non-existent. One wonders - was the Goldman SLP team in fact liquidity taking, or to put it bluntly, among the main reasons for the market collapse. We are confident the SEC will aggressively pursue this line of questioning as they attempt to justify their $1 billion porn download budget. We are also confident, that should the SEC truly take its role of protectors of investor interest seriously for once, it will uncover such criminality and corruption at the level of trading integration of open exchange and ATS venues (and the "but it's so complicated - let's just leave it untouched because nobody understands it" excuse is not flying any more), that it will make Goldman's CDO criminal and civil case seems like a dimestore misdemeanor. We have written about 1,000 posts about this. Readers are welcome to go back through our archives and acquaint themselves with the NYSE's SLP program, with Goldman's domination of program trading, with Goldman's domination of dark trading venues via the Sigma X suite, with Goldman's domination of flow trading via Redi X, and with Goldman's domination of virtually every vertical of the capital markets, which would be terrific if monopolies were encouraged in the US. Alas (last time we checked with the DOJ), they are not. Which is why we ask, for the nth time, when will the anti-trust division of the DOJ finally dismantle the biggest market monopolist in the history of capital markets.

First, as a reminder, here is the most recently disclosed NYSE program trading data:

What is notable here is that of the 1.4 billion in principal shares, or shares traded for the firm's own account, Goldman was the top trader by a margin of over 100% compared to the second biggest program trader.

We have long claimed that Goldman is the de facto monopolist of the NYSE's program trading platform. As such, it is certainly the case that Goldman was instrumental in either a) precipitating yesterday's crash or b) not providing the critical liquidity which it is required to do, when the time came. There are no other options.

We will gladly work with any Attorney General to provide them all the critical data and questions they need to build a criminal case, or in the DOJ's case, an anti-trust case.

And there is lots of data. For those unfamiliar with the NYSE's SLP operation (which was supposed to be long-extinct, yet continue pluhging along in good times, but disappearing in bad), and Goldman's domination of program trading, we republish in its entirey a post we wrote in May of 2009, titled Observations on NYSE Program Trading.


Recently, there has been quite a bit of discussion of Goldman Sachs'
principal program trading dominance in the NYSE, culminating with none
other than Goldman Sachs themselves providing their perspective on the
matter, via spokesman Ed Canaday:


The NYSE report that Zero
Hedge discussed shows Goldman Sachs trading over 1 billion shares in
the principal program trading category. What the table doesn’t show,
but a deeper look at the numbers reveals is that the vast majority of
this total is trades by our quantitative trading desk. This desk is
participating in a relatively new NYSE program
called Supplemental Liquidity Providers. The NYSE started the program
to attract liquidity to the exchange. As an SLP, this the desk makes
markets in NYSE stocks. They often do high-frequency trading (which is
simply auto-quote market making) where they send out hundreds of
“baskets” of stocks at one time. Program trading, as defined by the
NYSE report is any strategy that sends out a “basket” of 15+stocks at
one time. I am happy to discuss this with you if that description
doesn’t make sense.

In order to dig deeper into Canaday's
statement, Zero Hedge performed a historical analysis of NYSE Program
Trading (PT) data (which is public) and came up with some curious
observations. But before I get into the results, it makes sense to
evaluate the facts behind Goldman's retort and in order to do that,
let's first observe just what this Supplemental Liquidity Provider
program is.

The NYSE's most recent classification of the three main market participants is as follows:

Designated Market Makers

Market Makers (DMMs) are at the center of the NYSE market and are the
only participants in any market who have true accountability for
maintaining a fair and orderly market. DMMs:

  • Convene both a
    physical auction convened by DMMs and a completely automated auction
    that includes algorithmic quotes from DMMs and other market
  • Have the obligation to maintain an
    orderly market in their stocks, quote at the national best bid or offer
    a specified percentage of the time, and facilitate price discovery at
    the open, close and in periods of significant imbalances;
  • Provide
    price improvement and match incoming orders based on a pre-programmed
    Capital Commitment Schedule, which has been added to the NYSE Display
    Book, minimizing order latency. DMMs and their algorithms do not
    receive a “look” at incoming orders. This ensures that an intermediary
    does not see orders first, and that DMMs compete as a market
  • Are on parity with quotes from floor
    brokers and those on the Display Book, encouraging DMM participation
    and higher market quality.

