Double Whammy Shocker From Goldman Which Is Also Waving Goodbye To The NYSE

Tyler Durden's picture

Long-time readers may recall that in the early days of this website, in addition to HFT, one of our market structure pet peeves was the fact that Goldman Sachs was a Designated Market Maker on the NYSE, reaping various benefits primarily as a result of the firm's role as of one of the only Supplementary Liquidity Providers at the stock exchange - a form of slower HFT "liquidity provider" if you will. Over time, as HFT became all encompassing and as increasingly more trade took place in the HFT domain, Goldman's DMM role became less prominent especially with the arrival of such program traders as Latour Trading.

Why do we bring this up?

Because in what is a true double whammy of market structure stunners from Goldman over the past week, not only has the firm done an about face on HFT (we eagerly await Goldman's pardon of "HFT market manipulator" and former Goldman employee Sergey Aleynikov) and is now actively bashing the high freaks (much to the chagrin of Virtu and its pulled IPO, whose lead underwriter Goldman just happened to be), overnight it was reported that Goldman is also in the process of selling its "designated market-maker" unit to Dutch firm IMC Financial Markets to sell the trading business.

Keep in mind that Goldman bought its presence on the NYSE as part of its 2000 acquisition of Spear Leeds & Kellogg, which it bought for $6.5 billion at the time. Incidentally, we had a few things to say about Goldman's improprieties in this regard too. Recall from our July 2009 article, "Is Goldman Legally Frontrunning Its Clients?":

Everyone who is anyone on Wall Street has at some point used the Goldman 360 portal whether for research, news, keeping a track of prime brokerage portfolio or, disturbingly, for trading, via the REDI Plus 9.0 platform (now loaded with enhanced algo trading features to make life for you, dear soon to be frontran Goldman client, so much easier). A second widely accepted Wall Street concept is that a disclaimer is the last thing that anyone reads, if ever. Yet after taking a close look at the Goldman disclaimer for the 360 portal, which is an umbrella waiver or all downstream websites, including REDI, one discovers the following gem:

 

Monitoring by GS: Your use of the products and services on this Web site may be monitored by GS, and that the resultant information may be used by GS for its internal business purposes or in accordance with the rules of any applicable
regulatory or self-regulatory organization.

 

One second: by using Goldman 360 a client voluntarily allows Goldman to provide keystroke by keystroke data of everything the client does, even if that includes launching trades via REDI, to Goldman for the internal business purposes. The third thing everyone on Wall Street agrees on is that "internal business purposes" usually (and in Goldman's case, almost exclusively) means proprietary trading.

 

Are Goldman 360 clients (in)voluntarily signing off a release to be front ran by Goldman on any portal-based trade? Could Goldman please clarify just what "internal business purposes" means in the context of this overarching disclaimer, and also whether Goldman has ever actually used 360 submitted information in the decision making process of its prop trading desk? Lucas Van Pragg: the floor is yours.

And here are some additional Goldman Sachs and Spear, Leeds and Kellogg form documents that contain an even more crypitc warning in section 4(f) in Use Of Services:

 

You acknowledge that we may monitor your use of the Services for our own purposes (and not for your benefit). We may use the resulting information for internal business purposes or in accordance with the rules of any applicable regulatory or self-regulatory body and in compliance with applicable law and regulation.

 

NOT FOR YOUR BENEFIT? I mean, come on, how more clearer does it need to get.

Anyway, back to the topic at hand and Goldman's disposition of NYSE assets: according to the NYT, Goldman is seeking a paltry $30 million for the DMM post. In other words, a total loss on $6.5 billion in old school assets courtesy of HFT.

Not unexpected.

However, what is unexpected, is the complete transformation Goldman has undergone in in the past several weeks: first Goldman, the bank that everyone else on Wall Street always imitates, waving goodbye to HFT, and now departing the NYSE? 

When the world's most intelligent FDIC-backed hedge fund, pardon, bank says the current market structure is no longer necessary to Goldman, people notice, and promptly imitate.

To be sure - if this is not indicative of a major storm coming for traditional "lit" market structure (as opposed to dark pools of which IEX, until recently, was one and where Goldman has nearly complete dominance with Sigma X), we don't know what is.

Once again: if we were HFT vacuum tubes, we would be sweating nanobullets right about now.

