This Is Why High Frequency Trading Will Never Go Away

Tyler Durden's picture

In April of 2009 we warned very explicitly that reliance on the fake "liquidity" (which was never liquidity per se but merely volume and churn) by the HFT algos that stuff quotes, frontrun each other, spoof, layer, and generally make a mockery out of the thing fomerly known as the market (which is now more than anything a policy vehicle for central planners but that's a different story) would result in tears. A year later the first flash crash happened, and ever since then more and more people have finally realized how our 3+ year long crusade against HFT (which sadly is now a minor distraction against the far greater evil which is central bank dominance of capital markets) was spot on, confirmed by the recent segments (here, here and here) on CNBC which effectively confirmed the markets are not only a joke, but without any real depth, i.e. fake. What is amusing is that people still don't understand why the exchanges, and the regulators (coopted by the exchanges) allow HFT to continue. Here is the answer: in 2011 the CME made 31.5% of all its revenues from HFT, the ICE: 25.1%, the NYSE: 21.4%, the Nasdaq: 17.1%, the CBOE: 22.4%, and so on.

In 2012, according to Raymond James estimates, these HFT-driven revenues will rise even higher. Logically, should HFT be curtailed in any way, the two biggest futures exchanges, where open market manipulation most notably via synthetic, NY Fed endorsed reflexive products such as ES takes place every single day, CME and ICE would collapse (not to mentioin the traditional equity trading venues). So for those curious just why HFT will never go away, until we have the next, and most likely, last market crash, speak to the exchange CEOs. They know the whole story.

Source: Raymond James

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fuu's picture

Conflicts of interest bitchez!

Comay Mierda's picture

hft's are screwing me over? let me check.... yep, my gold is still there. hfts dont matter to me

Herd Redirection Committee's picture

I've read a couple articles on BBC in the last couple days where they talk about Iran's rial, and they always mention the pressure it puts on those in Iran trying to import goods.  Funny thing is, they always compare the rial to 'hard currency', the USD.

LOL.  Is that a mindf*ck or what?  Psy-ops, to convince those of us in the West that what is happening to Iran's currency (80% debased in about 12 months) could NEVER happen here!

Comay Mierda's picture

i love articles like that.  keep the CONfidence in this ponzi going as long as possible so I can hoard as much Au and Ag as possible

Herd Redirection Committee's picture

I am always just reading along interestedly, to see if they mention whether it is economic warfare/the US and Israel dumping rials/selling rials short, but at most they imply it.

Then they call the USD hard currency and my jaw drops.  I mean, surely, this is psychological shock testing of the most sophisticated kind?  They see how do people respond to articles about Greece bankruptcy and Iran's currency debasement, and then use the data accordingly, to mindf*ck Europe/North America, when our time comes. 

Just feeling people out to see how it can be sold, when this 'comes home'.

Comay Mierda's picture

the USD "hard currency" myth is just the tip of the iceberg in my opinion.  My jaw drops when I read stories blaming FREE MARKETS for the economic hardships that have resulted from the complete opposite of free markets.  How can people be so stupid to not realize that the economy is regulated and taxed to death while the currency, its fundamental unit of value, is being devalued at a near double digit rate every year?

Herd Redirection Committee's picture

Aah yes, the old 'its the fault of capitalism'.  Wait, wouldn't we first have to have a capitalist economy for it to be capitalism's fault? 

One of the problems is that there is such a lack of understanding re: money and finance, in society.  Surely that is no accident, though.  Society churns out little 'producer/consumers' not critical thinking adults.  Again, could that possibly have happened by coincidence?

AlaricBalth's picture

"Factors contributing to a currency's hard status might include the long-term stability of its purchasing power (-96% since Fed inception), the associated country's political and fiscal condition (fiscal cliff fast approaching with no political will) and outlook (bleak with deficits forever), and the policy posture of the issuing central bank (Print to infinity)."

Well, we can rule out the US Dollar's status as a "hard currency". It fails on all points.

NotApplicable's picture

If you think that there are no personal consequences to living in a world with corrupted capital markets... well, one delusion's as good as any, I guess.

JustObserving's picture

"hfts dont matter to me"

Your gold would be worth a lot more but for hft attacks.  But I guess that does not matter to you.

GolfHatesMe's picture

it doesn't need to be wroth more now.  Accumulation mode

RiverRoad's picture

Can't wait 'til they all try to get through that tiny little doorway one day.....

LawsofPhysics's picture

If it did, the "market" would go bidless.  move along.

I can see it now, "congressional medal of honor awarded to designers of algobots for preventing deflationary death spiral".

Shit, the nobel peace prize is meaningless, might as well make congressional medals just as meaningless. 

fonzannoon's picture

Mark Cuban was out there before making a lot of sense regarding this. I hope ZH puts it up. We are so fuckin done for anyway it does not even matter.

Tyler Durden's picture

Linked above but here it is again:

kaiserhoff's picture

Saw that.  He and Zell made a great tag team.  Is Zell really a Leprechaun, or is it just me?

