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Exposing Wall Street's Hidden "Code"

Tyler Durden's picture




 

Having been the first to warn the world about the perils of high frequency trading nearly 5 years ago, when momentum ignition, layering and quote stuffing were still incomprehensible buzzwords to all but a select few algo traders from Citadel, GETCO and DE Shaw, and warning about such top-down systemic lock ups like flash-crash over a year in advance; as well as the bottom-up impacts of 20 year old math PhDs being in charge of market topology, our crusade from the micro has since shifted to the macro and the primary nemesis of all that is free and fair, the Federal Reserve. In the intervening years, traders such as Haim Bodek opened the HFT kimono even more publicly a few years ago. The following is a must-watch documentary for every investor and trader to comprehend just what it is (and who it is) that drives stock prices day in and day out.

 

The Dark (Pool) Truth About What Really Goes On In The Stock Market Part 1

“I’ll show you how it works.”

 

The rep told Bodek about the kind of orders he should use - orders that wouldn’t get abused like the plain vanilla limit orders; orders that seemed to Bodek specifically designed to abuse the limit orders by exploiting complex loopholes in the market’s plumbing. The orders Bodek had been using were child’s play, simple declarative sentences sent to exchanges such as “Buy up to $20.” These new order types were compound sentences, with multiple clauses, virtually Faulknerian in their rambling complexity.

 

The end result, however, was simple: Everyday investors and even sophisticated firms like Trading Machines were buying stocks for a slightly higher price than they should, and selling for a slightly lower price and paying billions in “take” fees along the way.

 

Bodek felt sick to his stomach. “How can you do that?” he said.

 

The rep laughed. “If we changed things, the high-frequency traders wouldn’t send us their orders,” he said.

 

The Dark (Pool) Truth About What Really Goes On In The Stock Market Part 2

The game had changed. Bodek became increasingly convinced that the stock market—the United States stock market—was rigged. Exchanges appeared to be providing mechanisms to favored clients that allowed them to circumvent Reg NMS rules in ways that abused regular investors. It was complicated, a fact that helped hide the abuses, just as giant banks used complex mortgage trades to bilk clients out of billions, in the process triggering a global financial panic in 2008. Bodek wasn’t sure if it was an outright conspiracy or simply an ecosystem that had evolved to protect a single type of organism that had become critical to the survival of the pools themselves.

 

Whatever it was, he thought, it was wrong.

 

The Wall Street Code

 

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Mon, 11/04/2013 - 19:56 | 4120687 Racer
Racer's picture

They have rigged the system so they have 100% winning 'trades' so they don't even bother to hide their criminality any longer because they know they can get away with only a tiny fine that is just a cost of doing crime, uh, business.

Mon, 11/04/2013 - 23:43 | 4121463 blindman
blindman's picture

the market. the "market" is a bloody corpse
being fed to parasites and vultures, nothing more.
the food chain become an abomination of ecology
formed to strip mine the landscape and everything
that might appear on it in complete ignorance of
balance and natural symmetry and art; aka evolved western
civilization in collapse.
frat brother vision or blindness, pick one.
.
anyway poems *t

Mon, 11/04/2013 - 20:03 | 4120701 Ban KKiller
Ban KKiller's picture

What a minute...you mean Wall Street is RIGGED? Wow, that IS news!

Ummm....no. Always was rigged. Just another reminder of the facts. 

Mon, 11/04/2013 - 21:06 | 4120875 El Oregonian
El Oregonian's picture

"If you like your 'trading arrangements' you can keep it"...

 

Mon, 11/04/2013 - 20:03 | 4120702 NOTaREALmerican
NOTaREALmerican's picture

"It was wrong". 

Wrong is for children.  If you're an adult there's only:  what's in it for me.   The adults tell the children what's "wrong".   The adults manipulate the dumbasses by creating bullshit about what is wrong.      Look, there's a genital in the "wrong" place.   Vote for me and I'll make sure it's "moral" again.  

Wrong.   What a bunch of children. 

