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"HFT Is A Growing Cancer" Says Mom And Pop's Favorite Retail Broker Charles Schwab

Tyler Durden's picture


On one hand CNBC does its darnedest to refute Michael Lewis' claim that markets are rigged (even if it woefully does so by showcasing the most clueless "defenders" it can afford), and yet on the other "mom and pop's" preferred retail broker Charles Schwab, just came out and slammed HFT as a "growing cancer that needs to be addressed." Hmmm.... who to believe?

From Charles Schwab:

High-frequency trading is a growing cancer that needs to be addressed

April 3, 2014

Schwab serves millions of investors and has been observing the development of high-frequency trading practices over the last few years with great concern. As we noted in an opinion piece in the Wall Street Journal last summer, high-frequency trading has run amok and is corrupting our capital market system by creating an unleveled playing field for individual investors and driving the wrong incentives for our commodity and equities exchanges. The primary principle behind our markets has always been that no one should carry an unfair advantage. That simple but fundamental principle is being broken.

High-frequency traders are gaming the system, reaping billions in the process and undermining investor confidence in the fairness of the markets. It’s a growing cancer and needs to be addressed.  If confidence erodes further, the fuel of our free-enterprise system, capital formation, is at risk. We can’t allow that to happen. For sure, we still believe investing in equities is a primary path to long-term wealth creation, and we believe in the long-term structural integrity of the markets to deliver that over time for individual investors, which is all the more reason to be vigilant in removing anything that creates unfair advantage or undermines investor confidence.

On March 18, New York Attorney General Eric Schneiderman announced his intention to “continue to shine a light on unseemly practices in the markets,” referring to the practices of high-frequency trading and the support they receive from other parties including the commodities and equities exchanges. He has been a consistent watchdog on this matter. We applaud his effort and encourage the SEC to raise the urgency on the issue and do all they can to stop this infection in our capital markets. Investors are being harmed, and they shouldn’t have to wait any longer.

As Michael Lewis shows in his new book Flash Boys, the high-frequency trading cancer is deep. It has become systematic and institutionalized, with the exchanges supporting it through practices such as preferential data feeds and developing multiple order types designed to benefit high-frequency traders. These traders have become the exchanges favored clients; today they generate the majority of transactions, which create market data revenue and other fees. Data last year from the Financial Information Forum showed this is no minor blip. High-frequency trading pumped out over 300,000 trade inquiries each second last year, up from just 50,000 only seven years early. Yet actual trade volume on the exchanges has remained relatively flat over that period. It’s an explosion of head-fake ephemeral orders – not to lock in real trades, but to skim pennies off the public markets by the billions. Trade orders from individual investors are now pawns in a bigger chess game.

The United States capital markets have been the envy of the world in creating a vibrant, stable and fair system supported by broad public participation for decades. Technology has been a central part of that positive story, especially in the last 30 years, with considerable benefit to the individual investor. But today, manipulative high-frequency trading takes advantage of these technological advances with a growing number of complex institutional order types, enabling practitioners to gain millisecond time advantages and cut ahead in line in front of traditional orders and with access to market data not available to other market participants.

High-frequency trading isn’t providing more efficient, liquid markets; it is a technological arms race designed to pick the pockets of legitimate market participants. That flies in the face of our markets’ founding principles. Historically, regulation has sought to protect investors by giving their orders priority over professional orders. In racing to accommodate and attract high-frequency trading business to their markets, the exchanges have turned this principle on its head. Through special order types, enhanced data feeds and co-location, professionals are given special access and entitlements to jump ahead of investor orders. Last year, more than 95 percent of high-frequency trader orders were cancelled, suggesting something else besides trading is at the heart of the strategy. Some high-frequency traders have claimed to be profitable on over 99 percent of their trading days. Our understanding of statistics tells us this isn’t possible without some built in advantage. Instead of leveling the playing field, the exchanges have tilted it against investors.

Here are examples of the practices that should concern us all:

  • Advantaged treatment: Growing numbers of complex order types afford preferential treatment to professional traders’ orders, most notably to jump ahead of retail limit orders.
  • Unequal access to information: Exchanges allow high-frequency traders to purchase faster data feeds with detailed information about market trading activity and the specific trading of various types of market participants. This further tilts the playing field against the individual investor, who is already at an informational disadvantage by virtue of the slower Consolidated Data Stream that brokers are required by rule to purchase or, even worse, the 15- to 20-minute-delayed quote feed they have public access to.
  • Inappropriate use of information: Professionals are mining the detailed data feeds made available to them by the exchanges to sniff out and front-run large institutions (mutual funds and pension funds), which more often than not are investing and trading on behalf of individual investors.
  • Added systems burdens, costs and distortions of rapid-fire quote activity: Ephemeral quotes, also called “quote stuffing,” that are cancelled and reposted in milliseconds distort the tape and present risk to the resiliency and integrity of critical market data and trading infrastructure.  The tremendous added costs associated with the expanded capacity and bandwidth necessary to support this added data traffic is ultimately borne in part by individual investors.

There are solutions. Today there is no restriction to pumping out millions of orders in a matter of seconds, only to reverse the majority of them. It’s the life-blood of high-frequency trading. A simple solution would be to establish cancellation fees to discourage the practice of quote stuffing. The SEC and CFTC floated the idea last year. It has great merit. Make the fees high enough and they will eliminate high-frequency trading entirely. But if the practice is simply a scam, as we believe it is, an even better solution is to simply make it illegal. And exchanges should be neutral in the market. They should stop the practice of selling preferential access or data feeds and eliminate order types that allow high-frequency traders to jump ahead of legitimate order flow. These are all simply tools for scamming individual investors.

The integrity of the markets is at the heart of our economy. High-frequency trading undermines that integrity and causes the market to lose credibility and investors to lose trust. This hurts our economy and country. It is time to treat the cancer aggressively.

Charles Schwab, Founder and Chairman
Walt Bettinger, President and CEO


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Thu, 04/03/2014 - 10:01 | 4620954 Rakshas
Rakshas's picture

Cancer?? but but ......


yeah file that under no shit sherlock

Thu, 04/03/2014 - 10:04 | 4620976 spastic_colon
spastic_colon's picture

he said " system......"  how out of touch is this guy?