Trading Floor Brokers

on the NYSE Trading Floor leverage their physical point-of
sale-presence with information technologies and algorithmic tools to
offer customers the benefits of flexibility, judgment, automation and
anonymity with minimal market impact. Trading Floor Brokers:

  • Have
    parity with DMMs and the NYSE Display Book, no matter whether the
    Broker’s order is represented physically or via an algorithm or
    e-Quote. That is, they can join the first displayed quote on the Book,
    and split stock with that order.
  • Have the ability to
    route all or part of a customer order to an external algo engine from
    their handheld order-management device. These algorithms offer Floor
    Brokers the ability to provide customers with additional execution
    capabilities in an environment that offers a balanced combination of
    technology for fast, automated and anonymous order execution; and a
    physical marketplace for discovering block-sized liquidity and
    improving prices.
  • Can utilize a technology feature
    called Block Talk to more efficiently locate deep liquidity. Block Talk
    is designed allow Floor Brokers to broadcast and subscribe to specific
    stocks they have an interest in, creating an opportunity to trade
    block-sized liquidity that is not accessible electronically. Since the
    messages contain no specific order information, customers benefit from
    a discovery process in a secure environment free of impact, information
    leakage or intermediation.
  • Also have the ability to
    identify via their hand-held order-management system the last five
    buyers and sellers in a stock by badge number. They can message a
    specific member that they are in touch with the contra side. This is
    valuable information for pricing blocks, as it is about real buyers and
    sellers, not indications of interest.
  • Have a special
    feature with their reserve orders: when the displayed amount is
    exhausted, reserve interest replenishes on parity. In contrast, the
    “upstairs” reserve order functions as it does in an electronic market:
    replenishing at the back of the queue.
  • Are positioned
    to act on the expanded imbalance and indication information at the open
    and close of the market. They can participate as agent, or convey
    insight into the open or close for customers’ decision making.

And most relevantly, Supplemental Liquidity Providers

Supplemental Liquidity Providers (SLPs) are upstairs, electronic, high-volume members incented to add liquidity on the NYSE.

  • The pilot SLP program rewards aggressive liquidity suppliers, who complement and add competition to existing quote providers.
  • SLPs
    are obligated to maintain a bid or offer at the National Best Bid or
    Offer (NBBO) in each assigned security at least 5 percent of the
    trading day.
  • The NYSE pays a financial rebate to the SLP when the SLP posts liquidity in an assigned security that executes against incoming orders. This generates more quoting activity, leading to tighter spreads and greater liquidity at each price level.
  • SLPs trade only for their proprietary accounts, not for public customers or on an agency basis.
  • An NYSE staff committee assigns each SLP a cross section of NYSE-listed securities. Multiple SLPs may be assigned to each issue.
  • A member organization cannot act as a Designated Market Maker and SLP in the same security.
  • SLPs have the same publicly available trading information and market data that all other NYSE customers have available to them.

is important to note that the SLP rebate is $0.0015, usually less than
half of the rebate plain vanilla Designated Market Makers receive,
which is between $0.0030 and $0.0035,
as the NYSE plainly says, a member organization cannot act as a DMM and
SLP in the same security. Obviously based on the rebate structure and
the mutual exclus
it would make much more sense to trade as a DMM as opposed to an SLP,
not in the least since SLPs (at least according to currently available
information) are very limited in terms of which securities they can
actually trade for supplemental liquidity provision. Quoting Robert Airo, VP of relationship
management and sales at NYSE Euronext, from late October 2008:

rolling [the SLP pilot program] out in the 500 most active names where
we believe incenting SLPs by compensating them to provide liquidity
will supplement all of the other initiatives that we’ve put in place to
build the NYSE book."