Mon, 11/04/2013 - 22:31 | 4121193 Alpha Monkey
Alpha Monkey's picture

I'm sorry you can't think outside of yourself.  Somehow though, that seems rather immature to me, or "childish" as you put it.

Mon, 11/04/2013 - 20:06 | 4120704 Alcoholic Nativ...
Alcoholic Native American's picture

Let us hope they don't figure out how to just skip trading all together and just start depositing credits into their account.   We might have more than one FED on our hands.

Mon, 11/04/2013 - 20:11 | 4120718 JohnG
JohnG's picture

Damn you Wadell & Reed!!

Mon, 11/04/2013 - 20:15 | 4120731 prains
prains's picture

if it's NOT rigged, there's no "profit" in it because that's what makes the world turn, profit for the few at the expense of the many......but oh wait, they deserve it because they're sooooo much smarter and work soooo much harder LOFL !!

 

there's actually bags of skin on this site that STILL think that's the way it is....fuck me, it's almost too stoopid to believe anymore

Mon, 11/04/2013 - 20:31 | 4120771 Bay of Pigs
Bay of Pigs's picture

What a disgusting mess. Burn it all to the ground with the FED.

Mon, 11/04/2013 - 20:39 | 4120783 fonzannoon
fonzannoon's picture

It's no worse than doctors who prescribe people medications based on last nights steak dinner courtesy of some drug company sales rep.

Guillotines. Until then, nothing changes.

Mon, 11/04/2013 - 22:06 | 4121112 Bear
Bear's picture

Burning is too good for this scum 

Mon, 11/04/2013 - 20:43 | 4120798 IndyPat
IndyPat's picture

I thought this was going be a piece on the Kabbalah or maybe someone found Corzine's secret HelloKitty diary or something. Oh well, yeah...that Algo shits a drag too.

Mon, 11/04/2013 - 20:48 | 4120820 pragmatic hobo
pragmatic hobo's picture

thanks for posting this ... very good video. What is clear is the capital market is not unlike our healthcare system, layer upon layer of middle man companies leeching off buyer and seller, raising cost for end users without providing any discernable benefit. However, unlike healthcare system, the solution to eradicating these leeches from capital market is as simple as banning sub-penny trading and going back to nickle trades. That will shutdown HFT over night.

Mon, 11/04/2013 - 20:51 | 4120827 Seasmoke
Seasmoke's picture

You can't lose. And the few times you do , they just cancel all the trades.

Mon, 11/04/2013 - 21:01 | 4120853 Dickweed Wang
Dickweed Wang's picture

"Watching it [the flash crash in progress] was worse than 9/11 . . . . ."

This statement shows everyone where that MOTHERFUCKER'S priorities and morals are.  These guys are scum from the top to the bottom.

Mon, 11/04/2013 - 22:29 | 4121179 El Tuco
El Tuco's picture

You may have misunderstood what he said or at least what he meant. He was speaking about the way the market reacted and not that the 2008 flash crash was worse than 911.

Was Edward Snowden scum for participating in the spying that was going on? Are these guys scum in trying to tell the world that there is something seriously wrong with Wall ST?

I don't have an answer but if I were to blame anyone it would be the SEC. Those are the cocksuckers that knowingly allow the shenanigans to continue unabated.

 

Mon, 11/04/2013 - 21:08 | 4120876 Running On Bing...
Running On Bingo Fuel's picture

7 Biblical Money Truths - Pastor Reveals a 'Biblical Money Code'
Turns $40,000 into $396K
http://www.newsmax.com

Try it it works. God prefers supply-side economics.

Over.

Mon, 11/04/2013 - 21:11 | 4120898 Running On Bing...
Running On Bingo Fuel's picture

God is watching you down_voters.

Mon, 11/04/2013 - 21:33 | 4120979 Dr. Bonzo
Dr. Bonzo's picture

Gods is watching? Really? Right about now would be a prettttty good time for God to get off his fat ass, stop watching, and and start dishing out some of that biblical retribution he's so well known for.