Thu, 04/03/2014 - 10:06 | 4620982 negative rates
negative rates's picture

As if there wasn't enough cancer already, here comes the HFT.

Thu, 04/03/2014 - 10:30 | 4621053 VD
VD's picture

this open letter to investors could also be about The Federal Reserve...actually, The Fed is even worst than HFT!

Thu, 04/03/2014 - 10:31 | 4621060 Beam Me Up Scotty
Beam Me Up Scotty's picture

HFT is bad, but how about credit cards and Master/Visa, Discover and Amex?  Thats a 2.5% skim on every transaction.  That produces NOTHING.  Its a huge tax on business, for the benefit of the big banks.  And everyone thinks thats OK. 

Thu, 04/03/2014 - 10:35 | 4621071 cifo
cifo's picture

Tyler, thanks for the very suggestive image.

Thu, 04/03/2014 - 11:08 | 4621202 fonestar
fonestar's picture



Blame Assad.... FAIL

Blame Putin.... FAIL

Blame HFT vacuums.... YES!!!

Thu, 04/03/2014 - 11:13 | 4621223 VD
VD's picture

Blame the most malignant cancer in 'marketz' = The Fed..... FAIL

Thu, 04/03/2014 - 11:55 | 4621363 Looney
Looney's picture

And why exactly Chucky has come out of his closet TODAY and not a week, a month, a year, or FIVE YEARS AGO?

Has he just learnt about it from Michael effin’ Lewis’ book? Chucky ain’t no better than CNBC-Bloomshit-FOX-SEC-CFTC. They all are bloody cunts. I think? ;-)


P.S. I'm tryin' on a British accent today ;-)

Thu, 04/03/2014 - 13:22 | 4621648 TruthHunter
TruthHunter's picture

"And why exactly Chucky has come out of his closet TODAY "


Chucky probably found out from his IT dept that he had lost the arms race

Play til you get beat, then tattle.

Thu, 04/03/2014 - 11:50 | 4621367 Four chan
Four chan's picture

10 years gone down a road and NOW they want to point out theres a problem with this scalping and front running?

thats rich.

Thu, 04/03/2014 - 10:38 | 4621083 Confused
Confused's picture

No. I think you'd find most here are not ok with it. Or business' that only accept cash. Those are also not ok paying those fees (and avoiding taxes, haha). But thats a different topic. You choose to pay/accept cards. There is NO choice here. You are being scalped. 


This will be spun as a Retail Broker covering their bad decisions by blaming others. 

Thu, 04/03/2014 - 10:37 | 4621086 fightthepower
fightthepower's picture

Consumers and businesses make a choice to pay the fees for the convience.  No consumer is given the choice to be front run by HFT. 

Thu, 04/03/2014 - 10:53 | 4621138 Beam Me Up Scotty
Beam Me Up Scotty's picture

You have a choice not to buy stocks too. I realize most people here understand how those fees impact consumers. Most sheep have no idea. Again, it's an insidious form of skim. That's all I am trying to point out.

Thu, 04/03/2014 - 11:04 | 4621190 SWRichmond
SWRichmond's picture

These jerks "perhaps" knew about this all along but "perhaps" now with it going public they must act as if they give a fuck in order to appear concerned and convince their muppets not to yank money out of their accounts and make them lose the commish.

Thu, 04/03/2014 - 12:15 | 4621438 alexromanl
alexromanl's picture

HFT is basically a tax that you pay on your transactions.  They should just publicly disclose the cost per trade and we would all be happy.  Retail investors have been taken advantage for millenia, this is just the latest iteration.  After HFTs are "regulated" and put into the mainstream (with Virtu's IPO, you can participate now in the wealth creation that they generate), a new thing will pop-out... perhaps traditional ponzi-schemes or bank robberies will make front news again.

Thu, 04/03/2014 - 10:31 | 4621056 Bananamerican
Bananamerican's picture

"Grandpa, what's a free-enterprise system? And, can I have another bailout cookie please?"

Thu, 04/03/2014 - 10:39 | 4621062 El Oregonian
El Oregonian's picture


What? the "bottom-feeders" are now starting to complain of starving because the independent investor carnage floating to bottom of the sea floor is starting to dwindle?

Thu, 04/03/2014 - 10:32 | 4621065 MedTechEntrepreneur
MedTechEntrepreneur's picture

Lets not forget...the real "cancer" is the Fed and the Federal Leviathan...

They make HFT's look like Boy Scouts.

Thu, 04/03/2014 - 10:39 | 4621069 Thought Processor
Thought Processor's picture





This is one cancer......  among many.


Nice that Schwab is speaking up though.  They are adding to the huge red flags which have already been raised on this, which is good.

It's crazy that the SEC and others didn't go ape shit on all of this though after it began (as documented here).  It was clearly a trust destroyer and should have been illegal from the get go.

Knowing how the street works though, my guess is that this will not be fixed and the average investor (are there any left) will continue to exit this rigged game.  And Schwab will continue to suffer.


Next up, and perhaps a bigger issue- what are those "Dark Pools" being used for?  I am quite sure they are used to game the public markets.  No other reason for them to exist.


I'm sure the SEC will is over this one also..........




Thu, 04/03/2014 - 10:41 | 4621099 Son of Captain Nemo
Son of Captain Nemo's picture


It's more like self preservation in a vain attempt to grab what few bottom feeders are left in the swamp.

If Charles Schwab was so concerned about it they would have sourced Zero Hedge 4 to 5 years ago and said THIS IS A PROBLEM to their clients... 

Thick as thieves.

Thu, 04/03/2014 - 10:43 | 4621110 Confused
Confused's picture

And as another posted has already mentioned, this is an admission that he knew this was happening to his clients. So, what steps were taken to prevent this from happening over and over? Interesting indeed. 

Thu, 04/03/2014 - 10:53 | 4621133 Thought Processor
Thought Processor's picture



I would agree.   Schwab is the outlier in this though as most of their business is the individual investor, likely to a larger degree than any other broker.

They are and will continue to get hurt by all of this.   The big players and the vast mojority of Wall Street 'big money' could not give two shits about the 'average investor.'


Schwab likely has little or no real influence on this whole discussion with regard to those in DC who are paid to keep the status quo going.  At all costs.