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BTCTalks's picture

They're smart guys (albeit theives). Getting out of the way for a reason... Be long term greedy.

Two-bits's picture

God said to get out from under the safe being lifted above the NYSE.  Lloyd dutifly responds.  

Troll Magnet's picture

Has Lloyd been suicided yet? Or is he one of the ones suiciding others?

Say What Again's picture

Speaking of BATS -

What would happen if, for a given stock, everyone started placing bids (or offers) and then deleted them on BATS. What would this do to the HFT algos operating on BATS?  Would they think someone was really trying to buy (sell) that stock, when in fact, they were just goofing.

NotApplicable's picture

Humans have no capacity to delete orders before an HFT algo had their way with them. Even if you automated it, you're still no where close to being in the same league as co-located servers.

Say What Again's picture

I think you might be missing the point.

If I place a BID, the HFT will raise the BID in front of me.  In fact they raise it by 0.001 (that's a fraction of a penny) or less.  I know this because, like Mr. Katsuyama, I have watched this happen on my own trading platform for the last 5 years. (The only way to really BUY something these days is to hit the ASK.  The only way to really SELL something is to hit the BID.)

So, I don't have to be faster than the HFTs.  I place a bid, and they magically place a bid higher than mine at the same time. But if everyone does this, the HFTs would not know if someone was really trying to buy or not.

percyklein's picture

Can't do subpennies on IEX, can you?

Say What Again's picture

I don't see why not. 

But the only reason to use sub-pennies is to front run, so its rendered useless on IEX.  I currently do not have access to IEX, but I hope to do so soon.

MeelionDollerBogus's picture

Correct. I've done this myself & tested the price-move vs price-difference on time-scales. I estimate how far off the current bid I can be before it actually is going to move to fill and I move farther, much farther.
I just keep moving it to see how quickly they respond & how far the move is. I think that actually helps illuminate for us humans what else is sitting in the market because we can see what the HFT's are willing to do or not do at that moment.

shanearthur's picture

I imagine a scene where the Roadrunner stops running unexpectedly. Naturally, the Coyote thinks he has a shot at him now. He simply doesn't see the ACME anvil falling from above, but the Roadrunner is ever knowing.

ParkAveFlasher's picture

The tension keeps building, doesn't it?  I hope it lasts longer.

MeelionDollerBogus's picture

Only problem is the anvil is the Fed & the Coyote is the 'market'.
It's time to play the music
It's time to pay the bribes
It's time to front-run the Muppets on the Muppet Market tonight.

It's time to put on makeup
It's time to dress up right
It's time to drop the curtain on the Muppet Trades tonight.

Dr. Richard Head's picture

Bring on the equity market crash.....how will treasuries fair in such an environment? 

asteroids's picture

Would you want to be a market maker if you knew the markets where shit and a crash was ineviitable? GS is a survivor.

Dr. Richard Head's picture

GS would simply have the type of company they are considered changed post ipso facto.  They are the government.

Doubleguns's picture

The muppet strings come into focus now.

newsguy68's picture

Fingerprints For Food: Rationing Hits Venezuela As Country Rolls Out Grocery ID Cards

 

 

http://survivalbackpack.us/fingerprints-for-food-rationing-hits-venezuel...

Dr. Engali's picture

Batten down the hatches, we are in for a stormy ride. It's looking like .gov is rolling out those MyRas just in time.

RaceToTheBottom's picture

Anyone know if HFT skimming loses are tax deductable?

Should we expect GS to file 10 years of amended returns with billions of losses due to HFT?

NoDebt's picture

Yes, they are.  And thanks.  You just ruined my day.

RaceToTheBottom's picture

At the risk of going all "If the tree falls in the forest and no-one is there to hear it..." on you, your day was already ruined, you now just realized it....

 

The SQUID does NOTHING without a purpose.  It did this cost benefit calculation a long time ago...

piceridu's picture

Just what do they have up their collective sleeves? Inquiring minds want to know...

SilverIsKing's picture

Brad Katsuyama is now in bed with GS so perhaps he should be sweating bullets.

Dr. Engali's picture

Perhaps they were in bed all along. Nothing financial sees the light of day without the squid's fingerprints all over it.

BandGap's picture

This all looks contrived and far too coincidental, including JPM farting in the Russian's elevator.

Something is up.