The SLP program was developed in the days after the Lehman collapse
when market volatility spiked and major questions about liquidity
premia emerged, resulting in program roll out on October 29 of 2008.
The full SEC filing describing the minutae of the program is presented

SEC Filing

In late November Canaday is quoted as follows:

quoting will provide more liquidity and should make the NYSE more
competitive. We have begun to see significant shifts in terms of the
frequency with which the NYSE is at the NBBO, and we expect increases
in volume and market share to follow."

With a mere 500
securities to work with, especially being excluded from being a DMM in
SLP names, maybe Canaday can explain the economics to GS' program
trading desk from participating in the SLP?

Another relevant
question is just who are the current SLPs? It seems the answer is
difficult to pin point. It is known for a fact that Goldman Sachs and
Spear, Leeds and Kellogg (owned by GS) are currently definitive SLPs,
with Knight Trading and Barclays also presumably becoming SLPs as well,
but there has been no confirmation either way, potentially implying
that Goldman could have a monopoly in liquidity provisioning. If the
program is truly as attractive as GS' spokesman makes it seem, why are
other major equity players not clamoring to participate in it? After
all, the benefits to SLPs are "obvious."

Following up on that,
has there been an extension of the SLP program recently? Zero Hedge has
not heard of one. The SLP, which was approved in late October (see
above) was supposed to terminate on April 30,
this last Thursday: "The proposed pilot program will commence on the
date upon which the SEC will approve the New Market Model and will
continue for six months thereafter ending on April 30, 2009." If the
SLP is now over, should one expect GS's principal volume trading to
drop dramatically, if, as Canaday says, the volume is mostly SLP
driven? Also, does that mean volatility in the market is about to spike
as there are no entities (well, one entity) providing NBB and NBOs?

many questions arise when one digs into the nebulous world of NYSE
liquidity providers, many more than there are clear cut answers to.
Perhaps it is time for Mr. Canaday to address as many of these
questions as possible head on. Zero Hedge would be happy to provide him
with a forum for clarification.

In the meantime, here are the facts, courtesy of the NYSE's public record keeping system.

first chart below demonstrates total program trading in the NYSE since
mid August, a month before the Lehman bankruptcy. The black line
demonstrates total indicated program trading, which absent volatility,
has remained relatively stable, averaging roughly 4 billion shares
weekly. And while most other NYSE member firms have seen their PT
volumes stay relatively flat as well, GS has seen a dramatic ramp up,
controlling about 15% of PT in Q3 of 2008 which has risen to almost a
quarter of all NYSE PT over the past quarter.

while total Program Trading includes Principal trading (i.e., trading
not on behalf of its clients but for its own benefit; this is the
category where SLP would also fall in under NYSE guidelines), as well
as Facilitation and Agency trades, the big surprise arises when one
looks at a historical analysis of merely Principal trading. The chart
below pulls only the Principal trading data for the top 10 NYSE
members. And like before, while the total amount of total Principal
trading as a portion of NYSE PT has stayed relatively flat, at about
half of total PT volumes, Goldman's share has exploded over the past six months: while GS was responsible for around 27% of Principal NYSE stock trading in Q3 and most of Q4, that number has risen to the low 50% range over the past 3 months.

last two charts demonstrate the divergence of Principal trading as a
fraction of total PT by any given broker. It is obvious that while the
majority of top NYSE member firms have had Principal trades stay around
40% of their total PT volume, Goldman has seen its share of Principal
trading go from 60% all the way into 90%: a vast majority of all its
trades are merely for its own benefit (and potentially as an SLP

lastly, demonstrating Non-Principal trading indicates, as expected, a
trend where GS' client have taken a progressively smaller relative role
as part of its total PT, and currently GS Agency volume as a % of Total
PT is the lowest of all top NYSE brokers, with total NYSE Agency volume remaining relatively stable.

what is really going on here? Connecting the dots is difficult with so
little freely available information, and the NYSE seems to be keeping
mum on disclosing anything above the absolute minimum when it comes to
the SLP, and brokers' participation in it.