Thu, 04/03/2014 - 10:58 | 4621164 Son of Captain Nemo
Son of Captain Nemo's picture

"The big players and the vast mojority of Wall Street 'big money' could not give two shits about the 'average investor.'"...

And clearly neither does Lewis, Katsuyama or "60 minutes"!

The best part of all of this is the timing and how desperate they all are to resuscitate a patient that's been brain dead going on 6 years now with IEX Group as the new savior!


Thu, 04/03/2014 - 11:04 | 4621187 ArkansasAngie
ArkansasAngie's picture

Pension funds should be suing to clawback that which was stolen from their retirees.

Oooops ... they were in on it?  Well ... then ... retirees should be suing their pension fund managers

Thu, 04/03/2014 - 13:09 | 4621589 NotApplicable
NotApplicable's picture

Not holding my breath on that one.

Thu, 04/03/2014 - 10:42 | 4621101 Cacete de Ouro
Cacete de Ouro's picture

"It's crazy that the SEC and others didn't go ape shit on all of this though after it began".

There is only one thing that would make the SEC go ape shit: Internet porn blocking software.

Thu, 04/03/2014 - 10:48 | 4621127 Bananamerican
Bananamerican's picture

schwab, the FByatch, 60 minutes etc jus tells us all the good grifting is gone outa usual, what was left of the "investing" public wasn't even aware of the con (it was a GOOD 5 years heh heh) HFT has been discovered but it's just about "over" because "vigilant, first responding fin regulators" are "on the job"...
It's a shame it's still the blow job

Thu, 04/03/2014 - 12:01 | 4621394 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

 It was clearly a trust destroyer


Thu, 04/03/2014 - 13:17 | 4621625 mccvilb
mccvilb's picture

The SEC was complicit in the adoption of HFT. Shapiro invited written commentary beforehand. Why? To measure whether we understood what was about to be foisted on us, and what the tolerance for another investor scam would be. She then essentially ignored the public's overwhelming lack of support for it. She had done her part to shelter the SEC from criticism by creating the illusion of preventive oversight.

Chuckie was in on it from the get-go too. There were aspects of it that benefited the brokerages, like increased churn and daytrading, and algo-masking software that allowed massive theft via orchestrated and controlled shorting. Much of that action died along with the jobs and real estate markets, and today HFT suddenly finds itself back in the klieg lights. The current revelations are hardly earth-shattering. The more evil aspects of HFT haven't even been exposed or addressed, but there is a headwind now. Chuck's no stupe. He's found himself a shiny new white horse to ride.

Thu, 04/03/2014 - 10:42 | 4621104 mrdenis
mrdenis's picture

My doctor told me we all have cancer cells in our bodies 

Thu, 04/03/2014 - 11:02 | 4621182 Buckaroo Banzai
Buckaroo Banzai's picture

It's true. A healthy immune system is constantly targeting and destroying the cancer cells in your body. It's only when the immune system becomes deranged does cancer take hold. But of course the last place you'll hear that is from the cancer industry-- one of the fastest growing industries in America!

Thu, 04/03/2014 - 13:11 | 4621600 NotApplicable
NotApplicable's picture

Which is why I'm always telling people wanting money to "cure cancer" that cancer is a symptom of another underlying problem, NOT a disease.

Thu, 04/03/2014 - 13:31 | 4621691 TruthHunter
TruthHunter's picture

Which is why I'm always telling people wanting money to "cure cancer" that cancer is a symptom of another underlying problem, NOT a disease.

You're too polite. I tell them that if they knew the truth, they'd man the guillotines.

Thu, 04/03/2014 - 10:51 | 4621140 Dr. Kenneth Noi...
Dr. Kenneth Noisewater's picture

Meh.  If you want to compete, get faster computers and cross-connect.  Technology moves, and whining like a bunch of disgruntled buggy-whip makers is just sad.

Big funds can't do huge orders without affecting the market anymore?  Boo hoo, just fill or kill if you want a 'guaranteed' price.

And front-running?  BS.  Was using a spyglass to get flag-based news from the Napoleonic wars frontrunning the Gilt?  Is using hand-signals frontrunning open outcry markets?  The only way you can front-run is if you have muppets your prop desk can fade.

Your standard everyday individual trader who puts in a limit order for say 100 AAPL has smaller spreads and more liquidity.  All other bitching is just big legacy players whining their books.

Thu, 04/03/2014 - 11:24 | 4621273 Joenobody12
Joenobody12's picture

I posted this yesterday. Tell me I was not being front run.

Can anyone recommend a brokerage firm who will not front run trade orders ? I am getting fucked at my brokerage firm lately. I put in a sell order for 1000 shares at the bid when there was several thousands bid shares there. The minute I click the place order button shit happened. Many trades changed hand at the bid and I got 3 shares sold. A few days prior and today it gets to be even more bizzard. I typed up an order to buy 100 contracts of a call option at $2.67. I click the preview page which then led me to a summary of the trade I was about to place. Instead of placing the trade by clicking the " place order " button, I switched to the portfolio page to see how much cash I have left and tried then to adjust the price by entering a new order as the price was starting to drop. Guess what, while I was busy typing up this new order and even when I did not click the " place Order" button for the prior abandoned order , a trade went through and 100 contracts was bought at the $2.67 price for me. 

I had a similar experience a few days prior and I thought I was making a mistake at that time unknowingly. So I was extra careful each time since then to make sure I did not enter any order accidentally. Todays trade was bizzard to say the least. It was as if someone was watching me as I typed and placed my trade before I authorized it. 

Also, today I wanted to sell 9999 shares of a stock at the bid when there was about 5000+shares at the bid. The minute I click the place order button , all hell broke loose. Over 20000 shares changed hand and I got 600 shares out of 9999 filled. Tell me I did not get front run. I want to fill a compalin to the SEC but I think they will just laugh at me. I want to exit my current brokerage firm. I am just one of the many mom and pa so guess which brokerage firm that is. 

Thu, 04/03/2014 - 11:26 | 4621278 Joenobody12
Joenobody12's picture

I think I will try my luck with Schwab. 

Thu, 04/03/2014 - 16:26 | 4622505 August
August's picture

To add insult to insult, he said "...OUR free-enterprise system..."

Thu, 04/03/2014 - 10:07 | 4620988 Sudden Debt
Sudden Debt's picture

They can say whatever they want. Everybody can say whatever they want.