Any time.....

Mon, 11/04/2013 - 21:33 | 4120981 Dr. Bonzo
Dr. Bonzo's picture

Gods is watching? Really? Right about now would be a prettttty good time for God to get off his fat ass, stop watching, and and start dishing out some of that biblical retribution he's so well known for.

Any time.....

Mon, 11/04/2013 - 22:29 | 4121186 El Tuco
El Tuco's picture

Leave God out of this. It's the Devils game....

Mon, 11/04/2013 - 21:15 | 4120910 prains
prains's picture

 Pastor Reveals a 'Biblical Money Code'

 

Yes, it's called 'Give Me Your Money or Burn in a Fake Imaginary Hell That Does Not Exist But You're Too Stoopid To Know Anyway'

Mon, 11/04/2013 - 21:24 | 4120942 Running On Bing...
Running On Bingo Fuel's picture

Now, now. We have etiquette rules around here.

Over.

Mon, 11/04/2013 - 21:27 | 4120951 prains
prains's picture

Hypocrisy needs no ettiquette

Mon, 11/04/2013 - 21:39 | 4121008 Running On Bing...
Running On Bingo Fuel's picture

From your mouth to Gods ears.

Over.

Tue, 11/05/2013 - 00:41 | 4121696 prains
prains's picture

LOL, you are truly a fool

Tue, 11/05/2013 - 05:21 | 4122017 Squid-puppets a...
Squid-puppets a-go-go's picture

the reason your god has made such a fucked up planet is because he was molested as a child deity by the Flying Spaghetti Monster's noodly appendage.

You know that, dont you?

Tue, 11/05/2013 - 09:52 | 4122443 exi1ed0ne
exi1ed0ne's picture

Wow, you must be new.  Welcome to the Internet!  Stock up on mind bleach, skin thickener, and vomit bags.  Oh, and whatever you do don't image search for "Rule 34".

Mon, 11/04/2013 - 21:07 | 4120877 RaceToTheBottom
RaceToTheBottom's picture

I loved one of the WS apologists saying well the SEC should catch them.  You cannot expect them to manage themselves.....  or some crap like that.  Shoot someone in the face, watch it explode, and say until you are charged and convicted you have not done anything wrong.... Asshats

 

All you had to do is watch what citadel paid for when they bought these firms (lots) and you know they are going to expect to make money....  They are not doing it out of good will....  They are doing it to scrape pennies, multiplied by millions.

Mon, 11/04/2013 - 21:27 | 4120956 Dr. Bonzo
Dr. Bonzo's picture

Dude was a card shark in Vegas and supposedly made his fortune there. But he apparently never learned the cardinal rule: you can sheer a sheep many times, but skin it only once.

The sheep done been skinned dumbasses. It never seizes to amaze me how fucking dumb really bright people can actually be. And they themselves never seem to get it.

Mon, 11/04/2013 - 21:37 | 4120988 Luke 21
Luke 21's picture

There was only one takeaway from this video: A select group of HFTs are able to enter order types that put them in front of everyone else's orders. Very interesting if its true and it probably is but...

How can Billy Corgan prove this? Any schmuck can tell you how smart he is and then just say there are different order types that no one else has access to. How can you prove that statement? Or at least put forth some evidence that this belief is based on. I have no doubt Billy Corgan is right but it would have been nice for the video to get into why he is right.

 

 

Mon, 11/04/2013 - 22:41 | 4121214 El Tuco
El Tuco's picture

I think he explained it pretty well. When you're in line to buy something and the 3 guys in various places in the line behind you get their orders filled first then there is something obviously going on. He mentions something about their ability to attach some sort of marker to their order that gives them priority.

Considering most folks can't even ingest this short clip accurately, I would think it futile for the characters to go into anymore detail then they did.

 

 

Tue, 11/05/2013 - 00:59 | 4121733 FiatFapper
FiatFapper's picture

They must use the FIX Protocol (Industry-Driven Messaging Standard) to send obfuscated messages.

