• Steve H. Hanke
    05/04/2016 - 08:00
    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

Triple Whammy Shocker: Goldman Shutting Down Sigma X?

Tyler Durden's picture




 

Back on March 21, before the release of Michael Lewis' Flash Boys and before the infamous 60 Minutes interview, when Goldman COO Gary Cohn wrote his infamous WSJ Op-ed bashing HFT, it was clear that something was afoot. That something became promptly clear when it was revealed that Goldman is among the core backers of the pseudo dark-pool IEX exchange popularized as the protagonist in Flash Boys, and juxtaposed to the frontrunning, and faceless, HFT antagonist that Lewis maanged to demonize so well in the span of a few hundred pages, he promptly provoked a renewed investigation by the FBI, the SEC and DOJ into HFT.

A few days later, the shocker became a double whammy when Goldman announced that in addition to turning its back on HFT which had served it so well for years, the firm would also say goodbye to the NYSE and its designated market maker post, the last remaining legacy of its $6.5 billion Spear Ledds & Kellogg acquisition from 2000. That Goldman was asking mere pennies on the dollar for the residual assets also showed just how "highly" Goldman valued said legacy operation.

This is what we said at the time of the announcement:

... 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.

Moments ago we got the third and final "shocker" in this series of stunning disclosures by Goldman, this time involving Goldman's own "unlit" venue - one involving its own Dark Pool - the infamous, and market dominant Sigma X, which according to the WSJ, is about to be shut down!

Goldman Sachs Group Inc. is considering shutting down one of the world's largest private stock-trading venues, according to people familiar with the matter.

 

In conversations with market participants over the past several months, Goldman executives have broached the subject of closing its so-called dark pool trading operation, known as Sigma X, the people familiar with the matter said.

 

Goldman executives are weighing whether the revenue the firm generates from operating Sigma X is worth the risks that have been highlighted by a series of trading glitches and growing criticism of dark pools, the people said.

 

No decision is imminent, and Goldman could keep the business, according to people familiar with the discussions.

That this is a momentous development, if true, needs no explanation. Because while Sigma X may or may not be the top dark pool in the industry - a claim that Credit Suisse can possibly make alongside Goldman- Sigma X, which we have written about extensively over the past five years, certainly provides Goldman with not only extensive daily revenue but also gives the firm an inside look into what happens in the institutional marketplace, since the bulk of hedge funds and most mutual funds transact almost exclusively on dark pools now in an attempt to avoid precisely the parasitic HFT algos that have been the topic of so much discussion in recent days.

And if Goldman is willing to exit not only HFT, not only legacy lit markets entirely, but also its dark pool, then something truly big and transformational is coming to not only the existing market structure, but something that will be so disruptive, that for once we can't wait to find out just what Goldman has up its sleeves, sleeves which also happen to house the key lawmakers in the Beltway.

Why is Goldman doing this now? We don't know. It is worth noting however that on page 234 of Flash Boys, Michael Lewis cites Ron Morgan and Brian Levine, Goldman Partners and co-heads of Goldman's global stock markets, who said that "Unless there are some changes, there's going to be a massive crash, a flash crash times ten."

 

Goldman exiting virtually all venues except the upstart IEX is certainly a major change.

Another thing that is certain: take a long, hard look at the market as you know it today, because in less than a year it will be history.

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Tue, 04/08/2014 - 19:30 | 4637415 johngaltfla
johngaltfla's picture

Which means that Goldman and other Fed thug member banks are continuing the shift of capital to overseas branches in Hong Kong and Singapore where capitalism is still somewhat the law of the land. The NYSE and NASDAQ are now officially fooked.

Tue, 04/08/2014 - 19:38 | 4637443 Slartebartfast
Slartebartfast's picture

Or maybe Jim Willie is right, and China bought JP Morgan a couple months ago.  It sure would answer a lot of the changes they've made lately.

Tue, 04/08/2014 - 19:41 | 4637455 TeamDepends
TeamDepends's picture

Blythe knows how to massage markets.

Tue, 04/08/2014 - 19:44 | 4637465 Arius
Arius's picture

watch Margin Call ... you want to know why I make the big bugs? 

 

i dont hear a beep ... i dont hear the music ....