Did you already notice there isn't a single politician addressing the HFT issue?


So nothing will happen. Ever.

Thu, 04/03/2014 - 10:11 | 4620998 Dr. Richard Head
Dr. Richard Head's picture

And should something happen at all it will just further entrench the elite money changers in the practice.  Look for a bill that is titled something that would imply "banning" HFT, yet would just bury the practice behind the SEC or something. 

Thu, 04/03/2014 - 10:13 | 4621007 negative rates
negative rates's picture

Well simply dig it up again and hit them twice as hard.

Thu, 04/03/2014 - 10:39 | 4621095 Bananamerican
Bananamerican's picture

How bout creating the
"The Market Unfair Participant Protection Enforcement Taskforce"?

Thu, 04/03/2014 - 11:13 | 4621221 MarsInScorpio
MarsInScorpio's picture



As always, it's great to see your posts.


The reason you don't hear from politicians is because as the NSA controversy illustrated, they don't have the faintest idea in Hades what computer technology is, or what it is capable of doing.


Go ahead, ask them at their Town Halls to explain to you what HFT is.  Maybe you'll get an answer to what the acronym means, but beyond that - forget it.


They are incompetent pigs slopping at the trough.



Thu, 04/03/2014 - 13:23 | 4621655 gmrpeabody
gmrpeabody's picture

Twoo...., twoo.

Thu, 04/03/2014 - 10:37 | 4621081 prains
prains's picture

It's all gone so terribly wrong and for so long now there's nothing even worth returning to in this "system". It's over so burn it down already

Thu, 04/03/2014 - 18:07 | 4622885 StychoKiller
StychoKiller's picture

Hmm, guess I was the only one to effectively close my Schwab IRA in 2010.  Have more PEOPLE followed my lead?

Thu, 04/03/2014 - 10:00 | 4620955 digitlman
digitlman's picture

Fuck Chuck.  He's just as much a part of the problem.

Thu, 04/03/2014 - 10:03 | 4620967 Kirk2NCC1701
Kirk2NCC1701's picture

Like the Fed, Chuck hates competition. 

Thu, 04/03/2014 - 10:12 | 4621001 nickels
nickels's picture

Losing at the HFT game? Spike the guns of the other side.

Thu, 04/03/2014 - 10:21 | 4621032 Cursive
Cursive's picture


Why doesn't Chuck just join/route through IEX?  Now that Chuck admits that his customers are hurt by HFT, it's time for some Schwab customers to file suit against Chuck if he doesn't use different/better routing.  Send in the lawyers...  ;-)

Thu, 04/03/2014 - 13:13 | 4621610 NotApplicable
NotApplicable's picture

My thougts exactly.

Thu, 04/03/2014 - 10:06 | 4620983 spastic_colon
spastic_colon's picture

the rats are all jumping (right after they drop dime on the "system")

Thu, 04/03/2014 - 10:52 | 4621145 dontgoforit
dontgoforit's picture

And Soros stands in the wings with a big shit-eating grin on his face.  Gettin' closer to cashing in.

Thu, 04/03/2014 - 10:09 | 4620989 tradebot
tradebot's picture

Chuck just doesn't like it when someone comes along to nigger up his deal.  They are all so screwed one will have to answer to it either.

Thu, 04/03/2014 - 10:00 | 4620956 Bryan
Bryan's picture

And another one jumps on the bandwagon.  Where were they when ZH was exposing all this many years ago?!

Thu, 04/03/2014 - 10:14 | 4620996 spastic_colon
spastic_colon's picture

this will continue just like The Bourne Identity until the fed utters those final words "shut it down" and presents its project findings to the budget panel and sweeps it under the perpetual rug.

Thu, 04/03/2014 - 10:53 | 4621152 dontgoforit
dontgoforit's picture

Lewis & Snowden should start a fund: Wikikeepers Loserweepers.

Thu, 04/03/2014 - 10:01 | 4620959 LawsofPhysics
LawsofPhysics's picture

"Paper pushers (who add nothing of real value to the real economy) are a fucking cancer"-  Fixed.

Thu, 04/03/2014 - 10:01 | 4620961 The Wisp
The Wisp's picture

Now He Tell Us... ?

 so this is April Fool's Week...

Thu, 04/03/2014 - 10:02 | 4620965 Last of the Mid...
Last of the Middle Class's picture

But But But . . Foxnews said it was just a penny or so on a trade. Nothing nearly as serious as rigged markets. Bet somewhere somebody is deleting files as fast as they can. Let 'em all swing and lets start again

Thu, 04/03/2014 - 10:13 | 4621008 Dr. Richard Head
Dr. Richard Head's picture

Peter Gibbons: Um, the 7-Eleven, right? You take a penny from the tray.

Joanna: From the crippled children?

Peter Gibbons: No, that's the jar. I'm talking about the tray, the pennies for everybody.

Thu, 04/03/2014 - 10:04 | 4620975 Last of the Mid...
Last of the Middle Class's picture

So does that mean Charlie has already cleaned up his files for the Feds to come take  a look?

Thu, 04/03/2014 - 10:05 | 4620978 Smegley Wanxalot
Smegley Wanxalot's picture

Fuck You ZH for exposing this!  Before you came along we were blissfully ignorant and enjoyed getting ripped off in rigged markets. 


Now where's my remote, dammit.

Thu, 04/03/2014 - 10:05 | 4620979 Son of Captain Nemo
Son of Captain Nemo's picture

Where is the SEC (Rule 10b-5) when you need them?...

One of the best summaries on HFT fleecing you could read.  But hey we already knew the SEC is paid to look the other way!

Thu, 04/03/2014 - 10:09 | 4620990 user2011
user2011's picture

The Fed needs the HFT, otherwise, they can't push the market to all time highs.

Without the market all time high, people won't fee rich and they will not spend money.

Thu, 04/03/2014 - 10:09 | 4620991 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Of course Schwab would say this he is probably losing customers and business left and right because the CONfidence is being lost. These people probably couldn't earn an honest days living if it wasn't for wall street and that was before they rigged the trading.

Fuck them also.

Decentralized exchanges kids, they maybe the wild west right now but that is the point even muppets have a chance albeit a slim one in some of these emerging crypto exchanges which is more than they have in the officially sanctioned exchanges and the fees are less also in many cases.

