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 17:27 -0400
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 14:54 -0400
"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..."
Q: Are orders entered for the purpose of igniting momentum in the market prohibited by The Rules?
This conduct may be deemed to violate the Rules if it is determined the intent was to disrupt the orderly conduct of trading or the fair execution of transactions, if the conduct was reckless, or if the conduct distorted the integrity of the determination of settlement prices. Further, this activity may violate the Rules. if the momentum igniting orders were intended to be canceled before execution, or if the orders were intended to mislead others. If the conduct was intended to create artificially high or low prices, this may also constitute a violation of the Rules
Every year, David Collum writes a detailed "Year in Review" synopsis full of keen perspective and plenty of wit. This year's is no exception. "I have not seen a year in which so many risks - some truly existential - piled up so quickly. Each risk has its own, often unknown, probability of morphing into a destructive force. It feels like we’re in the final throes of a geopolitical Game of Tetris as financial and political authorities race to place the pieces correctly. But the acceleration is palpable. The proximate trigger for pain and ultimately a collapse can be small, as anyone who’s ever stepped barefoot on a Lego knows..."
Two weeks ago, as we noted here, the CME unveiled Rule 575 - designed to put an end to 'disrputive trading practices' or "rigging." Today is the first day Rule 575 is unleashed to stop "spoofing," "quote stuffing practices," and the "disorderly execution of transactions." So, as Nanex notes, why is the CME still allowing major quote-stuffing? However, it appears Rule 5757 is having a notable effect on the high-beta momo stocks where the algos play...
Today was a significant day for many markets. For the 7th time in the last 8 months, US Treasuries opened the month with weakness (30Y up 8.5bps, 2Y +3bps from Friday). Significant JPY and GBP weakness pushed the USD Index to fresh 14-month highs (+0.25% on the week). USD strength smacked gold (-$20 to $1265), silver, and crude oil significantly lower (WTI under $93 and Brent testing towards $100, both down over $3). US equities decoupled (lower) from VIX and JPY-carry around the European close after hitting new all-time highs in the early session (over 2,006 for S&P Futs). Volume was better (but then it was a down day). Despite oil weakness, Trannies took off leading the day (with Dow and S&P closing lower from Friday). Credit traded with stocks for most of the day but ignored the late-day VWAP ramp in the S&P, closing at its wides. The ubiquitous late-day buying panic saved S&P 2,000... because it can.
As regular readers are well aware, when it comes to "more than arms length" equity market intervention in New Normal markets, the New York Fed's preferred "intermediary" of choice to, how should one say, boost investor sentiment aka "protect from a plunge", is none other than Chicago HFT powerhouse, Citadel. Recently we discovered that the true culprit behind the May 2010 Flash Crash was not Waddell & Reed, but quote stuffing. The most recent revelation for Citadel is that quote stuffing is not just some byproduct of some "innocuous" HFT strategy, as none other than the Nasdaq has now stated on the record, that the most leveraged hedge fund (at 9x regulatory to net assets), and the third largest after Bridgewater and Millennium, used quote stuffing as a "trading strategy." The following 2 clips give a sense of what goes on from day to day inside the firm that trades more volume than the NYSE every day...
As regular readers are well aware, when it comes to "more than arms length" equity market intervention in New Normal markets, the New York Fed's preferred "intermediary" of choice to, how should one say, boost investor sentiment aka "protect from a plunge", is none other than Chicago HFT powerhouse, Citadel. Yet one question had remained unanswered: just how does Citadel manipulated stocks? We now know the answer, and perhaps more importantly, it also links in to the true culprit behind the May 2010 Flash Crash, no not Waddell & Reed, but quote stuffing. Most importantly, the revelation that for Citadel quote stuffing is not just some byproduct of some "innocuous" HFT strategy, is that none other than the Nasdaq has now stated on the record, that the most leveraged hedge fund (at 9x regulatory to net assets), and the third largest after Bridgewater and Millennium, used quote stuffing as a "trading strategy."
VIX was monkey-hammered lower once again today, lifting stocks vertically to Russell 2000 record highs and The Dow within a point of 17,000. The question is who (or what) is doing it. Nanex seems to have found out who... It appears the un-visible hand of VIX manipulation (that we have shown previously) has been forced into the open public markets as Barclays goes dark. Simply put, massive bursts of 1-lot TVIX orders flood and delay the markets enabling HFTs to manipulate the tail that inevitably wags the market (via VXX, SPX options hedges and leverage) and now that the dark pools are disappearing, we see it all in real-time.
In what appears to be the first real action post-Flash Boys, NY AG Eric Schneiderman will announce at 4pm ET that Barclays will be sued over fraud allegations related to its Dark Pool's preferential treatment of high-frequency traders. As Bloomberg notes, Barclays runs one of the market's largest dark pools. This comes 2 months after the NY AG sent requests for information to various major HFT shops. It seems, just as we noted here, that a potential scapegoat is being primed 'just in case' this 'market' can't withstand the Fed's pullback.