My interest was
piqued by one of the points Canaday brought up: "What the table doesn’t
show, but a deeper look at the numbers reveals is that the vast
majority of this total is trades by our quantitative trading desk."
Maybe Canaday can expand on this a little more, as it is public
knowledge that recently the heads of GSAM and Goldman Global Alpha left
the company: Ray Iwanowski and Mark Carhart, who ran the quant
operation, and Giorgio De Santis who ran research, are no longer at the company.
Their departures in themselves are not surprising considering Global
Alpha lost over 80% of assets or roughly $10 billion in the course of
2008 (precipitated by the quant shakeout of August 2007).
But is there something else going on here? Their departures occurred at
the end of March, just as Goldman's Principal % of total NYSE trades
had peaked at almost 55%, yet when they departed, this number dropped
by a not insignificant 12% to 43%, only to rebound promptly thereafter.
Is there more here than meets the eye?

As regular readers of
Zero Hedge know, the topic of market liquidity has been a major one
over the past 3 weeks, and I have demonstrated that traditional market
neutral, high-frequency quants, aka independent liquidity providers
have not only suffered significant P&L losses in
April, but have deleveraged to a point where their presence in the
market is negligible, resulting in dramatic volatility spikes on low
volume. Could it be that Goldman is singlehandedly benefitting from
being the liquidity provider of last resort, even more so as there are
virtually no other participants in the SLP program? And, as is
expected, with a liquidity "monopoly", come unprecedented opportunities
to take advantage of this, depending on one's view of the market. Of
course, Zero Hedge is not suggesting Goldman has done this, but in a
world where so little transparency exists into the core workings of the
equity market, which most market traders have been clamoring has a
"very fishy feel" about it, with Hard To Borrow notices appearing for
such major index hedging securities as the SPY and IWR, it is no wonder
that explanations are being sought.

In order to provide some
much needed visibility, Zero Hedge, as noted above, is hoping Mr.
Canaday will approach Zero Hedge and give a more elaborate explanation
of what is really happing, and why GS is dominating NYSE program
trading, which lately has become a major percentage of total NYSE
volume. It is easy to see why market participants could be concerned
about this particular breed of opacity. In the meantime, I will
continue presenting NYSE program data, as it is everybody's right to be
caught up with all the facts.

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nope-1004's picture

Goldman is the gov't and the gov't is Goldman.  This casino version of crony capitalism is corrupt to the core.

That's why Timmay, Ben, and Osama (oops... made a keyboard entry error, I work at Shitigroup!) need to be put in prison.



cossack55's picture

I assume you mean the "fat finger" was the middle one.

jeff montanye's picture

note that the second ranking trader of principal shares, wedbush, was convicted of securities fraud last year.

saima's picture

I highly appreciate your post. This is what I am looking for to supply my next presentation with more information. Online Shopping Australia

dark pools of soros's picture

when is ZH going to enter the political realm?  All these current players have their pawns in the game so all the brilliant spotlighting research isn't going to enact anyone in power to do anything since they already have their marching orders.

And what would the agenda be? What is a 'free' market?  The muscle enforces (or ignores) the rules... its all brains here so recording history is all that is going on..  and we all know which history eventually gets printed anyway

dcb's picture

does anyone find this information inetersting in light of the fact that while the senate was denating too big to fail we had our meltdown and as far as I know only one firm has a program that can be used to manipulate the market according to a united states attorney general.

Same firm would be broken up, and same firm has a vitual trading monopoly on the NYSE

pan-the-ist's picture

Someone else brought up that the last time there was an 800 point drop they were debating TARP.  The banksters are rubbing our fucking noses in it.

Selah's picture

What about that program that was stolen from GS?

The one that could be used to manipulate markets in "unfair ways"




Cheeky Bastard's picture


Leaders of the eurozone finally agreed Friday night to activate the project for financial assistance worth 110 billion euros to Greece for a period of three years and declared ready in principle to "strengthen" the financial discipline, according to a European diplomatic source.

"The Heads of State and Government approved the project loan to Greece, this was not the problem," said the source.

Source: http://www.kathimerini.gr/4dcgi/_w_articles_kathremote_1_07/05/2010_336462

Party on bitches, party like its 1999 and you got  free blowjobs from all 1998 Playmates.

Markets up 999900009% Monday morning ...