As long as the action is good and the game is fair even if the odds may not be in your favor the degenerate gambler muppets will come.

They always do.

Don't fight the system ignore it and build the new ones and let them die and learn business cycles apply to arrogant control freaks just like everyone else.


Thu, 04/03/2014 - 10:11 | 4620997 RaceToTheBottom
RaceToTheBottom's picture

Citadel is being very quiet.

Thu, 04/03/2014 - 10:12 | 4621003 Latitude25
Latitude25's picture

Well if HFT is a growing cancer then the FED balance sheet is a heart attack.

Thu, 04/03/2014 - 10:20 | 4621029 El Hosel
El Hosel's picture

Federall audit of all HFT activity forthcoming, 2016, or thereabouts. Rest easy truthseekers.

Thu, 04/03/2014 - 10:21 | 4621025 Shizzmoney
Shizzmoney's picture

Anyone who invests with Chuck is a cancer.

How in then fuck anyone gives any of the people their hard earned money AMAZES me.

For a young person like myself, it is SO HARD TO MAKE MONEY.  Why would I just shuttle what little i have to some broker who may or may not shoot off all of my cash to some cheating algo?

Thu, 04/03/2014 - 11:58 | 4621388 SamuelMaverick
SamuelMaverick's picture

Somebody has to pay for the bankers and brokers mahogany lined offices, the benz's, and the country club memberships, the side piece of ass, the country house, the beach house etc.

        What the fuck is wrong with everybody here, don't you want to be ass raped a penny or so on every trade ??

         I remember an eye opening chart that showed the final amount of two different retirement accounts that had the exact same amount on money invested in them, the only difference was that one account was full of mutual funds and had extra management fees of about 2% more than the other account without fees. At retirement, the no fee account was 3 million, the account with 2 % fees was only 1 million.   That lousy 2 % was life changing for the retiree.  The pennies do add up.

Thu, 04/03/2014 - 10:19 | 4621026 Took Red Pill
Took Red Pill's picture

and the markets react by .... going up!

Thu, 04/03/2014 - 10:54 | 4621154 Rainman
Rainman's picture

Sorry ...the machines cannot be reprogrammed now. Taunting will continue until morale improves.

Thu, 04/03/2014 - 10:22 | 4621036 medium giraffe
medium giraffe's picture

That picture of a tumour looks like some sort of.... squid?

Thu, 04/03/2014 - 10:23 | 4621037 buzzsaw99
buzzsaw99's picture

capital formation = from pension funds to billionaires

Thu, 04/03/2014 - 10:24 | 4621038 PlusTic
PlusTic's picture

it'll never end with the current system of justice in this country...we need public corporeal need to scare the shit out of the next perpetrator enough to stop them from acting...

Thu, 04/03/2014 - 10:42 | 4621105 Son of Captain Nemo
Son of Captain Nemo's picture


That's the only way it will get fixed!

Thu, 04/03/2014 - 11:52 | 4621370 Pure Evil
Pure Evil's picture

Criminal psychopaths are never dissuaded from their crimes just because someone else got caught and was punished.

Psychopaths do not feel guilty about their crimes or take responsibilty for the consequences.

Obama is the prime example. He accepts no responsibilty for his actions, its all someone elses fault, and he feels no remorse for the damage he's causing. Consider Obamacare.

The Fed is the second example, run by people like Greenspan, Berspankme and Ole Yeller, while anyone who's read ZH long enough has enough material to know the damage caused by this institution.

Thu, 04/03/2014 - 13:01 | 4621569 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

It is not fair to blame Obama. He grew up in a racist country, had a hard time in the hood, and married a fat ugly woman while sneaking sex with Reggie Love, nothing is his fault. It is the cruel world that denies him happiness.

Thu, 04/03/2014 - 10:25 | 4621039 The Abstraction...
The Abstraction of Justice's picture

HFT is the means by which the banks are suppressing the silver price.


The above ground silver to gold bullion ratio is parity, while the current, suppressed price differential is 70 to 1. If the silver price corrects to reflect the availability of bullion and the gold price correct to function as the new reserve asset currency, then the silver price may increase a 1000 fold or more. $20 an ounce becomes $20,000 an ounce.


Any criticisms (constructive) of my anti trust video/website are most welcome!

Thu, 04/03/2014 - 10:24 | 4621040 Dr. Engali
Dr. Engali's picture

"The United States capital markets have been the envy of the world in creating a vibrant, stable and fair system supported by broad public participation for decades."


WTF markets are they talking about? You mean the markets where they bail out the banks when they make a bad bet. or the markets where they change the short selling rules on a whim just because a retail guy just might make a buck in the chaos of 08? Fair markets my ass! Fuck you Clarlie Slob! 

Thu, 04/03/2014 - 10:24 | 4621043 FreeNewEnergy
FreeNewEnergy's picture

Can I has un-taper, pleez?

Thu, 04/03/2014 - 13:17 | 4621627 dontgoforit
dontgoforit's picture

Got to pay the Taperman.

Thu, 04/03/2014 - 10:25 | 4621045 American Dreams
American Dreams's picture

Someone should tell Chuck the horse is already out of the barn.  Good try at a PR Chuck, next time start talking about the problem you sooo knew about when you first knew about it.  Thats called being a leader not a spineless scumbag, false hero of the "people".  Fuck off!

There be no shelter here


Thu, 04/03/2014 - 10:25 | 4621046 Next to Arch Stanton
Next to Arch Stanton's picture

Nice "strategic" response from Schwab - take the high road on the issue to win brownie points with the retail public.  Whether the HFT game goes away, morphs to something more discreet, or stays out in the open, Schwab will be sure to be in a position to maximize its benefit either from the current crop of HFTs or the future version of them.  No downside to that PR piece.  

Thu, 04/03/2014 - 10:34 | 4621068 Canucklehead
Canucklehead's picture

Look, Charles's response is akin to that of a Captain of a large ship navigating difficult waters.  Your response is akin to that of a skipper of a tiny ship setting sail for a three hour tour.

Thu, 04/03/2014 - 11:22 | 4621260 Next to Arch Stanton
Next to Arch Stanton's picture

Fucklehead -

My observation is just that - it's not a response to the controversy.  You make it sound like "Charles'" response is something noble or even challenging.  Bullshit.  What is "difficult" about the situation?  The HFTs are being called out as douchebags, and Schwab is changing its course because it suits them.     