Dr. Engali's picture

I agree. Events are speeding up now, and we should be seeing some fireworks soon.

Mediocritas's picture

First mover advantage. IEX's technique is going to become the standard. GS's dark pool is only going to grow as they attract more clients by painting themselves as the good guys, yet nothing changes front-running their own clients out of the pool onto IEX.

ThroxxOfVron's picture

Exactly.  The IEX 'fairness' umbrella will provide cover for GS dark pool muppet mugging.  Before the orders are routed to IEX they will be dunked in the GS dark pool and front-run by the prop trraders.

..Just like a pair of jean tossed in the ( GS dark pool ) washer give up loose change before being sent over to be fluffed in the ( IEX ) dryer.  

 

Dollar Bill Hiccup's picture

ha ha ha ha ha ha ha ha ha ha ha ha ha!

Yes, we laughing at you, bitch!

That would be an easier to read, and understand, disclaimer.

Dewey Cheatum Howe's picture

They know what is coming....

Make money selling drinks on the titanic then make money on selling lifer preservers when it starts sinking.

buzzsaw99's picture

only so they can steal the jewelry off the floating corpses

Dewey Cheatum Howe's picture

Absolutely a jackyl would never turn down the opportunity.

You get the passengers drunk and while they are all fucked up and drunk you quietly put together the life preservers and rafts and jump ship before they start sobering up, the hangover kicks in and realize the ship is sinking. Front run the panic to get off the ship that is what they do, front run everything.

Miss Expectations's picture

They paid off the band with promises of seats on a life boat.  They needed a 45 minute distraction while they ransacked the staterooms.  Then they apparently stole the violin: http://www.cnn.com/2013/10/19/world/europe/titanic-violin-auction/index.html

buzzsaw99's picture

all i know is that it's bonus time for the squid again.

ebworthen's picture

Wonder what their new gig will be?

Surely they have an inside track on some new scam; some way to gin the markets and steal Mom and Pop's savings.

Ignatius's picture

Illicit drugs are a proven profit center.

ParkAveFlasher's picture

...and the first slide of the Power Point will read, "MEXICO".

Seasmoke's picture

So God no longer wants to trade on the NYSE ???

Caviar Emptor's picture

As a long time ZHer I want a round of applause for Tyler on the HFT story: I am a living witness to the ravages of HFT having been ripped off while trading on the correct side during the flash crash. Should have rang the register big only to have been forced into a settlement with broker and exchange. I took my complaints to the limit and found what rotting excrement there was in the markets. All smoke in mirrors. Bids and offers were all fake

Well done Tyler!

Skin666's picture

Zero Hedge is also approaching 200k users on Twitter.

 

That is pretty impressive for a 'conspiracy theory' tin foil hat paranoid blogger.

 

You are the best Tyler(s)

 

 

El Hosel's picture

... 200,000 down, 300 million to go. Were going to need a bigger server.

Skin666's picture

I used to hate Twitter, but now I love it. Not for the cat pictures or the sad cunts that tweet the content of their breakfast every morning, but that in today's vapid, attention deficit twilight zone bizzaro world, every cunt's on twitter.

 

So when ZH pumps out Grade A financial information on twitter, people find it, and are increasingly re-tweeting it. This is how you destroy TPTB. With the TRUTH, and through mockery and sarcasm and the power of social media. And it's working...

 

 

inky's picture

Thank god for the internet

agstacks's picture

Yup, for sure.  I had fun lighting up that Psaki bitch last week.  And #AskJPM as well.  +1

Skin666's picture

#BernankeBookTitles was my favourite!

 

Zen and the Art of Helicopter Maintenance had me laughing for days

Caviar Emptor's picture

As a long time ZHer I want a round of applause for Tyler on the HFT story: I am a living witness to the ravages of HFT having been ripped off while trading on the correct side during the flash crash. Should have rang the register big only to have been forced into a settlement with broker and exchange. I took my complaints to the limit and found what rotting excrement there was in the markets. All smoke in mirrors. Bids and offers were all fake

Well done Tyler!

The Abstraction of Justice's picture

That is the key, both the buyers and the sellers are the same people, and they use HFT to cancel unwanted trades, front-running the trade requests from the chumps.

 

Campaign to sue them is here:

 

https://www.indiegogo.com/projects/silver-manipulation-anti-trust