FBI And SEC Team Up To Take Down HFT

Tyler Durden's picture




 

After exposing the stock market manipulative arsenal that is High Frequency Trading, quote stuffing, flash trading, packet churning, layering, sub-pennying, liquidity, latency and dark pool arbitrage, NBBO and Reg NMS exemptions, "hide-not-sliding", collocation, and much, much more for four years, or so long even Credit Suisse joined the chorus we started in April of 2009, we are glad to learn that finally, with a ridiculous Rip Van Winklesian delay, but better late than never, "the FBI has teamed up with securities regulators to tackle the potential threat of market manipulation posed by new computer trading methods that have taken operations beyond the scope of traditional policing."

In other words, the SEC has finally realized it can no longer pretend it is not co-opted, but because it has no clue where to even start with HFT, has asked the help of the Feds. Which in itself is hardly reason for optimism, but if there is one thing Hans Gruber has taught us, it is that when the Feds get involved, the first thing they do is cut the power, and in this algo-based market that will end some 99% of all daily manipulative practices we have all grown to love and look forward to every single day.

From the FT:

FBI agents have joined forces with a new unit within the Securities and Exchange Commission that examines hedge funds and other firms that are using algorithm trading strategies.

 

The SEC’s Quantitative Analysis Unit is focusing on the emergence of high-frequency trading firms and the rise of dark pools. Traders using these methods can manipulate the market by flooding it with quotes, known as quote stuffing, or placing millions of orders that are quickly cancelled, to drive others to trade in ways that benefit their position, a practice known as layering.

 

Some of these trading strategies have been accused of destabilising the market and putting retail investors at a disadvantage. Their supporters have said they increase liquidity in securities and reduce volatility.

Accused? Obviously the author of this story has never actually, what's the word, traded, submitted a VWAP or any other market-based order.

There is a reason the NY Fed works with HFT-giant Citadel: it is precisely to facilitate what HFT is "accused" of doing. But one can't go and expose all the manipulated secrets that have sent this fake market to even faker all time highs.

Authorities are exploring potential holes in the system, including new algorithms referred to as “news aggregation” which search the internet, news sites and social media for selected keywords, and fire off orders in milliseconds. The trades are so quick, often before the information is widely disseminated, that authorities are debating whether they violate insider trading rules, the people familiar with the matter said.

 

Authorities are also monitoring alpha capture systems, platforms where sell-side firms share information with buyside professionals, for potential front running or insider trading. Also on their radar is artificial intelligence trading, an algorithm that predicts market reactions based on history.

One can see it already: "it was all Twitter's fault."

Nonetheless, there is at least a trace reason to be hopeful:

One government official said market structure could be the next big area for cases, although it was not clear whether any of the strategies violated criminal laws. To prove a criminal case the FBI would need to show that the trader intended to manipulate the stock, which could prove more difficult for strategies that are triggered by computers.

The hope is not from the SEC or FBI actually putting someone behind bars, as this proves...

The SEC has brought a handful of cases involving these strategies and other investigations are under way. No criminal case is on the horizon, one of the people said.

... But at least neither the Feds nor the SEC will be able to plead ignorance when confronted with the same knowledge that our readers had back in 2009.

Then again, by the time the two agencies catch up to what anyone with half a frontal love and an interest in the stock market knows already, the Dow will be either at 36,000 or 0, or in other words, too late.

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Tue, 03/05/2013 - 15:25 | 3301702 CalibratedConfidence
CalibratedConfidence's picture

SEC's National Exam Program

http://www.calibratedconfidence.com/2013/02/secs-national-exam-program.html

Flaccid institution attempting to maintain relevance

Tue, 03/05/2013 - 15:29 | 3301711 hedgeless_horseman
hedgeless_horseman's picture

 

 

Easy fix, just bring back the steenth.

These decimals are the devils work.

 

Tue, 03/05/2013 - 15:40 | 3301771 Boris Alatovkrap
Boris Alatovkrap's picture

Q: How many SEC agent for screw incandescent bulb?

A: None, all is too busy watch porn on government desktop terminal.

(and people is to take serious investigation in HFT? BTFD!)