The Financial Information eXchange ("FIX®") Protocol is a series of messaging specifications for the electronic communication of trade-related messages.

Tue, 11/05/2013 - 08:22 | 4122163 StandardDeviant
StandardDeviant's picture

You're focusing on the wrong layer, FF.

FIX is an innocuous presentation-layer protocol, not at all obfuscated.  It's composed of plain ASCII text, human-readable, tag=value, etc.  Specs are freely available from the FIX Protocol Organization.  Think of it as XML, or PDF.

The interesting bit is not the message format, but the content -- the proliferation of complex order types described in the interview.  That's where the opportunity for game-playing really occurs.

(I doubt there's a lot of FIX_based HFT, anyway.  Many exchanges are moving away from FIX in favour of proprietary, binary protocols.  But that's mainly for speed, and for simplicity of processing, not obfustication.  Documentation for these protocols is usually fairly good, and freely available.  There are stories about undocumented order types, however, which is a whole other thing...)

Mon, 11/04/2013 - 21:37 | 4120989 Sathington Willougby
Sathington Willougby's picture

Put on your big boy pants, daddy's ivory tower friends aren't saving the world.  They're just pawns and livestock like the rest of us.

Mon, 11/04/2013 - 22:21 | 4121160 Bear
Bear's picture

The only thing I got out of this whole clip is ... "don't be short on Tuesday" in the last 10 seconds and as The Bear on ZH, I already knew that Tuesday is the day to hibernate

Mon, 11/04/2013 - 22:21 | 4121162 blindman
blindman's picture

esf.
what did he say? "it is just a few lines of code."

Mon, 11/04/2013 - 22:33 | 4121202 blindman
blindman's picture

http://www.zerohedge.com/news/presenting-exchange-stabilization-fund-5-p...
Presenting The Exchange Stabilization Fund In 5 Parts: Is This The Real "Plunge Protection Team"?
Tyler Durden's pictureSubmitted by Tyler Durden on 01/01/2012

Mon, 11/04/2013 - 23:05 | 4121290 Bay of Pigs
Bay of Pigs's picture

Reading through the comments there. What ever happened to ekm, Gully Foyle, Precious, Trav7777, HighPlainsDrifter, etc....?

Sure seems a lot of old timers have packed it in around here the last year or two.

Mon, 11/04/2013 - 23:08 | 4121302 fonzannoon
fonzannoon's picture

It's over BOP. I have no idea why i am around at this point. It's an empty echo chamber. There's a few people I have a soft spot for on here. I would like to know where the oldtimers have moved on to. Or if they just sit there with a beer and watch a ballgame now. Knowing they were right but somehow time stood still.

Mon, 11/04/2013 - 23:23 | 4121319 blindman
blindman's picture

comment blogging is thankless and not for the faint of heart!
you have to be crazy to sustain the focus over time, that is
all i can figure. and i-dog ! and then who knows, we don't
live forever, right?
maybe they are starting the revolution in their
families and communities, setting the foundation
stones or deconstructing the illusions?

Tue, 11/05/2013 - 09:46 | 4122421 falak pema
falak pema's picture

...comment blogging is thankless and not for the faint of heart!...

Now that is poetic and I hope also nearer to truth than it is to legend!

Who needs thanks if you can learn from others. Its giving thanks the name of the game; not receiving.

Mon, 11/04/2013 - 22:43 | 4121227 GottaBKiddn
GottaBKiddn's picture

The part I don't get is when Bodek says that he doesn't think that he's up against the mafia. Really?

