HFT

When it is on the receiving end of coure.

That modern markets are broken beyond repair should by now be clear to everyone: with liquidity that can be shut off at the flick of a switch, 70% of overall market "volumes" merely churning between various rebate collecting HFT algos, and the consolidated quote tape stuffed by billions of cancellation-sniffing quotes, it is surprising that major, marketwide millisecond +/- 2% swings are not a daily occurrence (as opposed to single-stock flash crashes and smashes which now do take place daily). However, said realization must also be followed by political and regulatory action, which will not come as these same politicians and regulators are beholden to precisely the same financial parties that have broken the market microstructure and who generously benefit from their Marketstein monster creation. Which means the best everyone else can do is sit back and watch the accelerating cannibalization with which these same market players go after one another until there is nothing left, and there is no other choice but to go back to the drawing board and start from scratch. To help pass the time, here is a short clip from Nanex showing just what happens at the proper timescale of modern "markets" - half a second - in the trading of Johnson & Johnson stock. If anyone had any doubts as to the stability of the market before, this should alleviate all doubt.

One of the New Normal responses to allegations, first started here in 2009 and subsequently everywhere, that all HFT does is to frontrun traditional market players (among many other evils) now that its conventional and flawed defense that it "provides liquidity" lies dead and buried, is that "everyone does it" so you must acquit because how can you possibly prosecute a technology that accounts for over 60% of all market volume and where if you throw one person in jail you would throw everyone in jail. Today we learn that this indeed may be the case, and not only at the traditional locus of HFT frontrunning such as conventional exchanges for stocks such as the NYSE or even dark pools, but at the heart of the biggest futures exchange in the US, the CME where as the WSJ's Scott Patterson explains frontrunning by HFT algos is not only a way of life, but is perfectly accepted and even smiled upon.

'Commingle' hundreds of millions in client funds which are subsequently stolen rehypothecated as collateral by JPMorgan while your firm goes bankrupt as a result of your idiotic prop trading decisions, and what happens? Your toughest choice is whether to vacation in Fiji or St Barths. That said, being former CEO of the world's biggest TBTF hedge fund also known as Goldman, a former governor and senator, and most importantly bundler for the president of the "transparent" administration certainly helps. On the other hand, be a lowly algo trader and quant programmer working at the aforementioned hedge fund, and having dared to "steal" secret trading client code what can "manipulate markets" and what - you get the full wrath and anger of the FBI, the Federal Court System, and now the Supreme Court.

Yesterday's #Hash-Crash has brought the tough reality of just how entirely mechanized the so-called equity 'markets' have become in the US to every mom-and-pop who watch nightly news. Mainstream media is even discussing the correlations between JPY carry trades and equity indices now as CNBC's Rick Santelli notes "the high-speed casinos our markets have become". All things we have discussed for years. But there is one potentially fascinating insight from the ongoing robotization of the TBTF banking sector - Wall Street jobs are now at an all-time record low. Once again, it would appear, that cost-cutting demands (and a government backstop and huge subsidy no matter how bad the things are that you do) trumps any job creation. As Joe Saluzzi explains to CNBC's Rick Santelli in this excellent clip, the "liquidity is fickle" - the fake-tweet was a mere catalyst, he added, "we see these flash-crashes every day." The benefits for the major exchanges far exceed the conflicts of interest of these so-called "market-makers" who front-run their clients millisecond by millisecond.

Update: we decided it may be an opportune time to remind readers of this particular fact, not opinion, not propaganda, not insinuation.

One of the main, unintended consequences of this development to prop up markets at all costs, even if it means removing all logic and reliance on fundamental data, has been the complete evaporation of interest in any finance-related media, forcing the bulk of financial outlets to rely on such cheap gimmicks as slideshows, pictures of kittens, trolling and generally hiring liberal arts majors straight out of school to copy and paste articles while paying them minimum wage, and providing absolutely no insight (and then wondering why the Series ZZ preferred investors will never get their money back, let alone the A round). However, nowhere is this more obvious than in the relentless imploding viewership of once financial media titan, CNBC, which lately has become a sad, one-sided caricature of its once informative self, whose only agenda is to get the most marginal Joe Sixpack to dump his hard-earned cash into 100x P/E stocks, and where according to data from Nielsen Media Research, the total and demographic (25-54) viewership during the prime time segment (9:30am - 5:00 pm) just tumbled to 216K and 40K - the lowest recorded viewership since mid 2005 and sliding.

As we tweeted somewhat prophetically this morning when futures were still modestly red:

If sliding Chinese and German PMI data don't send the S&P to new all time highs, nothing will

— zerohedge (@zerohedge) April 23, 2013

And sure enough, equities close at the highs of the day (up over 1.5% from the overnight lows) and back near all-time highs once again. Ignoring the well-discussed elephant-in-the-room of the fake-tweet-based-flash-crash which exposed all that is unholy about the financial markets (i.e. coordinated HFT algos across every futures-market risk-asset); we note that shorts were heavily squeezed today, grossly outperforming the indices and JPY carry trades pulled stocks up tick-for-tick. Bonds sold off about 8bps higher in yield from overnight lows on the terrible data but yields ended the day only modestly higher (far removed from equity exuberance). The Dow, intriguingly, closed perfectly unchanged to the moment the Boston news hit last week, but the Russell was the day's big winner...