Crab Cake's picture

additional source

Eurozone leaders approve Greece aid package


Greece is saved.  Next country please.

nope-1004's picture

For now.

Extend and pretend is the new norm.

CD's picture

Another wild-eyed, utterly lunatic idea:

Cast your minds and charts back to late February, 2009. BO just sworn in, markets in controlled fall, US financials in near-free fall. 2/20 is the specific day I have in mind, as I was stopped out of a (admittedly dumb) position in BAC as the share price executed a maneuver eerily similar to yesterday's action -- went down to $2, then spiked right back up in minutes. I tuned out of the market for a few weeks after that, so don't remember how many other such occasions happened. Not long after, fearless leader, the Oracle and others subtly and not so subtly suggest that buying stocks may once again be a good idea. Then, on 3/9/09 the market begins its magical meltup. Now:

-midterms are a short 6 mos. away -- no catastrophic failure allowed until then

-Greece bailed out, ECB to begin its own version of QE, didn't BOJ also throw a few more logs onto the fire?

-Serious, meaningful regulation of financial industry more or less off the table in US

-QE2 has never gone away as the next (necessary) step to prevent the dreaded 'double dip'

The big boys have the playbook (ARE the playbook). While yesterday's events are by no means random or 'accidental', the feline has many a coat of fur. There may be/are several concurrent reasons to 'neglect to prevent' downspikes like the one we just saw.

Cheeky may be more right than I dare contemplate. If any of the above is anywhere near true and the model we saw last spring is reused, maybe another 100 pt drop in the S&P later, we could witness the astounding resilience of the US economy (and financial innovation, don't forget that) with the next leg up towards Dow 36K. Bring on the broads and the blow...

i.knoknot's picture

March 3, 2009: The oracle (not the omaha one...)


just an amazingly prescient fellow, i guess...

AnAnonymous's picture

Mrs. Merkel also declared that new this economic situation should lead to modifications in treaties.

People betting on a demise on the Euro should never forget the stake:

euro collapse vs a furthering of the EU.

Spartacus's picture

What I do know about the crash at this point is by having read a book of the "memoirs" of a turn of the Century trader, in which he details exactly how to accomplish that in the market. Basically the crash was engineered. you get a lot of money (in this case I believe $16B). you have not made a whole lot since 2008, and the market is bullish and oversold. Then you wait for an uncertain day that starts as a sideways downward move (in this case of about 200 points), you wait for the 2:30 pm when the circuit breakers are off. You go leisurely preparing short positions on weak instruments all over the place: options, futures, etc. Then wait for a news, any news and start a system shock by shorting one single (or a couple) of low volume weak stocks. The market will start rapidly to move down and as it does, catches in the way all those programs and stoplosses in an seemly infinite move, Stop introducing money because your job is done. Wait until the drop made significant profit and start to cover your position. thats what makes a beautiful v shape we saw yesterda

saima's picture

Nice story. I write stories myself when I got free time. Last spring break I wrote several stories and next spring break 2012 i will present them to some influential people hoping to get a contract for publishing. Free Games Online

Gubbmint Cheese's picture

brain... hurts... too much information... I find it far easier to believe in the V shaped recovery.

there's no place like home.. there's no place like home..


/friday afternoon snark

Problem Is's picture

Cheesy... We ain't in Kansas anymore...

It Will Never Be:
Same as it ever was... Your climbing home value
Same as it ever was... Your climbing 401k
Same as it ever was... Ever increasing HELCO limit...
Same as it ever was... A new deadman lease on an SUV every year

Same as it ever was...
As desperately as the Amerikan middle class want it to be...

Robert J Moran's picture

You are asking Osymandias to dismantle itself... I think 'self-dismantling' (if there is such a word) would NOT take place without a fight, or a collapse and rebuild by different 'interested parties' (that would be the rest of us) Soldier on Zero Hedge! Please, soldier on!

Crab Cake's picture


I met a traveller from an antique land
Who said: "Two vast and trunkless legs of stone
Stand in the desert. Near them on the sand,
Half sunk, a shattered visage lies, whose frown
And wrinkled lip and sneer of cold command
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them and the heart that fed.
And on the pedestal these words appear:
`My name is Ozymandias, King of Kings:
Look on my works, ye mighty, and despair!'
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away".