Thu, 04/03/2014 - 13:19 | 4621637 dontgoforit
dontgoforit's picture

It's not like this hasn't been known for quite awhile though.  Like NSA's PRISM program.  It was published in R&D Magazine in the late 1990's. 

Thu, 04/03/2014 - 10:38 | 4621087 Cacete de Ouro
Cacete de Ouro's picture

Wait. How can Schwab believe in the long-term structural integrity of the markets, when the long-term structural integrity of the markets has been blown up by the HF Trading that they are now complaining about?

Thu, 04/03/2014 - 10:28 | 4621052 Yen Cross
Yen Cross's picture

  No matter what one thinks of Chuck, the reasoning is solid.


  • Advantaged treatment: Growing numbers of complex order types afford preferential treatment to professional traders’ orders, most notably to jump ahead of retail limit orders.
  • Unequal access to information: Exchanges allow high-frequency traders to purchase faster data feeds with detailed information about market trading activity and the specific trading of various types of market participants. This further tilts the playing field against the individual investor, who is already at an informational disadvantage by virtue of the slower Consolidated Data Stream that brokers are required by rule to purchase or, even worse, the 15- to 20-minute-delayed quote feed they have public access to.
  • Inappropriate use of information: Professionals are mining the detailed data feeds made available to them by the exchanges to sniff out and front-run large institutions (mutual funds and pension funds), which more often than not are investing and trading on behalf of individual investors.
  • Added systems burdens, costs and distortions of rapid-fire quote activity: Ephemeral quotes, also called “quote stuffing,” that are cancelled and reposted in milliseconds distort the tape and present risk to the resiliency and integrity of critical market data and trading infrastructure.  The tremendous added costs associated with the expanded capacity and bandwidth necessary to support this added data traffic is ultimately borne in part by individual investors.
Thu, 04/03/2014 - 10:32 | 4621061 El Hosel
El Hosel's picture

Bio Tech taking the news hard, mom and pop getting cold feet?

Thu, 04/03/2014 - 10:44 | 4621112 El Oregonian
El Oregonian's picture

Mom and pop are reduced to cracking open the kid's piggybank just to provide food for themselves. Any extra investment money goes to buying gas.

Thu, 04/03/2014 - 10:36 | 4621078 machineh
machineh's picture

Sometimes I get fill prices with four (4) decimal places: e.g., 68.0499. 

It probably means that an HFT trader front-ran me, then sold milliseconds later at 68.05.

Going back to penny increments would still allow tight bid-ask spreads. But it would greatly reduce HFT skimming.

My two cents' worth.

Thu, 04/03/2014 - 11:37 | 4621327 Waterfallsparkles
Waterfallsparkles's picture

I think this tactic is also used to manipulate the stock price.  Example:  You sell 100 shares at $68., by the HFT buying your shares for $68.001 they do not allow anyone to take out the bid at $68., which would push the price down.  So, anyone who wants to buy has to pay a higher price than it would have been if the bids at $68. were sold.

Thu, 04/03/2014 - 11:15 | 4621235 nowhereman
nowhereman's picture

Yes YC, but we here at ZH have known about the cancer of HFT for way more than few years, and it seems that Chuck is a little late to the party.  And if anyone really believes that that asshat Schniederman will do anything meaningful, they are sadly mistaken.

Thu, 04/03/2014 - 18:14 | 4622928 StychoKiller
StychoKiller's picture

All well and good, but WHY does complaining have to reach 120dB BEFORE the SEC does anything about it?  This is the question the public should be asking.

Thu, 04/03/2014 - 10:31 | 4621059 kellycriterion
kellycriterion's picture

Government is the capital allocator now. Either directly or in response to taxes, policies, mandates, financing.

Stocks should be boutique gaming. Pushing into mass marketing isn't really a good idea. Hedge funds, penny stock pump and dump, jr miners, HFTs? Does it really matter?

Thu, 04/03/2014 - 10:33 | 4621063 Mercury
Mercury's picture

We need an infographic at this point to ID all the different entities and esteemed market personages on each side of the HFT war.

Thu, 04/03/2014 - 10:37 | 4621067 Pasadena Phil
Pasadena Phil's picture

The frustrating aspect to all of this is that all attempts at asking obvious and logical questions are dismissed as being "uninformed" or "anachronistic" or something else that renders the question not worth answering. For instance, why can't ANYONE answer the following questions:

On complexity; Why is complexity itself a given? Why do we NEED complexity? What is the benefit? To whom?

On speed; Why is speed so sacrosanct? Besides the obvious benefits of efficiently processing business that has already been conducted, why do those who benefit from being the fastest get special treatment as a preferred customer? Why can't trading be done at human speed using the same information available for everyone at the same time? Because the way it is now, only the fastest "know" where the market is and prices are only good for a macrosecond or two and only to those who are fast enough to be there at that moment.

How does the business environment and investor environment benefit from the above? How does that help capital formation or efficient capital allocation in our economy?

In science, the effort is always concentrated on finding simple explanations to help us understand complexity. That is why there are so many "unifying theories" and the whole point of quantum mechanics. Why is it that when it comes to banks and Wall Street, size, speed and complexity are always virtues to be worshipped? In other words, how does the goal of fair and efficient markets benefit from complexity that no one understands and opacity that even the regulators can penetrate?

Just askin'.


Thu, 04/03/2014 - 11:01 | 4621177 shovelhead
shovelhead's picture

Complexity creates cover.

That's where the predators like to hide.

Systems naturally mimic biology. It's what we know.

Thu, 04/03/2014 - 13:06 | 4621583 fxrxexexdxoxmx
fxrxexexdxoxmx's picture


Thu, 04/03/2014 - 13:17 | 4621620 Pasadena Phil
Pasadena Phil's picture

That's my point.

It's like with the "too big to fail" banks. Any solution that tries to address the TBTF problem is greeted with "so you want to bring down the entire economy?"

And now our capital markets are now "too fast to fail". Any attempts to untangle the complexity is now ostensibly a call destroy the markets.

The entire civilized world is being held hostage to phantom ghosts who dare not be brought to account. Knowledge today means death and destruction.

