How many people in the financial services industry understand how the financial system works?
We've all experienced it, we are dealing with someone who has all sorts of masters degrees, PhD's, and doesn't know the Federal Reserve is a private corporation, and even doesn't know the product their company is selling.
In the spirit of professionalism, we must keep these quotes anonymous, but certainly if you have survived long enough in Finance or read the Financial news regularly, you will not need any references because you've probably heard it before.
• the risk of runs and asset fire sales in repurchase (repo) markets;
• excessive credit risk-taking and weaker underwriting standards;
• exposure to duration risk in the event of a sudden, unanticipated rise in interest rates;
• exposure to shocks from greater risk-taking when volatility is low;
• the risk of impaired trading liquidity;
• spillovers to and from emerging markets;
• operational risk from automated trading systems, including high-frequency trading; and
• unresolved risks associated with uncertainty about the U.S. fiscal outlook.
There's a Monetary Firestorm Coming
Since 2006, there have been a total of 18, 520 crashes, mini-crashes and flash-crashes or flash freezes (we have more names than we know what to do with) since that year.
- Syrian Rebels Hurt by Delay (WSJ), U.S. seeks quick proof Syria ready to abandon chemical weapons (Reuters)
- Lavrov Brings Acerbic Pragmatism to Syria Meet With Kerry (BBG)
- Five years after Lehman, risk moves into the shadows (Reuters)
- U.S. shares raw intelligence data with Israel, leaked document shows (LA Times)
- Japan to raise sales tax, launch $50 bln stimulus (AFP) - so 1) lower debt by sales tax, then 2) raise debt through stimulus.
- Blackstone’s Hilton Files for $1.25 Billion U.S. Initial Offer (BBG)
- Second Life Bankers Thrive in Dubai as Boutiques Boost Fees (BBG)
- Brussels probes multinationals’ tax deals (FT)
- Wall Street's Top Cop: SEC Tries to Rebuild Its Reputation (WSJ) ... and fails
- Tablet sales set to overtake PCs (FT)
- The end of angst? Prosperous Germans in no mood for change (Reuters)
- Obamacare, tepid U.S. growth fuel part-time hiring (Reuters)
- Cameron was behind UK attempt to halt Snowden reports (Reuters), Britain defends detention of journalist's partner (Reuters)
- Goldman Options Error Shows Peril Persists One Year After Knight (BBG)
- China expresses 'shock' as Japan's nuclear crisis deepens (Reuters)
- Inquiry into China insurance firm rattles industry (Caixin)
- Cheaper rivals eat into Apple’s China tablet share (FT)
- Exporting fast food: Subway Targets Europe With as Many as 1,000 New Outlets in 2014 (BBG)
- Reserve Bank of India boosts liquidity to ease pressure on banks (FT)
- Justice Department Plans New Crisis-Related Cases (WSJ) - Holder doing his cutest attempt to pretend the TBTProsecute aren't
- Syrian Opposition Alleges Gas Attack, Which Government Denies (WSJ)
As it turns out, just as we had suspected, the 6% move in the Chinese A-shares index, was nothing more than a CNY7 billion (just over $1 billion) fat finger in the "arbitrage system" of Everbright securities. And just what system is that - if the market is about to sell off do a smash-the-open to kill all downward momentum, and as for the losses from the trade, well there is a PBOC to foot the costs? Also, if all it takes to move a multi-trillion stock market is just a $1 billion "fat finger", imagine what $85 billion per month would do...
When we tapered our coverage of HFT manipulation and stock market abuse some time ago, we thought that the message had been heard loud and clear: high frequency trading is a sophisticated market manipulating parasite, whose only real function is to abuse market structure and integrity, by making conventional market manipulation practices more difficult to spot and identify. It turns out some, i.e., Newedge, thought they could still get away with traditional manipulative practices such as spoofing, layering, momentum ignition, wash trading, bypassing, and others, if only they were wrapped in an HFT blanket. It did so for four years from 2008 until 2011. As it turns out it was wrong, and in a stunning example of actually doing its job, FINRA fined Newedge, which is one of the largest futures brokers in the world and ranks third in terms of U.S. customer assets on deposit, a record $9.5 million.
“The Year of the Glitch” - The Dark (Pool) Truth About What Really Goes On In The Stock Market: Part 4Submitted by Tyler Durden on 07/07/2013 11:31 -0400
There was more. BATS, Facebook, and Knight were just the three most prominent computer glitches of the year. Outsiders were realizing what the insiders had known for years: The U.S. stock market was plagued with glitches that happened on a daily basis, and not just in stocks. Markets for commodities, bonds, and currencies all had their fair share of computer-driven mishaps. Increasingly, investors were wondering not only if the market was rigged, but whether it was completely broken. Indeed, the trade publication Traders Magazine called 2012 “The Year of the Glitch.”
The market deals extremely poorly with paradigm shifts or cycle changes. One reason for this is that there has been no need for any strategy except for the just-buy-the-dip mantra. This may have ended and that could be the best signal to the markets since the global financial crisis started. Sorry to be the messenger, but the only way for investors to understand risk and leverage is by having them lose money. Essentially then, the balance of this year could be an exercise in re-educating the market to long-lost concepts such as loss, risk, inter-market correlations and price discovery. We even predict that high-frequency trading systems will suffer, as will momentum-based trading and, most interestingly, long-only funds. Why? Because, at the end of the day, they are all built on the same premise: predictable policy actions, financial oppression and no true price discovery. We could be in for a summer of discontent as policy measures and markets return to try to search out a new paradigm. This will be good news for all us.
Silver’s recovery yesterday from being 10% lower at one stage to recouping these losses and then rising over 2% was very positive technically. The key reversal is leading some to postulate that we may have seen the bottom or are close to a bottom.
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.
- Don't jump to conclusions over general, Pentagon chief says (Reuters)
- Bad times for generals: Pentagon demotes 4-star General Ward (Reuters)
- Investors Pay to Lend Germany Money (WSJ)
- Noda will no longer be watching... watching: Japan PM honors pledge with December 16 vote date, to lose job (Reuters)
- New China leadership takes shape (FT)
- Hispanic Workers Lack Education as Numbers Grow in U.S. (Bloomberg)
- Quest for EU single bank supervisor stumbles (FT)
- Anti-austerity strikes sweep Europe (Reuters)
- Amazon faces new obstacles in fight for holiday dollars (Reuters)
- SEC Expands Knight Probe (WSJ)
- Singapore’s Casinos Lose Luster as Gaming Revenue Decline (Bloomberg)
- Amid Petraeus sex scandal, Air Force to release abuse report (Reuters)
- Geithner’s Money Fund Overhaul Push Sparks New Opposition (Bloomberg)
The EU assembly just voted affirmatively to impose a spate of rules to control 'high-frequency-trading that, as the WSJ reports, was advanced by Germany following their concerns that speedy traders have brought instability to markets. It is somehow reassuring that three-years after we first brought HFT to the mainstream's agenda, at least one nation is taking it seriously, doing something about it, instead of being filibustered into the 'liquidity-providing' meme. The rules will initially require registration, collect fees on excessive use of HFT methods, and install circuit breakers with the goals to "limit the risks associated with high-frequency trading" per a senior German FinMin; but the more stringent rules to come will have the greatest impact as they intend to include requirements for orders to rest on the exchange book for at least half-a-second, and potentially order-to-trade ratio caps. Not surprisingly, the HFTs believe a "one-size-fits-all approach would be very harmful." Indeed - to their profits.