Tue, 03/05/2013 - 15:46 | 3301808 icanhasbailout
icanhasbailout's picture

The obvious real purpose of this is to eliminate small-time competition to the big players, who will, as usual, remain immune to enforcement.

Tue, 03/05/2013 - 15:49 | 3301826 Joe Davola
Joe Davola's picture

C'mon MDB_, admit it - your posts come from artificial intelligence, not the real stuff.

Tue, 03/05/2013 - 16:26 | 3301947 redpill
redpill's picture

 

* Report notes FBI experts theorize that water may very well be wet

Tue, 03/05/2013 - 17:03 | 3302117 Say What Again
Say What Again's picture

If there was a way to merge the beauty of HFTs with the omnipotence of Drones, we would have a great new technology to replace CRAPPL and save the world.

Tue, 03/05/2013 - 18:35 | 3302517 CH1
CH1's picture

have taken operations beyond the scope of traditional policing

And here we find the purpose of the theatrical performance: More power, more intrusion, more tyranny - always more tyranny.

Tue, 03/05/2013 - 22:28 | 3303394 philipat
philipat's picture

Why not just use Nanex? They watch micro-movements in the markets NOT Porn.

Tue, 03/05/2013 - 16:15 | 3301905 fourchan
fourchan's picture

the rich get richer. the poor go to jail.

Tue, 03/05/2013 - 21:23 | 3303146 TheFourthStooge-ing
TheFourthStooge-ing's picture

Boris Alatovkrap is said:

and people is to take serious investigation in HFT?

Seriously of taking not doing the purpose of HFT investigates. SEC,FBI do are investigating make purpose for distraction with attention diversion from somesuch matter otherwise.

BTFD!

Boris Time For Drinkings! Good call.

Tue, 03/05/2013 - 15:39 | 3301774 nope-1004
nope-1004's picture

Just propaganda.  They used HFT to bring the market back to previous "pre-crisis" levels, where seniors can look at their portfolio and not want to riot.  Then, they bring in the investigation into HFT.  LOL.  Suck it up sheeple.  Look how good the authorities are at bringing "justice".

 

Tue, 03/05/2013 - 17:43 | 3302261 The Heart
The Heart's picture

"Just propaganda."

Ding, ding, ding. We have a winner here folks!@

Distraction Project Wag-the-dog #33.998b sub 913twoZ.

More coming to a theater near you soon.

Bottom line here: Final actions and report coming in 2029.

Tue, 03/05/2013 - 18:10 | 3302400 DeadFred
DeadFred's picture

After a long and comrehensive investigation the conclusion will be that the algos are"just too complicated to follow" and the money just vaporized.

Any HFT that gets taken down will be a competitor to TPTB's algos. Level the playing field by only letting the chosen stay on the field

Tue, 03/05/2013 - 17:51 | 3302259 fudge
fudge's picture

 

 FBI in action  ...   Have Badge Will Chase   :)

Wed, 03/06/2013 - 02:51 | 3303947 All Risk No Reward
All Risk No Reward's picture

>>Flaccid institution attempting to maintain relevance<<

They are extremely relevant - you just don't understand the system in which they operate.

The SEC's job is to protect the criminals who finance the campaigns of the politicians.

Duh!  The porn narrative - it is likely completely false and designed to give you a false narrative as to why they aren't doing the job you think they are supposed to do.

They are actually doing a great job at their true mission - protect the criminal class.  Do you see any JP Morgan or Goldman bankers going to jail?  How about Corzine?

Fully protected - mission accomplished.

We have to stop being establishment gobemouches and realize that the government is run by an international gang of banking mobsters.

They run Debt Money Tyranny right out in the open and the ONLY OUTCOME IS TO BANKRUPT ITS HOST NATION.

http://www.keepandshare.com/doc/4768883/debtmoneytyranny-6-1-pdf-60k?tr=77

The laws that apply to them aren't even laws due to a lack of a penalty...  they think the public is so stupid and such gobemouches that they don't even put penalties into the "laws" that apply to themselves.

http://www.keepandshare.com/doc/3324744/wmdebt-graph-3-79k?dn=y

Most that will read this will be emotionally unable to get upset because they've lost their humanity at some level.  Those charts have been downloaded probably 15,000 times and less than 10 people have bothered to leave a comment.