Thu, 04/03/2014 - 10:34 | 4621070 alangreedspank
alangreedspank's picture

Seen a couple of Lewis interviews, and sadly, once again, the lemmings took the story and ran with it in all directions. He stated more than once than HFT itself is not the problem, but rather the exchanges giving preferential access to the books and clients getting sold and exposed to other brokers (some of them using HFTs).

I agree with most of what Lewis said and certainly on the point that regulation might not be the best way, but rather a market based solution such as the creation of alternative exchanges (but then again, if brokers sell their clients orders that's only solving the problem of preferential access to exchanges' books).

Thu, 04/03/2014 - 11:23 | 4621267 jms2112
jms2112's picture

It's hard for me to read your message with that guy jumping up and down with his dick swinging around.

Thu, 04/03/2014 - 13:54 | 4621806 alangreedspank
alangreedspank's picture

I'm testing my interlocutors' abilities to focus and concentrate :)

Thu, 04/03/2014 - 10:39 | 4621092 IronShield
IronShield's picture

Can I get an Amen up in hee-yah!?

Thu, 04/03/2014 - 10:40 | 4621094 kurzdump
kurzdump's picture

So HFT is a growing cancer? Did anyone think about radiation therapy already? I heard the military complex has tools providing some massive radiation.

Thu, 04/03/2014 - 10:40 | 4621097 evernewecon
evernewecon's picture






Mr. Schwab may be partly trying

to send the message volume distortion's



But 5%'s ample for distorting 

volume based technical indicators,

which are all about defining

confirmations, breakouts, sentiment

reversals, etc.


The fact of cancellation of 95% 

seems to me to suggest bogus intent.



Thu, 04/03/2014 - 10:44 | 4621111 yogibear
yogibear's picture

Russia and China can use HFTs to destabilize the markets, 

Thu, 04/03/2014 - 10:45 | 4621116 Femme Meatwad
Femme Meatwad's picture

Predatory broker-dealers and money managers are, and have always been, a cancer in the markets. Ma and Pa need to be honestly told that putting any money at risk in the financial markets is GAMBLING. The financial markets are, and have always been, a CASINO. Schwab is disingenuous, to say the least.


The focus on HFTs is a RED HERRING.


Thu, 04/03/2014 - 10:48 | 4621128 csmith
csmith's picture

AMTD shares getting poleaxed. AMTD gets a much larger portion of their revenue from selling retail order flow than Schwab or ETrade

Thu, 04/03/2014 - 10:54 | 4621155 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Nonsense, bolderdash, hype, calumnies!

HFT is there to HELP the little guy, got it? Wink wink wink.

Thu, 04/03/2014 - 10:58 | 4621163 Downtoolong
Downtoolong's picture

It’s a good start Charles. Here are a couple more problems to cite the next time you draw your customer’s attention to this HFT issue:

1.   Quoting orders with more volume than the entire existing issuance of the security in less than a second with no intent or physical possibility of having those orders filled.

2.   Committing two crimes at once by committing the crime in item 1 with the primary intent of moving the market in their favor, i.e., blatant market price manipulation.

Thu, 04/03/2014 - 10:59 | 4621168 johnjkiii
johnjkiii's picture

Problem solved: require that each bid or ask stand for 1 tenth of a second and do not allow anyone but registered market makers to see any order books. Cancer cured. Casino closed.

Thu, 04/03/2014 - 11:02 | 4621181 DeficitAlchemist
DeficitAlchemist's picture

Why does Schwab only weigh in once others have made it high profile...?

Thu, 04/03/2014 - 13:03 | 4621573 ParkAveFlasher
ParkAveFlasher's picture

The second mouse gambit.  The first mouse gets its neck broken by the trap, and the second mouse gets the cheese.  (The third mouse gets no cheese, but does get a free hump on the first mouse, which isn't bad for a consolation prize. )

Thu, 04/03/2014 - 11:06 | 4621196 MFLTucson
MFLTucson's picture

High-frequency traders are gaming the systemreaping billions in the process and undermining investor confidence in the fairness of the markets.


Sorry Chuck but, this is only the newest reason people should not trust the market.  The fraudulent economic news, the injection of printed money via an unelected group of liars known as the Federal Reserve and the bid to ask spread to retail investors over commercial buyers already convinced me to stay the hell out of the US casino!

Thu, 04/03/2014 - 11:06 | 4621198 GFORCE
GFORCE's picture

Well put Charles!

Thu, 04/03/2014 - 11:10 | 4621209 Georgia_Boy
Georgia_Boy's picture

So HFT is a cancer and investors are losing billions to it, but don't worry, the market still has integrity? It's just a matter of confidence, we should consider getting rid of it out of an abundance of caution, to protect the market's image?

It's like the old "perception" dodge ... we'll clean up some situation because "there's a perception" something is wrong. No, you do not have a confidence problem, you have a corruption problem, i.e. a reality problem!

Thu, 04/03/2014 - 11:10 | 4621213 picoVerse
picoVerse's picture

Yay!  Bill Schwab crushes the high frequency traders!



No more BATS in the bellfry!


Que the main stream media blackout!

Thu, 04/03/2014 - 11:20 | 4621254 jms2112
jms2112's picture


Thu, 04/03/2014 - 12:05 | 4621404 Miss Expectations
Miss Expectations's picture

What is this feeling?  It's different.  It's some kind of fucked up schadenfreude.  Three years late, five years late and all of a sudden all this MSM hoopla. All this attention.  Same feeling as when Snowden goes global with NSA "revelations".  It's old news suddenly made epic.  It feels fake, insincere and manipulative.  I should be happy, but I'm decidedly suspicious instead.  FUCK.

Thu, 04/03/2014 - 11:24 | 4621265 paint it red ca...
paint it red call it hell's picture

"High-frequency traders are gaming the system"

Ok, the riggers got nearly a decade of profitable scalping out of HFT, the latest incarnation of bucket shop front running.

So whats the next set of shears sharpened up for fleecing the sheep??

In bucket shops, customers never actually had trades executed in their name. Today's brokerages simply, as a line entry, list customer holding's against the brokerages positions. In event of a major financial crisis, who actually will own those equities, the brokerage or their customer's? Customers who do not actually possess their certificates?

