FINRA

FINRA Unleashes Dark Pool Fury On Goldman Next With Whopping $800,000 Fine

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.

Frontrunning: June 17

  • 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)

Market Instability Rising Fast As "Limit Up, Limit Down" Halts Surge

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.

Starting Monday, Billions In ETNs Are No Longer Marginable Collateral

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."

Big Brother is Coming To Your Brokerage Account

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...

"Timestamp Fraud": A Rigged Market Explained In One Simple Animation

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.

HFT Trader Busted For Spoofing Nearly Cheated His Way To The Top Of CNBC's Million-Dollar Challenge

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.

Puerto Rico Bonds Tumble On Possible Hedge Fund Pump-And-Dump Probe

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.

Another JPMorgan Banker Dies, 37 Year Old Executive Director Of Program Trading

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.

Bank Of America Caught Frontrunning Clients

So far in 2013, Bank of America lost money on 9 trading days out of a total 188. Statistically, this result is absolutely ridiculous when one considers that the bulk of bank trading revenues are still in the form of prop positions disguised as "flow" trading to evade Volcker which means the only way a bank could make money with near uniform perfection is if it either i) consistently has inside information that it trades on or ii) it consistently front-runs its clients (the latter incidentally was a topic we covered back in 2009 relating to Goldman Sachs, and which the bank sternly rejected). We now know that when it comes to Bank of America at least one of the two happened.

FINRA Warns Investors Over Leveraged And Inverse ETFs

Stifel Nicolaus has been fined more than $1 million by FINRA for the "unsuitable sales of leveraged and inverse ETFs." While the fine in de minimus compared to the JPMorgan-esque amounts, the remarks by FINRA raise considerable risks for any apparent fiduciary bucket-shop promoting these popular instruments... "performance can quickly diverge from the performance of the underlying index or benchmark. It is possible that investors could suffer significant losses even if the long-term performance of the index showed a gain. This effect can be magnified in volatile markets." Nothing we don't already know but this time from a regulator...

JPMorgan, Madoff, And Why No One Dared Ask "The Cult" Any "Serious Questions As Long As The Performance Is Good"

JPMorgan: "[t]here are various elements in the story that could make us nervous," including the fund managers "apparent fear of Madoff, where no one dares to ask any serious questions as long as the performance is good.... personnel at one feeder fund seem[ed] very defensive and almost scared of Madoff... They seem unwilling to ask him any difficult questions and seem to be considering his 'interests' before those of the investors. It's almost a cult he seems to have fostered."