From a trader's perspective, HFT and related abuses have driven out specialists, who had some responsibility for orderly markets, and replaced them with algos, who love to run stops.  Still illegal, by the way.



kaiserhoff's picture

Later than the clip I saw.  Sam Zell said housing should have been allowed to hit bottom.  The market would have cleared, and we would be well into a rip roaring recovery.  Truer words were never spoken by a ferengi, or whatever the hell he is.

ptoemmes's picture

Hmmm...maybe Cuban should be invited to speak in front of the relevant congressional (sub) committees as sort of a counterpoint to the usual suspect shiils.

Not likely to happen or, if it does, to have much impact...but just for chuckles what are the congressional (sub) committees?  Membership subject to change in next congress.



LongSoupLine's picture

Where's the line item for Congressional and SEC pocket lining?  That's the real reason.

Bastiat009's picture

It will NEVER go away? You want to bet? 

XitSam's picture

Guitollines, tar and feathers, the possibilities are endless.

Ivanovich's picture

Good.  Let 'em all frontrun each other into oblivion.  I won't be party to it.

Meesohaawnee's picture

yea but the last retail investor sure will which leads the hedgies to just pic pocket each other all day.. wait didnt the CME just get all these tax breaks from the city of chi? fucking criminals.

max2205's picture

It's the owners who always beat you up....

FreeMktFisherMN's picture

just look at silver today. 

Inthemix96's picture

Sorry tyler,

On a long enough timeline, that, that cannot be sustained.

Will not be sustained.

End of the road banksters.....

Tyler Durden's picture

Don't spoil the ending for everyone...

falak pema's picture

As long as people feel that they can get away with it. 

pndr4495's picture

Here's one for you - since they are no longer NOT FOR PROFIT , do the exchanges themselves have programs that compete with the HFT firms as well as any other trader who uses their clearinghouses to minimize counterparty risk ; and have they had them since '07 - '08 ?

youngman's picture

It amazes me how they try to say it helps the markets......liquidity my ass...its all cannot explain how it helps a when they get on TV and say it adds liquidity I almost explode....why not just come out and say they are stealing money from the little guys....but hey...we make political donations so all is good...they have a warehouse next to the NYSE computers where they get the first link....that nanosecond works very well....if you are only 80% right all the time...that is much better than being 80% wrong all the time...

MachoMan's picture

It does add liquidity...  it's just that the term liquidity in this case has been made a term of art and is used to describe rebates for churn...  The other aspect is that, technically speaking, many shares CAN be traded without materially affecting the price of the asset, but this process ends up leading to price obfuscation and the asset will remain illiquid until the real price gets hit.  This is the scalping that ensues daily.  Sometimes it's a little, sometimes it's a lot.

To say it simply provides liquidity is arguably truthful, but certainly deceptive.  It provides temporarly liquidity when it suits a few market makers...  this is why it continues to be done and vehemently defended...  and why months go by without trading losses (inside information aside).   

VonSalza's picture

i have a dream that one day all sheeple can roam freely through the world.

get up late and chill in the sun and party hardy all night. While the algos do all the work. i have a dream.

q99x2's picture

There must be a way to determine how long it will take before the HFT suck all wealth out of the markets.

adr's picture

It already did. Hence QEinfinity.

Seasmoke's picture

same problem in horse racing , with computer betting crushing pools.....actually its probably alot worse for any fools that are still handicapping .....but TPTB will never stop them, because if they ruled for fairness, they would be out of a job

adr's picture

I think this also explains why channel stuffing will never go away.

I didn't see it linked here, or maybe it was a long time ago, but European car dealers are buying their own inventory with loaned money and then putting the cars up for sale in used lots so the same car can effectively be sold twice, helping to inflate sales numbers by as much as 30%.

Same thing goes for Nike, Under Armour, Lulu Lemon and every other publicly traded retailer.

I am sure if McDonald's could, they would regrind all of the meat thrown out in the trash into new patties and sell them again.

ParkAveFlasher's picture

I scanned over an IFRS analysis done by none other than the SEC and I marvelled about how much is left open to 'interpretation' and what net impact will that have on the definition of words like "sale" and "profit".  Seems like that would be cut-n-dry.  And, even more amazing, is that the SEC analysts noted the holes in IFRS, albeit with obfuscatory language.

I suppose as the currency / denominator of all valuations becomes more and more suspect, why wouldn't accounting principles follow? 

GM seems to have impelled its dealers to abandoning a consignment arrangement which would otherwise hedge the dealers' risk.  In a consignment relationship, the dealer promotes the merchandise and makes it available for sale however if the product doesn't sell through, the manufacturer has to take it back per arrangement.  I wonder also how many more industries have been recently configured just like that, to workaround consignment, an impelling of dealers and distributors to take inventory off manufacturers' books.  It's scary.

LawsofPhysics's picture

The banks get "mark to fantasy" accounting rules, why shouldn't we?

ParkAveFlasher's picture

That means I could have millions of dollars in assets ... better not tell the IRS!

myshadow's picture

The above link is at the midpoint of the show, Cuban was on for the entire hour and drank the milkshakes of the casino croupiers.  It would be great to have more than 5 minutes.  He actually had a list of solutions at the end of the show.  He was definately Captain Sensible today.