Thu, 04/03/2014 - 13:04 | 4621578 ParkAveFlasher
ParkAveFlasher's picture

Isn't that the whole principle behind "street name"?  You are screwed if the stock collapses, however if it moonshots, you might not even have full access to the proceeds?

Thu, 04/03/2014 - 11:30 | 4621295 Budd aka Sidewinder
Budd aka Sidewinder's picture

Fuck Chuck Schwab and the horse he rode in on......

They told my IA about what a 'great investment' Auction Rate Securities were in 2008.....I bought $150K worth.....sold it for $109K on second market. 

Chuck wouldn't make any of their ARS customers whole because it doesn't fit their model of being a 'discount brokerage'.

I hope Chuck Schwab falls on a chainsaw trimming his sequoias at his Pebble Beach mansion

Thu, 04/03/2014 - 18:24 | 4622964 StychoKiller
StychoKiller's picture

Aww, did hims get a boo-boo buying a product hims not understand?

Thu, 04/03/2014 - 11:55 | 4621375 deboomer
deboomer's picture

This is coming from a firm that shows its order flow to market maker algo's and lets them "improve" the bid in front of existing orders by 1/1000 of a cent.

This gives the seller a "better fill".  So what that the customer bid didn't get filled.

Thu, 04/03/2014 - 12:03 | 4621398 Dre4dwolf
Dre4dwolf's picture

All you have to know is, before you buy a stock, a computer will buy up your order, gobble up all the profits, and then stick you with the bill and move on to the next victim eeer "customer".


Thu, 04/03/2014 - 12:11 | 4621427 stopthejunk1
stopthejunk1's picture

Sorry, but I still don't see how this is an issue.


If everyone uses limit orders, along with an "all or nothing" constraint, then HFT has no effect on your order.  It's either filled or it isn't.  And if it's filled, it's filled at the price you specified, or better.


So what's the problem?


Why do you need to use "market" orders anyway?  Are you telling me that limit orders will not be filled?  Bullshit, I do it all the time... in fact, I don't buy (or sell) any other way.  And I can't understand why anyone else would either.  

Thu, 04/03/2014 - 12:21 | 4621450 WTF_247
WTF_247's picture


You are forgetting if you miss a trade that means 100% its a winner.  You missed out on that profit.  If HFT detects your limit order and steps ahead of you to either lift the offer OR put in their shares .01 ahead of yours, you are losing money.  I am talking about limit orders at or near the current price.

Also, HFT may step ahead of your order and then cancel their own offers to artificially move the price up.  The algos are fairly sophisticated to know which orders in the market are other algos and which are not.  You put in a limit at 40.00, they lift and bid 40.01 and cancel their own offer at 40.02.  Now you move your bid to 40.01 and they bid 40.02.  You see price moving and pay 40.03, buying the 40.01 stock that they just bought.  They just stole 3c from you.  The only thing that was moving was the algo who was active in the stock.

Thu, 04/03/2014 - 13:28 | 4621672 ThisIsBob
ThisIsBob's picture

Old trader's saw:  "Limit in, market out."

Thu, 04/03/2014 - 12:13 | 4621433 WTF_247
WTF_247's picture

Only need 3 things to be enforced to stop this BS.


1)  Create a 2 second rule:  Orders cannot be cancelled unless alive for 2 seconds.  Anything less than this and the intention is not to get filled (manipulation of some sort).  It is already illegal to put in orders that you have no intention on filling.

2) Enforce Reg T.  All orders live in the market have to have buying power to cover them at the time they are live in the market.  If not its a Reg T violation just like everyone else faces.  Schwab will not let Grandma put in an order for 10,000 CSCO if she only has $5k in her account - even if the order is 5pts away, it will not be allowed in.

3) Remove the ability to use special order types to jump the book.  Reg NMS already prohibits this type of activity.  In the old days of SOES bandits, one trick was to put in a limit order way, way above the offer and you would jump to the front of the pack.  CSCO is trading at 20.00 so you put in an order to buy 1000 shares @ 150.00.  Since you were willing to pay the most (theoretically), up to $150 per share, you would jump ahead of even market orders.  That was stopped and so should special order types.



Thu, 04/03/2014 - 12:59 | 4621559 bagehot99
bagehot99's picture


Pay no attention to the man behind the curtain. 

All is well!!

Thu, 04/03/2014 - 13:05 | 4621582 Seasmoke
Seasmoke's picture


Thu, 04/03/2014 - 13:06 | 4621586 BeerMe
BeerMe's picture

HFT doesn't matter in the larger scheme.  The Fed and easy money are the bigger problem.  Without the Fed all this would work itself out.

Thu, 04/03/2014 - 13:11 | 4621599 Remington IV
Remington IV's picture

Meanwhile , Schwab sells order flow for rebates in the order of millions of dollars every year.

If I am supposed to receive "best execution"    , I don't want  my order sold to a scumbag who then allows an HFT to front-run my order


Thu, 04/03/2014 - 13:33 | 4621674 Jack Kreuz
Jack Kreuz's picture

In their statement, Schwab omitted the part where they have been selling their order flow to HFT firms, and thus, they have been helping the cancer grow.

Thu, 04/03/2014 - 13:30 | 4621686 ThisIsBob
ThisIsBob's picture

Oh, right-on-time there Charles.  Where you been the last 5 years?

Thu, 04/03/2014 - 13:41 | 4621740 ToNYC
ToNYC's picture

Lone soldiers tell the Whole tale.

Thu, 04/03/2014 - 15:20 | 4622238 malek
malek's picture

A growing cancer?
Like growing from inflicting damage to 98% of the trades to let's say 99%?

I'd call it a fully developed cancer.

Thu, 04/03/2014 - 15:55 | 4622394 MrBoompi
MrBoompi's picture

I always thought of HFT as more of a parasitic activity than cancerous activity.  The last thing those people want is to kill the markets.  It is their life blood after all.  As Lewis' book points out, parasitic stock market activity was around long before HFT.

We run into the same old problems if anyone tries to clean this up.  The money is so great, the regulators and politicians who get a cut of the action and even high paid jobs in these firms when they leave public office, are not incentivized to do anything but allow it.

Thu, 04/03/2014 - 19:11 | 4623136 Bazza McKenzie
Bazza McKenzie's picture

A cancer does not purposefully kill the body upon which it depends, but that is the end result.

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