Mon, 11/04/2013 - 23:48 | 4121482 blindman
blindman's picture

Ignorance is Bliss - Scene from the Matrix
http://www.youtube.com/watch?v=l5y68ErffgM
.
"..you know, someone important, like an actor." ...
"whatever you want mr ..." agent smith

Mon, 11/04/2013 - 23:52 | 4121501 thewayitis
thewayitis's picture

 

  All about GREED.....Move along

 

 

Tue, 11/05/2013 - 01:59 | 4121837 Jonny poor boy
Jonny poor boy's picture

So this guy builds what is essentially an arbitrage model to work inside the bid/offer spread and this kind of activity is not available to most of the market place but thats ok, he makes a ton of money and then someone else comes along and builds a better arbitrage model in the same space and now he isnt part of the club any more .....and somehow now its wrong???......being smart does not infer greatness or in fact an ability to be correct all of the time. That guy just couldnt take the lesson that was handed to him and took all of his toys out of the sandpit and went and told the teacher on the other kids who just wanted to play in the same sand pit.....boohoo welcome to the world the rest of us live in

Tue, 11/05/2013 - 08:09 | 4122131 El Tuco
El Tuco's picture

For fuck sakes is everyone brain dead on this site? He is NOT complaining about his algo vs someone else's. He goes out of the way several times to say if that's all it was then fine. What he is complaining about is that it doesn't matter where some people stand in line to get an order filled they will always be first since there is something more than an algo involved.

There are entities out there that have been given (by someone) access/priority to the exchanges that no one else has. Maybe I can make it more simple for you,  like someone giving you the lotto numbers a day before the draw.....

Now go back to watching dancing with the stars you dumb fuck.

Tue, 11/05/2013 - 08:22 | 4122165 Jonny poor boy
Jonny poor boy's picture

i suggest you listen again and try a little harder to understand how these algos work, they see what the others cant, they operate inside the bid offer spread.....thats their advantage ....back to the drawing board for el fuco

 

Tue, 11/05/2013 - 10:02 | 4122488 El Tuco
El Tuco's picture

Did you even watch the video you fucking retard. Algo's aren't the issue he is complaining about. The issue is jumping the cue you dumb fuck. I suggest you watch the video again cum guzzler.

Tue, 11/05/2013 - 16:01 | 4123839 Jonny poor boy
Jonny poor boy's picture

Now look I get it you are a literalist knuckledragger but howdo you suppose this guys algo worked as he and the other guy says within the bid offer spread? I dont want to hold you up, so,best you run along back to the prison kitchen(after all the potatoes won't peel themselves, and  the warden wont need to worry about you spending so long on the internet).... when you figure(some of) this out and manage to join a few dots let me know. We can introduce some colours into the next step..... you will really like it when a whole sentance makes sense

Tue, 11/05/2013 - 03:23 | 4121942 ItsDanger
ItsDanger's picture

Interesting video.  They kind of gloss over the method of how they know when and which stock to jump the queue (eg. 200,000 order for XYZ stock by a pension plan). 

Tue, 11/05/2013 - 09:06 | 4122230 falak pema
falak pema's picture

Great video, thank you Tyler for educating us about dark pools and Hft quanting and the insider bubble of WS shenanigans with is awesome INFRASTRUCTURE support showing that the SYSTEM is totally complice in this elitist deviation.

The rule makers of WS and their Congressional friends have to be party to the blue print, which OSTENSIBLY 90% of the financial community is alleged to NOT UNDERSTAND. Well not every body can be part of 1% !

That's the AIM of the pryamid builders. What this video does not address is the INCEPTION of the scheme, the teaching, the structuring of the SYstem to build the quant base in top schools around the world; by the architects of "fast track finance", all spewd in the shadow banking of Reaganista deregulation and Maggie City farm. Those guys knew HOW to build the race track for the high 'formula one' fliers! "Our new best and brightest BUSINESS MODEL".

Just like it is for its counter part in that other scam the NSA information pyramid built on similar Internet technology Hijacking.

You have to be in the INNER circle of power to be party to these blue prints and subsequent plays; whether they be MIC/NSA, WS/SQUID and HFT, OIL Lobby and ME, Agribusiness, GMO food chain etc. etc. etc.

All elitist clubs of Pax Americana's unassailable hubristic mantra. We are UNATTAINABLE on Mount Olympus! 