-Percy Bysshe Shelly

velobabe's picture

your cool!

ZH member's, are VB's new textbooks of learning.

i swear, i have my dictionary and wikipedia as close as any gun would be.

Crab Cake's picture

I like his wife better.

Wait, that sounded bad....

She did write Frankenstein though, Mary Shelly that is.

Believe it or not she would sit in on informal book club/brainstorming sessions with her husband, and a group of people that included Lord Byron; that's where she developed the idea for the book. 

If you are looking for some other great poetry...

My favorite of all time is, The Rime of the Ancient Mariner by ST Coleridge.

Do Not Go Gently Into That Good Night - Dylan Thomas... Gives me faith that I will have the courage to die well.  Fantastic.

Poe is awesome, and William Blake is pretty kick ass too. 

Wow. I'm so not ZeroHedge material.  How did I end up in here?

Fuck you Fed/oligarchs/corrupt government/corporations for making me learn/making important this boring crap! Bless you Tyler for your bringing light into the darkness on a daily basis, and having/allowing the space for a great group of eclectic people to interact and learn.  I remember when I first started researching and reading (blogspot ghost), I drooled on the keyboard a few times, but I haven't given up.  It's too important. I came only armed with basic university economics mac/mic, stats, retirement investment training, and NOW... I'm a man. :) Thanks ZeroHedge. 

chindit13's picture

Actually, you ARE Zerohedge material. 

What I find most interesting about this community is that it is largely a collection of people who do read and are well informed.  They're folks not just looking for soundbites, but who will pour through TD or Marla's long pieces, or CogDis' long missives (here's a pot calling a kettle...) out of a desire to learn.  When Cheeky isn't ranting, he lets on that he is quite the educated soul and a fountain of knowledge.  Hephas seems to be a bio-engineer.  There's plenty of traders, both equity and fixed income, and a seeming abundance of code writers.  Read the posts of those who write and little snippets come out about who everyone is.  I would guess the demographics on this site are very advertiser friendly, though I also suspect many of us have long ago sworn off the world of perpetual consumption (but we'll click on the ads!).

So go ahead and quote Yeats or Byron or any Bloomsbury type, or Aristophanes for that matter, and I'm guessing you'll have an audience.

Janice's picture

Dang, I just quote Popeye.  I must be CNBC material.

i.knoknot's picture

it's all about the context. there's wisdom in popeye - you jest gotta know where it be hiddens...

jkruffin's picture

Bank stocks lead the collapse next week guaranteed!!  They have been lagging the fallout this week, but not next week.

Cleanclog's picture

I agree that bank stock collapse next week has high likelihood, especially if some hedge funds bust and everyone becomes wary of exposure and banks lending to each other (already in play in Europe where most banks are lending to each other through the ECB so no counterparty risk).

Also, with actions in Gold and Oil and currencies and jumpy equities, another algo trigger could go crazy any time.  No curbs to prevent.  No more throttles than yesterday.

AR's picture

UPDATE  /  Entitled:  There is NO MARKET  ----------------------------


We aren’t the smartest guys, but, we do have some 30+ years of experience in the business and were around in 1987 when similar markets exerted themselves. Back on February 22nd, we submitted a posting on ZH (see below).  For those who missed it, ignored it, or would like to refresh their thoughts, we again copied the post below.  Good luck everyone…


No Change In The Regime: Volume Dismal In Yet Another Green Day


LINK:               http://www.zerohedge.com/article/no-change-regime-volume-dismal-yet-another-green-day#comment-240616



by AR
Posted originally on Mon, 02/22/2010 - 16:35

It's slow today, so I'll add to your comment. I've repeated this story over the last 6 months from time to time, and I'll do so again here. Back in June 2009, a colleague of ours (a $5+ Billion dollar hedge fund) traveled to Europe on a meet-n-greet, money raising campaign. At the time, he returned and said "there is 50% LESS MONEY out there to invest." I presumed his observation was due to lost investments, the meltdown, margin calls, etc..  Then, a month later (keep in mind they are large) he told us, "...there is no market..."  I said, what do you mean there is "no market?" He literally said, there is no market. What he meant was, they could not find market participants to take the other side of their trades -- literally. Bid/Ask spreads were huge, and there was no liquidity anymore for them initiate trades as they’ve done in the past (or, much less).

