A week ago, when we commented on the latest publicly available data for Barclays' fraud-embroiled LX dark pool, whose volume as we reported had tumbled 37% in the week of the lawsuit announcement, we said that the downward volume trend "is about to get a whole lot worse for Barclays as the trickle becomes an avalanche." Sure enough, following today's reported by Finra's ATS database for the week of June 30, we find just that, and one can largely say lights out to Barclays LX operation, whose total shares traded plummeted from 197 million (and 312 million the week before) to a paltry 66.4 million, a two-week drop of 79% from its recent highs, putting it, in 12th total dark pool volume place, below ITG and above BIDS trading. So much for any ambitions of becoming America's top dark pool. Last on the other hand...
Barclays almost succeeded in its quest of becoming the top US dark pool at any cost, even criminal: in the week ending June 16 Barclays was second only to Credit Suisse' Crossfinder ATS with 312.1 million total shares traded on some 1.6 million in total trades. Unfortunately for Barclays it should put its ambitions on permanent halt, because as was revealed today by FINRA's new "ATS Transparency" database, Barclays total dark pool volume has plunged by a whopping 37% to under 200 million shares.
Be careful what you wish for. As the Fed imbibes a sense of confidence in its ability to manage any bumps in the road on its perpetual bubble-blowing mission through the use of macro-prudential policies (big words that truly mean nothing) as stock valuations surge and the repo market is experiencing severe problems; it can always point to VIX as an indicator that all is well in the world and no real risk exists. The problem is - the world is beginning to wake up to the 'odd' micro-structure of the US equity markets and how 'dark pools' are beginning to dominate trading volume. As Barclays faces major legal problems over its alleged dark pool lies, lies, and more lies, the Fed must be growing concerned... as the following chart shows JPMorgan indicates there is evidence of an inverse relationship between equity volatility and the share of off-exchange trading.
In case there is still any confusion on whose behalf the US regulators work when they "fine" banks, the latest announcement from Finra should make it all clear. Recall the spectacle full of pomp and circumstance surrounding NY AG Scheinderman's demolition of Barclays after it was announced that the bank had lied to its customers to drive more traffic to Barclays LX, its dark pool, and allow HFT algos to frontrun buyside traffic. Yes, it was warranted, and the immediate result was the complete collapse in all buyside Barclays dark pool volume, meaning predatory HFT algos would have to find some other dark pool where to frontrun order flow. Such as Goldman's Sigma X. Which brings us to, well, Goldman's Sigma X, which moments ago, in a far less pompous presentation, was fined - not by the AG, not by the SEC, but by lowly Finra - for "Failing to Prevent Trade-Throughs in its Alternative Trading System." The impact: "In connection with the approximately 395,000 trade-throughs, Goldman Sachs returned $1.67 million to disadvantaged customers." The punchline, or rather, the "fine": $800,000.
- Obama to tout manufacturing gains, highlight economic progress (Reuters)
- Iraq Gunmen Attack North of Baghdad as Obama Weighs Plan (BBG)
- Chinese Regulators Block Shipping Alliance Abandoned Deal (WSJ)
- Russian $8.2 Trillion Oil Trove Locked Without U.S. Tech (BBG)
- Ukrainian forces, rebels clash near Russian border (Reuters)
- M&A talk lifts stocks, Iraq tensions ease slightly (Reuters)
- Wealthy Clintons Use Trusts to Limit Estate Tax They Back (BBG)
- Argentina vows to service debt despite new legal blow (Reuters)
- Allergan's Bitter Pill for Morgan Stanley (WSJ)
- Islamists kill 50 in Kenya, some during World Cup screening (Reuters)
- American Express Revs Up Pursuit of the Masses (WSJ)
While the defenders of HFT continue spouting their usual platitudes (with the latest piece of "anti-hyperbolic" fluff coming from "Mr. Quant" (but don't call him an HFTer) Cliff Asness himself who said overnight that "markets are "rigged" in favor of, not against, retail investors"... so - rigged?) the reality is that while one can debate the ethics of HFT frontrunning orderflow until one is blue in the face (or until Goldman tells the DOJ to slam the hammer on the high freaks once and for all), the biggest adverse impact from HFT continues to be the inherent instability that algo trading creates in the market. For empirical evidence of just this, we once again go to the usual source which everyone ignores until months after the fact is seen as having been right about everything, Nanex, which looks at one particular aspect of market instability, namely Limit Up, Limit Down circuit breakers and finds something very disturbing.
