Direct Edge

Back in 2009, when aside from a few insiders, nobody had heard of HFT, Zero Hedge launched its crusade to expose the algorithmic scourge that has since then caused an equity, treasury and now US Dollar flash crash, and has been the subject of a Michael Lewis bestseller and resulted in countless market halts and failures. More importantly, there is now roughly 50 pages of just bibliography citing the evidence-based, academic research that has shown just how pervsavibely, maliciously and premeditatedly HFTs manipulate, destabilize, impair and otherwise destroy every single market in which they participate.

Apparently it is beneficial to have Dick Grasso (former NYSE Chief Executive and Chairman) along with Jack Sander (former CME Chairman) and General John Abizaid (former head of US Central Command) on the company payroll. 

• Greece Should Not Give In to Germany’s Bullying (FP)
• Greece Can Pay Its Debts in Full, but It Won’t (WSJ)
• Early Friday humor: Euro Region Economy Strengthens Amid Wrangling on Greece  (BBG)
• Euro zone may need extra summit to clinch Greek deal (Reuters)
• Oil-Drop Pain Spreads to Saudi Arabia’s Energy Behemoth (WSJ)
• Yellen Confronts Economists’ Ignorance (BBG) - where does one even start with this one
• ECB Plans to Push Greek Banks to Shed State Debt If Talks Fail (BBG)

Yesterday was a bad day for the HFT lobby, after not one but two incidents which exposed the high frequency parasites doing what they do best, and perhaps only: rigging markets.  And since it would be laughable if its wan't tragic, we decided to make it even more laughable, by noting that none other than intellectual titan in the House of Representatives, Maxine Waters, had a few choice words to say about the latest HFT rigging busts. That's right: Maxine Waters now opines on market microstructure issues.

• Oil Drops Below $45; U.S. Stockpiles May Speed Collapse (BBG)
• Pound Drops as Traders Write Off Higher Rates on Inflation Slump (BBG)
• Oil prices down again as UAE defends holding production (Reuters)
• The Politics Behind the ECB's Threat to Cut Greece Funding (BBG)
• France dispatched thousands of police and military personnel to protect synagogues and Jewish schools, as the government warned of continued terror threats after three days of deadly violence (WSJ)
• Chinese Car Dealers Find Days of ‘Printing Money’ Ending (BBG)
• Gold Rises to Highest Since October as U.S. Rate Outlook Weighed (BBG)
• Divers retrieve crashed AirAsia jet's cockpit voice recorder (Reuters)

In a dramatic example of the unprecedented collusion between predatory (HFT) client and predator-enabling (and HFT-pandering) exchange, in which the prey is any naive, witless order block that makes its way onto the exchange only to be frontrun with impunity and assure Virtu even more flawless trading days, we now see just who calls the shots for America's exchanges. "Virtu Financial LLC executive Chris Concannon will be appointed as president of BATS Global Trading Inc., an upstart Kansas City, Mo., firm that has grown into one of the country’s top stock-exchange operators, BATS said."

Direct Edge wasn’t the only exchange, nor the first exchange, to do what it did, which was the creation of symbiotic relationships between exchanges and HFTs.  

When obnoxiously wealthy pricks with the ability to bribe stock exchanges to place their trading computers on the floor of the exchange and financially induce the Wall Street banks to funnel trades through their dark pools in order to know what is happening a nanosecond before everyone else, and use this information to front run unknowing investors to generate risk free profits, it’s wrong. It really is black and white. I don’t care that it is supposedly “legal”.  By complying with Regulation NMS the smart order routers of institutional investor firms like Vanguard, Fidelity and Schwab simply funneled naïve investors into various snares laid for them by the unscrupulous high frequency traders. The bad guys always win and the good guys always lose on Wall Street. And no one does anything because they are all on the take. Lewis puts it in terms the average person can understand.

It is oddly ironic to see BATS declare self help against EDGX (since the two are owned by the same company), and yet: here it is.

It is now quite clear why BATS CEO Bill O'Brien was so agitated during the Tuesday's screamfest on CNBC. As The Wall Street Journal's Scott Patterson reports, under pressure from the NYAG, BATS has hurriedly issued a statement correcting the CEO's false comments during the exchange with IEX's Brad Katsuyama. After Katsuyama said "you wanna do this, let's do this" clearly giving him an out, O'Brien stated that BATS priced its trades off 'high-speed' data feeds when in fact they price their trades off a much slower feed (and therefore 'enable' the exact HFT-front-running that is in question).

The stock market really was rigged... “It’s 2009,” Katsuyama says. “This had been happening to me for almost two years. There’s no way I’m the first guy to have figured this out. So what happened to everyone else?” The question seemed to answer itself: Anyone who understood the problem was making money off it...

The farce that is the so-called stock "market" gets more and more mindblowing every day. Following yesterday's record high volume in VIX futures and options, this morning saw one stock - the $4bn market cap WhiteWave Foods represent a stunning 27% of all quotes in this morning's pre-open. As Nanex notes in this great analysis, HFT algos generated 2.04 million quotes which created... drum roll please... 3 trades.

• Threatening snowstorm may be early test for N.Y. Mayor de Blasio (Reuters), U.S. Northeast Threatened With Blizzard, Travel Delays (BBG)
• Scarred U.S. consumers a hard sell for traditional retail (Reuters)
• Edward Snowden, Whistle-Blower (NYT)
• A Few Brave Investors Scored Huge, Market-Beating Wins (WSJ)
• Fiat gets full control of Chrysler for $4.35 billion (Reuters)
• Billions Vanish in Kazakh Banking Scandal (WSJ)
• SAC’s Cohen Focus of Trial as Martoma Rebuffs U.S. (BBG)
• World's first state-licensed marijuana retailers open doors in Colorado (Reuters)
• Hyundai, Kia face fading growth as currency tides buoy Japan rivals (Reuters)
• Bond investors braced for new year shock (FT)
• Putin vows total destruction of 'terrorists' after bombings (AFP)

Wondering what a 'market' looks like up, close, and personal in the seconds before, during, and after this week's "most important FOMC meeting ever." From SPY's 50-second lead on the news release to VIX's gap, and from crossed markets to e-mini futures leading the premature charge, Nanex's charts are a smorgasbord of SEC-inspiration...

Market fragmentation in combination with the maker-taker market model, and in conjunction with a dramatic period of exchange “innovation,” had resulted in a new form of artificial edge.