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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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.

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

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. 

El Oregonian's picture

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

 

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. 

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.

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.

JohnG's picture

Damn you Wadell & Reed!!

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

Bay of Pigs's picture

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

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.

Bear's picture

Burning is too good for this scum 

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.

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.

Seasmoke's picture

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

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.

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.

 

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.

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.....

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.....

El Tuco's picture

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

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'

Running On Bingo Fuel's picture

Now, now. We have etiquette rules around here.

Over.

prains's picture

Hypocrisy needs no ettiquette

Running On Bingo Fuel's picture

From your mouth to Gods ears.

Over.

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?

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".

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.

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.

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.

 

 

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.

 

 

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.

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...)

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.

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

blindman's picture

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

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

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.

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.

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?

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.

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?

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

thewayitis's picture

 

  All about GREED.....Move along

 

 

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

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.

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

 

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.