Since then (the last 4-6 months) all of us, have now discovered, exactly what he was talking about. There is NO MARKET (period). Volume is gone. Government, computers, quants, algos, HFT's -- whatever you want to label them – now are said to dominate 70% of all volume today. Thus, keep in mind too, that they dominate 70% of "today's volume" (which on the above premise, is 50% LESS than the real volume the market traded before the credit crisis).

So, think about all this. One, there is 50% less real volume. 70% of the existing (50%) volume is computer led. Thus leaving, theoretically, only 15% of the actual volume in today's markets being "true or real volume" (when compared to volume prior to the crisis).  Only 15%.  So... now we see the problem with the market's today. This is a huge structural shift (and problem). We don't see it getting better in the short-term.  Interesting dilemma. Good luck everyone... 



PS:  Finally, to DeadHead… If you happen to read this, one, you’ll know what I’m talking about. And two, I sent you an email a couple of weeks ago to your Gmail address.  Try picking up the email and respond accordingly. I hope you’re well buddy. Good luck DH.

i.knoknot's picture


except the schmucks throwing that 'top-of-the-market' hot-potato back and forth, for 40 +points a day, nobody wants anything to do with any of this market.

so, you are spot-on in the *effectively* 'no market' assertion, but i would argue that there is a *dangerous* pseudo-market using what's left of those FED MBS purchases and weekly american 401K auto-deposits, taking advantage of the low volume, to prop/prop/prop up the market for the bailout masters upstairs.

witness yesterday... there are effectively *no* limit-buy orders under the top right now. *no* support. hell, there's no resistance. they don't dare take anything off the table, because to sell means one of the potato players stopped buying. ask any market-maker how many limit buys are "waiting for deals" 7-10% under current prices. functionally none. a few day/swing traders, maybe.

what's a 'good deal' mean anyway? find some FA that supports current prices. find a correlation that holds for more than a week. find a TA graph (fibs, etc.) that actually hasn't been distorted to meaningless given there are only 7 players and none of them are responding to value, but rather politics.

"no market" is an understatement. the PTB bet is that they can inspire enough confidence to support their propped up market *after* they've moved the market up on low volume, making some pennies on every front-run transaction. then they can pay off their nasty mark-to-myth before it gets called by the real market. problem is, it's their only bet, and it's a bet against the intelligence of those with money to protect - *not* the masses at large. i believe they will lose that bet in the ugliest of ways. and we may go down with them. this sucks.

america is simply loaning/trusting the various defaulted banks (treserve, etc.) some interest-free time to get their sh#t together... too bad most americans don't realize that the banks will never get it together - the math says "no". worse, most americans don't even know they're even making that loan. kinda like SS, but the fuse on this one is much closer, and the bomb, much bigger.

there *is* a market, one that no thinking person should be anywhere near. it's not 'if', it's 'when' it will collapse. and that's not a wish, it's math.

walküre's picture

I agree.

But to say there's no support or resistance is wrong.

Support for PG was at $39 which is *only* 35% below trading value. LOL

If the market went down 35%, I'd go in both feet. My money is on the side and I'd think that there are many others waiting for the drop to get in.


i.knoknot's picture

you are ultimately correct. i say that in a very loose manner, in the broader context of my point.

e.g. any company who goes below 'book' is a target for me, so i believe in resistance/support - in a natural market.

but - re:PG, i don't believe *anything* we saw yesterday had to do with natural market valuation. really. it wasn't 'resistance-in-waiting' that stopped that collapse, it was somebody finally getting to that 'red-button' that poured a zillion buy @ market orders into the system.

god, i would have loved to have seen the faces and heard the phone calls that led to that moment.

unless... they did it on purpose. resistance doesn't count then either... 998 - just under 1000...

the current market has just enough familiarity to fool us into believe in it... but it is truly broken behind the veneer.

bernie madoff had a nice office in a nice building... visitors believed what they saw.