 

time to get out ... FAST

 

 

Btw, blythe is a nobody just some red meat for dogs

Tue, 04/08/2014 - 19:54 | 4637485 McMolotov
McMolotov's picture

Watch "All is Lost," the same director's movie from last year with Redford. It also applies to this situation.

There's a hole in the boat that can't be repaired, it's half-submerged, and there's a big-ass storm coming.

Tue, 04/08/2014 - 19:58 | 4637496 TeamDepends
TeamDepends's picture

Is the hole on the port side?

Tue, 04/08/2014 - 20:08 | 4637527 Algosaurus Rex
Algosaurus Rex's picture

Is it finally time to buy those gnarly deep out-of-the-money puts? 

Tue, 04/08/2014 - 21:06 | 4637619 Ignatius
Ignatius's picture

Goldman stole what they could and are moving on, greener pastures.

To answer:  Yes, maybe.

Tue, 04/08/2014 - 21:22 | 4637693 old naughty
old naughty's picture

We're all wrong (eh, ignorant)! We have seen the visible hand stirring...

Who knows what the other hand is doing...juxtaposing for the biggest whammy, maybe?

So, is Brad playing the Flash Boy, or not?  Kept enter-tainted.

Tue, 04/08/2014 - 21:54 | 4637808 Ranger4564
Ranger4564's picture

GS knows the market is to tank any day now, so why stay in. I mentioned it a few years ago... JPM will be collapsed with just about every other large bank, and GS will be spared, since it's the political arm of the oligarchy. The financial arm, once collapsed, will suck in all sorts of money from every nook and cranny around... bail in, entitlements, insurance, lawsuits, bankruptcies, everything will funnel to the top of the fucking pyramid... oligarchs. We will be peasants. GS will be a kept lapdog, but they don't mind, as long as they're not looted like us.

I think it's time we skewer the bankers and the oligarchs... well, it's been time for a long time but some people are a bit slow. Let's GO!

Tue, 04/08/2014 - 22:58 | 4638012 markmotive
Wed, 04/09/2014 - 01:16 | 4638294 Richard Chesler
Richard Chesler's picture

There are clearly easier ways to steal.

 

Wed, 04/09/2014 - 03:48 | 4638327 weburke
weburke's picture

.

Tue, 04/08/2014 - 21:56 | 4637816 nickels
nickels's picture

Something is going to declared illegal, and Goldman will be able to say "Oh we stopped doing THAT sort of thing DAYS ago."

Tue, 04/08/2014 - 22:01 | 4637839 Soul Glow
Soul Glow's picture

Exactly.

Tue, 04/08/2014 - 22:15 | 4637885 aVileRat
aVileRat's picture

A fitting phrase for the times:

Sonny Crockett, “So, fabricated identity, and what’s really up, collapses [sic] into one frame—you ready for that on this one?”

On a serious note, and stepping out of the Alex Jones zone: Sigma X was good for masking trades, but the rate of Sigma use by large block players is well down since it's early days. A large block, even if carved up 100/(pi) ways, often is so large by stat mech that the use of Sigma is only good for buyers flashing. Sellers on big desks realized it was no better at moving than simply hiring a specialist bank to do a cross or upstairs. If the guy upstairs busted or failed to trade on stupidly large lots, then you could very easily (and still can) get the jerk fired. Sigma ? derp.

 

 

Tue, 04/15/2014 - 09:12 | 4660288 seataka
seataka's picture

Sounds just like $cientology...

 

Tue, 04/08/2014 - 22:19 | 4637836 Soul Glow
Soul Glow's picture

FIGHT CLUB BITCHEZ!

To highlight, what GS is doing....

First and obviously, the markets are fucked up.  There has been needed a destruction - and think about the word I just used - a distruction of an asset class.  The Fed set this up by their loose monetary policy.  It should be, or should have been, the dollar, yet due to deflation the Fed was able to constitute massive dollar printing without achieving hyper inflation; and yes, achieving.  The Fed - and all Central Banks - padded the stock market back to "normal" while lessoning the values of currency.  This was achieved because all Central Banks floated their currencies down at the same rate -think gravity and all falls down.  

Next let's remind ourselves gold - and all PMs - are undervalued.  This should be understood without context, but let's give a little:  ask yourself who owns gold and who is buying it.  Ask who is manipulating even if the manipulation is done by words and not by trading.  The fact is Bernanke himself talked gold down his whole tenure.  That should be reason enough to understand it is undervalued.

