Just days after China bans Citadel (and its high frequency trading) from trading Chinese markets, US Treasury and Federal Reserve officials have been forced to admit they "need to consider whether the race for speed, at this already advanced stage, helps or hurts market functioning." As WSJ reports, Fed governor Jerome Powell and Antonio Weiss, a senior counselor to U.S. Treasury Secretary Jacob Lew, said Monday that the government should re-evaluate the structure of U.S. markets in light of recent events. They are growing more concerned about signs that financial markets have grown more volatile with the growth of fast trading. As Weiss concludes, "the constant pursuit to save one more millisecond not only consumes resources potentially better invested elsewhere, but increases the pressure on the plumbing of the system to handle ever-increasing speeds and messaging traffic." The pre-emptive blame-mongery is beginning...
Citadel Barred From Trading In China After Regulator Accuses "Automated Trading" Unit Of ManipulationSubmitted by Tyler Durden on 08/02/2015 21:02 -0400
Define irony: for the past 7 years, Wall Street's worst kept secret is that Citadel, the world's most levered hedge fund, has been the NY Fed's just slightly more than arms-length enforcer of market stability, by which we mean spoofer, buyer and otherwise "plunge protector" in the equity and E-mini futures markets. Which is why Citadel must have been shocked to learn late last week that China had suspended trading at a brokerage account used by Citadel in China.
The world of everything Social has been the undisputed benefactor of all this “free money.” After all, wasn’t the term “Unicorn” applied and accepted with all its connotations as being a mythical creature that lived and breathed in the land of make-believe? It is incontrovertible that if not for the “free money” provided by QE, many, if not most of what currently falls under the social media umbrella would not only never had come into existence (let alone with Billion dollar price tags), but the perceived “hands off – unquestioning” attitude by Wall Street itself wound not be allowed. This in my opinion is an absolute wanton abandonment of business fundamentals and principles. However, it seems there is a change of mood (or realization the jig is truly up) on Wall Street.
Shortly after we reported the latest market-rigging scandal, in which ITG was busted for frontrunning sellside clients in its dark pool in what has been since dubbed a "trading experiment" (because it sounds better than criminal conspiracy to defraud clients), and which will cost the company a record for a private Wall Street firm $22 million settlement, we had one question for AQR's Cliff Asness yesterday morning: "Hi @Cimmerian999, is Hitesh Mittal the AQR employee who was formerly at ITG and is part of the SEC settlement?" We got no answer from the AQR head, but luckily Bloomberg noticed, and as it turns out the answer to our question was a resounding yes.
Paraphrasing Jean-Claude Juncker, "when it gets serious, you have to lie (or deny)" and sure enough in just 30 seconds, the vehement anger Volcker shows in the following clip when 'accused' of creating illiquidity in markets due to his rule suggests the former Fed head is more than a little 'fed' up... and he should be, as we have pointed out previously - while Fink et al. are happy to blame his rule, it is HFT and Central Bank distortions that have created the illiquid disaster that so many call 'markets' today.
Credibility matters, it will matter even more in the near future when there seems none to be had from those who may have lost – or sold theirs.
Since the market is once again on the verge of a terminal liquidity seizure with its associated side-effects (see China for details), the authorities needed to remind the "market" just who the scapegoat will be when the next crash finally does come. Which is why earlier today in an unexpected "preliminary second quarter guidance" release, ITG, owner of the Posit dark pool, was just busted with a $22.6 million potential SEC settlement for what appears to have been blatant frontrunning of company clients in its own prop trading pod. But what is particularly amusing in this case is that while everyone knows that when it comes to HFT's, it is never called "rigging" - the proper nomenclature is "glitch", so now we learn a new term to use instead of "criminal frontrunning" - drumroll... trading experiment,
Anyone tempted to gamble on buying the proverbial dip in Chinese equities after Monday’s dramatic 8.5% sell-off probably shouldn’t, says Tom DeMark, who called a top and shortly thereafter, a bottom, in the SHCOMP back in 2013. "The die has been cast. You just cannot manipulate the market."
Over the last five-plus years in regard to today’s financial markets, the most revered memes that are recited in unison whether it’s in the form of a silent prayer or, it’s done in a near backwoods revival fashion from the televised financial shows “pulpit” in a “Can I get an …. !!!” stylized homily are: “It’s different this time!” followed with “The Fed’s got you’re back.” However, what they mean today may find those that put all their “faith” into such dogma finding that faith severely tested. For as of today July, 26, 2015 It truly is – different this time. And what else is different is: the Fed. may indeed have one’s back. Only problem this time is – that back may no longer be “yours.”
"Defendants used electronic chatrooms, instant messaging, and other electronic and telephonic methods to exchange confidential customer information, coordinate trading strategies. Traders at some of these primary dealers talked with counterparts at other banks via online chatrooms and swapped gossip."
The real reason why retail investors weren't impacted by the NYSE's halt is a hard truth... to retail investors, the NYSE is always dark
Where Do Retail Investor Orders Go? The simple answer: to the highest contracted bidder. Stock "wholesalers" or internalizers like Citadel or Knight pay retail brokers lots of cash to execute retail trades, essentially creating a "third market". Why? Because in a high frequency trading world, where stock prices have never been more fuzzy to the end user, but crystal clear to those that spend enormous sums on colocation and PhD employees, it's never been easier to print money (not unlike Bernie Madoff's scheme in the 90's). But that is the subject of a much, much longer story. Someone should write a book.
While this week has been, and continues to be, devoid of macro updates, yesterday's flurry of mostly disappointing earnings releases both before and after the open, including some of the biggest DJIA companies as well as the current and previously biggest and most important companies in the world, AAPL and MSFT, both of which came crashing down following earnings and forecasts that were well short of market expectations, came as a jolt to a market that was artificially priced by central bank liquidity and HFT momo algos beyond perfection. Add to that yesterday's downward revision to historical industrial production which confirmed the US economy is a step away from recession, as well as last night's Crude API inventory build which is once again pressuring WTI lower and on the verge of a 49 handle, and perhaps the biggest question is why are futures not much lower.
"We really want to stay away from positions we can’t get out of"...
Last Night's Gold Slam So Furious It Halted The Market Not Once But Twice, And The Funniest "Explanation" YetSubmitted by Tyler Durden on 07/20/2015 15:35 -0400
Yesterday, just before the Chinese market opened, precious metals but mostly gold, flash crashed in milliseconds with a violent urgency never before seen. We documented the unprecedented event last night, but for those who missed it, the following chart from Nanex clearly lays out just how sudden the "out of nowhere" selling was, which led to not one but two 20-second halts in the gold futures market spaced out precisely 30 seconds apart as a result of a Velocity Logic (or lack thereof) event.