Pretending we aren't being punked like bitchezzzzz, bitchezzzzz, doesn't make it any less true.

Man up, people.  Man up.  Send those charts out.  Spread the word. 

Stop funding the demons by using cash.

Stop funding the demons by buying small and local.

Stop paying them to lie to you via TV.

Tue, 03/05/2013 - 15:25 | 3301703 malikai
malikai's picture

Bullshit. They're just going to make sure only "approved" HFTs can operate.

This is the beginning of a shakedown.

Tue, 03/05/2013 - 15:29 | 3301729 Ahmeexnal
Ahmeexnal's picture

it's only a cover to explain a sudden crash in the stock markets.
bank holiday in the very near future.

Tue, 03/05/2013 - 15:32 | 3301744 otto skorzeny
otto skorzeny's picture

they're already having a holiday from paying out interest on savings

Tue, 03/05/2013 - 15:51 | 3301832 LMAO
LMAO's picture

Hooooooray, let the wrist-slapping commence !

Tue, 03/05/2013 - 15:29 | 3301730 Confundido
Confundido's picture

Approved HFT = HFT in fiat precious metals.

Tue, 03/05/2013 - 15:51 | 3301833 NotApplicable
NotApplicable's picture

Marks to the left of me. Club members to the right.

Divide and conquer. Good work, if ya can get it.

Tue, 03/05/2013 - 15:55 | 3301846 GolfHatesMe
GolfHatesMe's picture

And any HFT that shorts the market after all the Sheeple $$ is in, is doing God's work

Tue, 03/05/2013 - 16:22 | 3301929 DblAjent
DblAjent's picture

13b shares short on a day the dow hits historic highs supposedly due to record earnings (buy-backs) and muli-quarter growth (none).

What a load of retard turd.

fuck you market

Tue, 03/05/2013 - 17:35 | 3302231 CPL
CPL's picture

Bingo.

Everyone is betrayed, no one wins.

Tue, 03/05/2013 - 18:32 | 3302527 CH1
CH1's picture

Everyone is betrayed, no one wins.

Well, aside from the dicks who run the game.

Tue, 03/05/2013 - 23:14 | 3303553 Boozer
Boozer's picture

CPL - I like the new rasta-ish avatar. 

Tue, 03/05/2013 - 15:27 | 3301716 JustPrintMoreDuh
JustPrintMoreDuh's picture

Oh yeah, I'm going to hold my breath anticipating a quick resolution to this uber clusterfuck ... </sarc> 

Tue, 03/05/2013 - 15:27 | 3301721 Yen Cross
Yen Cross's picture

 That has to be one of the best " Jokes of The day", I've read in a long time... HFTs are parasites for sure, but these guys need a few scapegoats for when the [house of cards] falls. Meanwhile that [Destroyer of Nations] keeps printing away!

Tue, 03/05/2013 - 15:31 | 3301724 otto skorzeny
otto skorzeny's picture

I thought everyone in the FBI was looking for Stacey Peterson and everyone in the SEC was looking for Miss Teen Delaware's porn video?

Tue, 03/05/2013 - 15:28 | 3301725 buzzsaw99
buzzsaw99's picture

Just unplug the co-located servers and done.

Tue, 03/05/2013 - 15:32 | 3301745 chdwlch1
chdwlch1's picture

Update: Due to the Sequester, the FBI and SEC will not be able to conduct any further investigation...

Tue, 03/05/2013 - 18:06 | 3302383 Crash Overide
Crash Overide's picture

Update: The FBI & SEC has discovered massive fraud and manipulation within the HFT framework but prosecuting the firms responsible would destabilize the entire financial system. Also due to sequester cuts we cannot afford to make an official statement, please refer to our previous HSBC comments, good day.

Tue, 03/05/2013 - 15:32 | 3301746 resurger
resurger's picture

Good morning friends...

Tue, 03/05/2013 - 15:32 | 3301748 sitenine
sitenine's picture

Oh sure, let's just eliminate the only mechanism left that is providing any kind of positive ecomic data. Goodbye velocity, goodbye liquidity, goodbye mindless Fed induced ramps, goodbye economy, because banks with billions of dollars worth of cash they just received for toxic MBS will no longer have a way of washing that cash through any kind of investment vehicle that the average Joe won't instantly recognize as fraud. I call bullshit. HFT, right or wrong, is an integral part of how the ponzi works.