Many issues come to mind :

1° Value Systems : The father belonged to the illuminati community, the nuclear bomb generation, believing they were doing Humanity a service. Maybe, Oppenhiemer's toy did stop major wars but it fueled the MIC crap show in regional wars; aka Nam, Irak, Pak/afgh, Libya, Syria; just to mention where the CIA has made its mark.

The son works for improving financial capitalism and gets involved in the biggest sheist to milk the market and Pension and Mutual funds on the quiet. And we see where this has gotten us : the end of US capitalism model.

It took that guy Boden to lose his firm thru unfair queue jumping to wake up and that other guy the 2010 flash crash for the click button to operate in his head. Reality wake up calls always have a price and a bitter spice.

Quant wars and MIC wars are signs of the same corruption; a civilization estranged from the essential; simple rules of ethics and general good. We never learn is the sad conclusion.

2° Regulation and Monopoly markets.

This whole video shows us how the auto regulating market is a myth in HUMAN constructs. No such thing as EFFICIENT MONOPOLY SYSTEMS. Why be efficient when you can change the rules for yourself. That is the ULTIMATE form of efficiency; having a tilted table to play on!

Thats what kings did, build monopolies based on faith confiscation : divine rights; can't argue with that, its God's will! 

In a Republic which is a bottom up construct run by an elected elite to serve the base, the regulation should be on a basis of general interest. It never is 'cos Oligarchies are the expression of induced Entropy dissemination hidden under the garb of law and order. This is not normal decay that the base can see,  this is FORCED fed decay that is hidden to their eyes.

When your Mindset is to allow the SECRET code to RUN the OVERT legal code you are indeed in deep shit, as the average citizen can't tell crap from shine hole until its too late and the damage is done to society.

This video is an awesome manifestation of both principles : Debased value systems and debased regulation as IMPOSED in manufactured, occulted systems, all from behind the curtain; with the complicity of law maker and law sayer!

Tue, 11/05/2013 - 09:20 | 4122334 kralizec
kralizec's picture

Dewey Fuqyu & Howe.

Tue, 11/05/2013 - 10:15 | 4122557 esum
esum's picture

wink and nod trumps MIT PHD every time... 

Tue, 11/05/2013 - 10:18 | 4122565 esum
esum's picture

Ross Perot wanted to automate the NYSE in 1970... they politely told him to FUCK OFF

Tue, 11/05/2013 - 10:25 | 4122586 esum
esum's picture

SEC prefers PORN to QUANT

Tue, 11/05/2013 - 12:50 | 4123094 Basilian
Basilian's picture

This is great BUT look at "The day the robots Lost" in Bloomberg and it will show you the scarrier truth. In that article you see little pin pricks all over the chart which are HFT and then you see huge balls and all of these dots represent the gains made on that day. All the tiny dots are HFT and all the huge balls are governement insider trading---so HFT guys at least work hard for thier stolen earnings and also reveal an even more disgusting theft that is ongoing and not spoken of. HFT guys pulled the curtain on the government.

Tue, 11/05/2013 - 12:51 | 4123095 Basilian
Basilian's picture

This is great BUT look at "The day the robots Lost" in Bloomberg and it will show you the scarrier truth. In that article you see little pin pricks all over the chart which are HFT and then you see huge balls and all of these dots represent the gains made on that day. All the tiny dots are HFT and all the huge balls are governement insider trading---so HFT guys at least work hard for thier stolen earnings and also reveal an even more disgusting theft that is ongoing and not spoken of. HFT guys pulled the curtain on the government.

Tue, 11/05/2013 - 16:37 | 4123985 Jonny poor boy
Jonny poor boy's picture

I am not a fan of of algos but thier relative simpliity(lack of humanity) makes them easier to understand, during Bear Sterns and Lehman's market ructions I saw the an old associate dissemble several algo's, this single individual exists somewhere on the autistic spectrum and while previosly making a very handsome income, took several algo's apart and in doing so reaffirmed the the human experience to quite a few other traders.  Having said that, I dont wish to take away from Basilians point that the market was "bent" at the time and it appeared quite obvious!

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