HFT Caught-Red Handed In FX Trading
After decimating equity and commodity markets, the HiFreqs have boldly gone and broken another market - FX. But that is not news: we reported over two years ago, that while HFT accounting for all of the churn - not liquidity - in stocks, bonds, and commodities, HFT had moved on to the final frontier, FX, where even the smallest moves now are catalysts for avalanche-like surges and plunges on the most meaningless of newslfow. What is news it that finally it has been caught in the act. From Reuters, which is also an involuntary accomplice in this latest HFT unmasking, courtesy of its institutional FX trading platform: "Thomson Reuters Corp is investigating whether one of its currency trading customers gained an unfair advantage when making high speed foreign exchange trades on its platform. Lucid Markets, a privately held electronic trading firm registered in Great Britain, may have benefited from trades using several connections on the Thomson Reuters Matching platform."
"As the operator of one of the largest FX dealing communities, providing a level and fair playing field for the community is paramount," said a Thomson Reuters spokeswoman.
The spokeswoman confirmed that an investigation was initiated when Thomson Reuters became aware of the issue, saying, "Thomson Reuters takes any accusations seriously and uses all the tools at its disposal to enforce its rules." She declined to provide further details as the investigation has not yet concluded.
Dierk Reuter, a founding partner at Lucid Markets in London who has no other known association with Thomson Reuters, said his firm is collaborating with Thomson Reuters on the probe. "We believe that we have been in compliance with Thomson Reuters instructions at all times," he said.
Clients are allowed two connections: one for trading and another as a backup.
A spokesperson for Lucid Markets in New York said the company is "still currently connected and trading through Thomson Reuters."
And now you know why the next time a patently fake and flawed rumor comes out of Europe, the EURUSD moves by 100 pips on what is completely debunked moments later, even as the new (and improved) price level sticks. Because in a market in which fundamentals have no bearing on anything, the only thing left is momentum... which works until mean reversion takes place.