PG is still a good company... we just can't tell how good the markets really believe it is right now.

(edits for rephrasing)

chindit13's picture

"there are no bids"

That is a key point.  I dislike the man and hate to use his phrase, but when the tide went out Thursday the market could see the buy side was naked.

I may have suspected as much before, but now when I look at the bid/ask at various prices on the screen, I know it's a mirage.  There are no real bids, or precious few.  Everyone who wants to be long is long.

Take a wildly long market, no real bids, and a slew of computers all running the exact same algo, and the recipe exists for a forty percent down week.

It is hard to believe that the major players may not be cognizant of that fact, but if they let the VIX drop to 16 like it did a few weeks ago, it seems even the big players fail to grasp the possibilities.  It is either that or else they have been told by Bernanke that he's got the downside.

When I look at the coordinated nature of how all the markets in just about every asset class started tanking at the same time on Thursday, I cannot help but think that maybe one of the more mercenary hedge funds was doing a test run of a Doomsday Machine, knowing that aggressive selling in a world with no buyers could take out 20-30% across the board across the world.

ayanni's picture

What happened to DeadHead?  Anyone know?

CD's picture

[nevermind] see AR's comment above

Common_Cents22's picture

Yep, you have a few experienced poker players that know each other sitting at a table.  When they run out of new fresh meat to rip off they will have to play with themselves.  If they can't entice any new idiot, they will eventually turn on each other.  If you sit down to a poker table, look around and don't see the idiot, you are it.

JuicyTheAnimal's picture

This market is like a poker table, everyone is a cheater with cards up their sleeves, Goldman has the aces and all of them have guns pointed at eachother under the table.  Scene ends like Inglorious bastards and we are collateral casulties.  

Marley's picture

Anyone come up the thought that perhaps HALs circuit breaker openned for 25 minutes yesterday?  Perhaps what we saw for 25 minutes was reality.

faustian bargain's picture

That's my theory.


**edit: or rather, the first half of that 25min was reality. The second half was reality getting the heave-ho.

ZerOhead's picture

I agree... someone was sending a message here... the message is that without them there is nothing underneath this market but air...


Just don't look down!

Marley's picture

When, if ever, has the DOW, in it's history, dropped 10% in 25 minutes?

A Nanny Moose's picture

Does May 6th 2010 count as history yet?

Iguanadon's picture

My baseless theory is that with the 10% circuit breakers in place to shut down the markets, someone programmed the robots to start buying at the 9% mark and see if it keeps the markets afloat.  If not, bail quickly and let the circuit breakers do their thing.

A_MacLaren's picture

Except there are no circuit breakers after 2:30 PM ET, until the loss is 20%


The halt for a 10% decline would be one hour if it occurred before 2 p.m., and for 30 minutes if it occurred between 2 and 2:30, but would not halt trading at all after 2:30. The halt for a 20% decline would be two hours if it occurred before 1 p.m., and between 1 p.m. and 2 p.m. for one hour, and close the market for the rest of the day after 2 p.m. If the market declined by 30%, at any time, trading would be halted for the remainder of the day.

Fraud-Esq's picture

absolutely. Timmy was in a hearing too, kept looking down at Blackberry. We've seen a glimpse of reality twice, 08 drop and yesterday. No underlying bid.  

nope-1004's picture

That's the story, that he looked down at his BlackBerry and said "That can't be right".

My question would be:  What makes a no volume melt-up "right", yet a correction not right?

Timmay.... you're up!

Please explain... what is so unnatural about the force of gravity bringing something or someone on cloud 9 back down to earth?



Strider52's picture

HAL had to reboot due to a "Critical Windows Update". It was down for a few minutes, and the matrix collapsed into reality. I bet they are paying an engineer buku bux to make it triple-redundant, with a load-share and a UPS (not the shipping company, an Uninterruptable Power Supply) battery / generator.

  After all I've read here, I'm sure it was a computer F-UP.