Tue, 03/05/2013 - 15:42 | 3301785 chubbyjjfong
chubbyjjfong's picture

+1 Yep, I smell scapegoat

Tue, 03/05/2013 - 15:42 | 3301786 Tortuga
Tortuga's picture

Are you conflicted?

Tue, 03/05/2013 - 15:53 | 3301841 sitenine
sitenine's picture

Me personally, no. I say kill it all. Shut the fucking algos down, and let it all reset with fair offers from buyers and sellers with actual investment motives. But what the fuck do I know?

Tue, 03/05/2013 - 16:00 | 3301855 NotApplicable
NotApplicable's picture

You're missing the point. It's all about WHOSE HFT is integral.

Gotta wipe out the rouges, lest they undermine the fraud in progress.

Oligarchs need security too, you know.

Tue, 03/05/2013 - 16:10 | 3301891 sitenine
sitenine's picture

Indeed. What is so obviously needed here is an extrajudicial kill list, and the POTUS should have the authority to drone strike them at will. Fascism, I mean FORWARD,  bitchezz!

Tue, 03/05/2013 - 17:03 | 3302116 BullsNBeers
BullsNBeers's picture

Hell yeah sitenine. If we back the ponz out of everything we're basically a world full of hobos scratchin our heads wondering what the fuck happened.

HFT's, insider trading, corrupt pol's, lying rating agencies, regulating agencies with agendas, wrist slap fines for club members, ETF manipulation of commodities, the friggin FRB.

Sans all this crap the markets and by extension the broader economy are basically garbage. They will do everything in their power to offset not only moral but also financial responsibility for this and will gladly continue to attempt to ram in down our throat whether it be through further currency devaluation, asset bubbles or obscene tax/confiscation tactics.

 

 

 

Tue, 03/05/2013 - 15:33 | 3301750 The Proletariat
The Proletariat's picture

Somewhere porn is involved in this story....it has to be

Tue, 03/05/2013 - 17:40 | 3302251 DollarMenu
DollarMenu's picture

I think it's in the last line there, where a reference is made to "frontal love."

Wed, 03/06/2013 - 02:55 | 3303951 All Risk No Reward
All Risk No Reward's picture

The porn narrative is a false narrative to keep people like you talking about porn instead of...

OUTING THESE CRIMINALS IN THE SEC AS BEING COMPLETELY CAPTURED BY THE CRIMINALS WHO FINANCE THE ELECTION CAMPAIGNS OF THE CRIMINALS WHO PRETEND TO REPRESENT THE GULLIBLE CITIZENRY.

If people posted this link exposing the exact mechanics of the monetary fraud, whcih is REALITY, instead of laughing about the psy-op flase SEC porn narrative engineered to keep you off their criminal trail...

http://www.keepandshare.com/doc/4768883/debtmoneytyranny-6-1-pdf-60k?dn=y

...well, we'd actually make some progress educating the general gullible population and ignorati, no?

Tue, 03/05/2013 - 15:34 | 3301756 slightlyskeptical
slightlyskeptical's picture

It's the equivelant of painting the tape...an illegal practice. Just call it what it is and ban it all together.

Tue, 03/05/2013 - 16:49 | 3302073 ceilidh_trail
ceilidh_trail's picture

Fed's been doing it for years...

Tue, 03/05/2013 - 15:37 | 3301758 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Day late and a dollar short. Call me when Moe puts some of these assholes behind bars or brings charges against the FED, JPM or GS for market manipulation via HFT trading.

SEC should also be forcing all them to paying a transaction fee on all derivatives trades even if it is only like a 100th of a cent. If you make that transaction fee high enough it slow down the volume of HFT trading.

Tue, 03/05/2013 - 16:23 | 3301932 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

I'll go out on a limb here and even say transaction fees on all individual HFT trades would be politically popular and play well with the populace as long as they don't find out those fees are rigged to never go back towards being used for anything useful except to be conveyored back to people like the FED and JPM through hidden subsidies.

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