When is marginable collateral not marginable collateral? When it is an ETN, or Exchange Trade Note: the cousin of the Exchange Traded Fund (ETF). The very mutated, and unabashedly evil cousin of the ETF that is. At least such is the view of US brokerage Interactive Brokers " Pursuant to a recent decision by FINRA whereby Exchange Traded Notes (ETNs) will no longer be eligible for Portfolio Margining, these securities, including options having an ETN as an underlying, will be phased out of the program by OCC during the week of May 19, 2014."
It now appears the status quo is moving to destroy any last semblance of privacy with regard to your personal brokerage accounts. Yep, in the name of “stopping fraud” and the practices of unscrupulous brokers, the Financial Industry Regulatory Authority (FINRA) wants to launch a program called Cards, or the Comprehensive Automated Risk Data System. This electronic system sounds a lot like the so-called metadata the NSA is collecting on everyone’s internet usage. This “robocop” would collect a weekly “record of activity at all of the more than 4,100 brokerage firms nationwide.” For your own good of course. Oh, and yeah, to stop terrorists or something...
Capture, corruption, irreparable harm--and little hope for change.
[J. Bradley Bennett]...compared high frequency trading to buying a first-class ticket on an airline...“Is there anything unfair about that? Doesn’t sound like it to me.”
“Flash Boys” is a book written for Hollywood instead of the history books or policy makers. Stay tuned for the movie.
The topic of High-Frequency-Trading quickly dissolves into a smorgasbord of mnemonics and 'inside-baseball' technical terms - just complicated enough to lose everyone that matters or should care about its implications. Despite the fair-and-balanced defense from the mainstream media business channels (sponsored by the belief in the status quo fair markets that 'America the free' is known for), the fact is that HFT does front-run (perfectly legal under the umbrella protection of Reg NMS) order flow, but there may be one more wrinkle - one which would cement the Michael Lewis (accurate) allegation that the market is rigged.
Dondero had quite a "track record" of illegal trading activity before he was finally busted for one last time engaging in HFT spoofing. However, it is not his FINRA brokercheck record that is of interest, but the fact that back in 2007, in the first ever CNBC Million-Dollar challenge, it was none other than Dondero who almost won. And yes, he nearly manipulated his way to the $1 million prize money then too. Only, the way he did fudged his winning percentage was not as most other competition participants had, by abusing the widely known system glitch that allowed contestants to see which stocks were rising in after-hours trading and then to buy those stocks at the lower, 4 p.m. EST closing price, but using a far more devious scheme. One which is reminiscent of the crime that last week just ended his trading career in the real world as well.
In what many thought was a miracle of modern money-printing-driven yield-chasing, Puerto Rico managed to get $3.5 billion of bonds off last week with no problem (albeit at a 8.73% yield). The issue (while perhaps not as surprising as the low yield issues of Uganda we have reflected on previously) raised some eyebrows and in the trading since its release, FINRA noticed something concerning. The bonds, as Bloomberg reports, are supposed to 'minimum denomination $100,000' blocks and yet 75 trades this week have been for no more than $25,000 violating regulations which deem these for "institutional purchasers" and strongly suggesting the heavy hedge fund demand was nothing more than a pump-and-dump scheme to unsophisticated retail investors. PR bonds have plunged from par to $92 this week.
Ordinarily we would ignore the news of another banker's death - after all these sad events happen all the time - if it wasn't for several contextual aspects of this most recent passage. First, the death in question, as reported by the Stamford Daily Voice is that of Ryan Henry Crane, a Harvard graduate, who is survived by his wife, son and parents at the very young age of 37. Second, Ryan Henry Crane was formerly employed by JPMorgan - a bank which was featured prominently in the news as recently as two weeks ago when another of its London-based employees committed suicide by jumping from the top floor of its Canary Wharf building. Third: Crane was an Executive Director in JPM's Global Program Trading desk, founded in 1999 by an ex-DE Shaw'er, a function of the firm which is instrumental to preserving JPM's impeccable and (so far in 2013) flawless trading record of zero trading losses.