Goodbye to "fat fingers" being blamed for flash crashes, and welcome to the Heisenberg uncertainty market: you can have your 1 cent bid/ask spreads... but you can't have any real market depth at the same time.
dear HFTs, get ready to be the scapegoats
— zerohedge (@zerohedge) August 20, 2015
Open Thread ...
Biggest US Dark Pool Busted For Rigging Markets, Engaging In Precisely The Manipulation It Warned AgainstSubmitted by Tyler Durden on 08/11/2015 17:07 -0500
The WSJ reported that none other than the operator of the biggest dark pool in the US by volume, Credit Suisse and its massive Crossfinder dark pool, "is in talks with regulators to settle allegations of wrongdoing at its “dark pool” with a record fine in the high tens of millions of dollars, according to people familiar with the matter." What is grotesque about this story, is that back in December 2012, it was none other than Credit Suisse which conveniently explained and laid out all those forms of HFT manipulation which we accused virtually every HFT firm of employing since 2009... and which Credit Suisse itself is now accused of engaging in!
"At times, self-trading may reflect unlawful conduct. For example, unlawful self-trades may constitute “wash sales.” In the futures markets, “wash sales” involve a purchase and sale of the same delivery month of the same futures contract at the same or similar price, made without an intent to take a genuine, bona fide position in the market, and instead, are intended to negate risk or price competition. In the securities markets, for example, a “wash trade” is a transaction that does not result in a change of beneficial ownership when there is a fraudulent or manipulative purpose behind the trade. This report is not making any findings on the legality of any self-trading that occurred on the days covered in this analysis."
But... but... they just provide liquidity.
We warned previously that when (not if) the market crashes next, The Fed is going to need a scapegoat (other than British traders living at home with their parents) and judging by The Fed's Lael Brainard's comments today, high-frequency-traders (HFT) are in the crosshairs. Crucially, Brainard warns that HFT "may amplify market shocks," and The Fed is "studying possible changes in liquidity resilience."
We are running dangerously low on "conspiracy theories"
It's not easy being a millionaire in the New Normal.
Why Sarao Is The Flash Crash Patsy: He Threatened To Expose The "Mass Manipulation Of High Frequency Nerds"Submitted by Tyler Durden on 04/23/2015 16:27 -0500
The CME contacted Sarao about his trades after concluding he appeared to be significantly swaying opening prices. Sarao explained some of his conduct to the CME in a March 2010 e-mail as “just showing a friend of mine what occurs on the bid side of the market almost 24 hours a day, by the high-frequency geeks.” And the reason why nobody touched Sarao until just days before the 5 years statute of limitations following the Flash Crash had run out, is the following: "He then questioned whether CME’s actions regarding his activity meant “the mass manipulation of high frequency nerds is going to end."
The answer was no.
Just because we know how serious you are in your quest to root out all market rigging, or as you put it in your charge against Navinder Sarao "manipulation or attempt to manipulate the price of the intra-day contract price for the near month of the E-mini S&P," we have decided together with Nanex to once again give you a helping hand, and point out all the spoofing that has taken place in the E-mini or ES. Just today
"Defendants' use of the Layering Algorithm and the 188/289-Lot Spoofing intensified throughout the day. At 11:17 a.m. CT, Defendants turned the Layering Algorithm on for more than two consecutive hours, until 1 :40 p.m. CT. During this cycle, Defendants utilized the Layering Algorithm to place five orders, totaling 3,000 contracts. A sixth order was added at around 1:13 p.m. CT, increasing the total to 3,600 contracts.... Between 11:17 a.m. CT and 1:40 p.m. CT, Defendants' actions contributed to an extreme order book imbalance in the E-mini S&P market. This order book imbalance contributed to market conditions that caused theE-mini S&P price to fall361 basis points."
As noted earlier, with equities now a barren wasteland of volume (and liquidity), the last remaining HFT master (of whale order frontrunning) has been forced to go to those asset classes where organic flow is still abundant such as FX, courtesy of central banks engaged in global currency wars. However, HFTs realize it is only a matter of time before FX order flow also dries up as central banks take their trade away from public venues (and dark pools) and as such are always looking for new, untapped markets. One place where they are about to land according to the WSJ, with hilarious consequences sure to follow, will be the one place that HFTs should have felt at home from the very beginning: bitcoin.
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.
"Holy Grail Of Trading" Crosses Into The Twilight Zone: HFT Firm Virtu Has Lost Money Once In 1,485 Trading DaysSubmitted by Tyler Durden on 02/21/2015 13:54 -0500
"The chart below illustrates our daily Adjusted Net Trading Income from January 1, 2009 through December 31, 2014. The overall breadth and diversity of our market making activities, together with our real-time risk management strategy and technology, have enabled us to have only one overall losing trading day during the period depicted, a total of 1,485 trading days..."