Yesterday, courtesy of Nanex, we provided a close look into the internals of the flash crash that took place in yesterday's trading session of German stocks. What was made obvious, is that this crash happened as a result of the same sudden liquidity vacuum that took place in May 2010 in the NYSE, when the DJIA plunged by 1000 points on a surge in offers and no bids, leading to the infamous original flash crash (about which we warned in April of 2009 of course) crushing the market, before a mysterious buying power emerged out of nowhere and returned it to an almost unchanged level. What we did not know, and what makes yesterday's German mini crash both delightfully ironic and supremely humiliating to the largest German stock exchange operator, the Deutsche Börse, is that it was less than one short weeks ago that the very same Deutsche Börse, in a direct reply to Nanex itself, stated that what we witnessed on Wednesday night couldn't possibly happen. Six days later, it did.

The most recent gold bear raid has vastly enriched the bullion bankers, once again, at the expense of everyone trying to protect their wealth from global central bank money printing. The central plank of Bernanke's magic recovery plan has been to get everybody back borrowing, spending, and "investing" in stocks, bonds, and other financial assets.  But not equally so - he has been instrumental in distorting the landscape towards risk assets and away from safe harbors. That's why a 2- year loan to the US government will only net you 0.22%, a rate that is far below even the official rate of inflation. After the two years is up, you are up $44k (interest) but out $260k (inflation) for net loss of $216,000. That wealth, or purchasing power, did not just vanish: it was taken by the process of inflation and transferred to someone else. This explains, almost completely, why the gap between the rich and everyone else is widening so rapidly, and why financiers now populate the top of every Forbes 400 list.  There is no mystery, just a process of wealth transfer of magnificent and historic proportions; one that has been repeated dozens of times throughout history.

The Analytics Group of IIROC performed a Trading Review and Analysis of High Frequency Trading on Canadian equity markets.  IIROC uses a methodology to identify user IDs exhibiting high order-to-trade ratios, or HOT User IDs, and covers the period from August 1, 2011 to October 31, 2011.

The big driver of market declines Friday was led by the Non-Farm Payrolls report. The jobs data was a dreadful miss which leads to the major “disconnect” we’ve been seeing between stock prices and overall economic data which we posted just last week. This is the nagging and confounding reality of the QE and ZIRP grand experiment for many investors.

When Mary Schapiro quit the laughing stock US stock market regulator, the only question was which Wall Street firm the latest SEC "revolving door" migrant would end up with, with most bets being on, naturally, Goldman and JPM. Today, to some surprise, the news hit that the former head of the internet porn-addicted regulator (which like clockwork always complains about its low budget: maybe get a refund for that bangbus.com subscription?) has decided to join none other than the revolving door extraordinaire consulting firm Promontory Financial. Per the WSJ: "Ms. Schapiro will work full-time in Promontory's office in Washington as a managing director leading the consulting firm's governance and markets practice and advising clients on risk management and compliance. Ms. Schapiro and a Promontory spokesman declined to say how much she will be paid in the new job." So who is Promontory? Nothing short of an "expert network" of all former government workers who having moved on, are willing to spill the beans about all the secrets of government operations... for a fee of between $1000 and $10,000 per hour. The chart below shows a sampling of all current and former employees of Promontory, explaining why it is a perfect fit for anyone intent on justifying the allegations of those who claim all the SEC does is provide a revolving door opportunity for ex-government workers.

Our April Fool's wish: someone in the inner circle of power would finally tell the truth. In an unprecedented abandonment of his carefully scripted responses to Congressional questions, Federal Reserve Chairman Ben Bernanke unleashed what appeared to be a heart-felt and spontaneous disavowal of the financial and political systems of the United States.

It's that time of the month again when, with little fanfare, the NY Fed discreetly discloses on which days of the upcoming month shorting is unadvisable, because on the other end of every sale or short will be none other than Kevin Henry & Co., and some $45 billion in buying power-cum-short stop loss triggers (not to mention every possible Citadel HFT algo operating at a less than arm's length from the Liberty 33 trading desk). In short: we get the advance monthly schedule of POMO days. And as everyone knows, one should never fight the Fed (unless, of course, one is the European Central Bank, the People's Bank of China, the Bank of Japan, the Bank of England, the Swiss National Bank, and pretty much every other central bank now that the entire world has devolved to outright currency warfare, but let's ignore that particular weak link in the media's propaganda narrative for the time being). So how does April look? In short: for anyone seeking to short the market in order to take advantage of the inevitable end of the Fed's despotic central-Ponzi planning regime (for reference, please see Bernie Madoff): not good.

Below are portions of a comment letter submitted by R.T. Leuchtkafer to the SEC on April 16, 2010, just 3 weeks before flash crash. The second paragraph in the excerpt below, unknowingly describes exactly how the flash crash was started. The letter goes on to alert the SEC on the dangers of High Frequency Trading (HFT), phantom liquidity and other concerns.