Next bonds; what the fuck is a bond?  It's a promise to pay and there is not a treasury in the world that has over leveraged themselves.  Sure China is owed trillions of dollars, but the value of their banking system lies not on what they are owed it lies in what they have.  They have not been payed by the Untied States yet, among others, so they have nothing of it.

Next the stock market - look no further than Alcoa to understand the Aurthor Anderson type accounting that is taking place.  Then use simple P/E metrics and we find the stock markets in the US are over valued times two, in the very least.

So when it comes to fleeing the scene of a crime - and the perpetration of finance is nothing less - Goldman is getting the fuck out.  That should sum it all up.

By the way, your dollars are still good to trade so what do you value?

http://www.zerohedge.com/donate

Tue, 04/08/2014 - 23:01 | 4638032 EggSlayer
EggSlayer's picture

Actually, the Fed didn't print "massive" amoutns of dollars, they actually only increased the money supply by about 6%. Inflation is still quite low.

If you understood the China banking system (which I don't competely, but I understand enough to know this) they are currently in a credit bubble similar to that of America in 2008. From what I understand their banks are using repos similar to the way America before '08.

Apparently this guy has done valuations on every company and found that according to their P/E ratios, they are all overvalued by 2X.

 

 

 

Tue, 04/08/2014 - 23:17 | 4638084 Soul Glow
Soul Glow's picture

You need to keep reading ZH and stop writing here.  Come back when you are on the level.  Until then get off the porch.

Wed, 04/09/2014 - 01:09 | 4638278 Nehweh Gahnin
Nehweh Gahnin's picture

Sorry bro, you are the one who might want to step off the porch for a minute, take a deep breath, and listen.  The dude is telling you why deflation is occurring, as opposed to the hyper-inflation hysteria that has been the rage the last several years.  He is also connecting the delfationary nightmare posed by China's huge bubbles, meaning that if you thought '08 was something, you ain't seen nuthin' yet.

Reactionary shots leave your chin open to that left cross, fighter boy.

Wed, 04/09/2014 - 03:05 | 4638445 Bananamerican
Bananamerican's picture

Rice Chex 2011 $2.60

Rice Chex 2014 $4.60

highly deflationary

Fri, 04/11/2014 - 18:37 | 4649352 MeelionDollerBogus
MeelionDollerBogus's picture

Not for a second. Zero proof of deflation has been provided, nor shall it be for it isn't happening.
Prices are up, money supply is up, and that's inflation, not deflation.

Fri, 04/11/2014 - 18:45 | 4649378 MeelionDollerBogus
Wed, 04/09/2014 - 17:19 | 4640885 EggSlayer
EggSlayer's picture

Dude, what does "on the level" mean to you? On the level of conspiracy theorists who have their head buried so far in the internets asshole that they fail to see the facts of what actually goes on outside of their computer screen? Sorry, but I will never stoop there. I enjoy reading ZH, but you need to take your news sources with a grain of salt.

Fri, 04/11/2014 - 18:35 | 4649348 MeelionDollerBogus
MeelionDollerBogus's picture

on the level means: not outright fraud. Government saying inflation is 1.5% and you repeating it is like saying dynamite is safe & comfy for making beds out of, and you repeating it. It's a total lie, absolute and easily proven by looking at real prices and real money supply. Inflation is 8% because inflation must at all times include real actual food prices and real actual energy prices.

Wed, 04/09/2014 - 02:49 | 4638428 californiagirl
californiagirl's picture

"Inflation is still quite low."
Please explain that to my groceries and household supplies bills. They didn't get that message.

Thu, 04/10/2014 - 12:44 | 4640877 EggSlayer
EggSlayer's picture

u

Fri, 04/11/2014 - 18:32 | 4649318 MeelionDollerBogus
MeelionDollerBogus's picture

"Inflation is at about 1.5% according to the consumer price expenditure idex."

which is a fraud for deliberately excluding consumer prices.
Consumer prices include food, fuel, rent & utilities. The CPI excludes these so real inflation is 8% not 1.5%.

Just what kind of crap are you trying to pass off on us?

I saved the whole thing so a re-edit can't hide it and now I've replied, you can't re-edit again.

Wed, 04/09/2014 - 04:59 | 4638515 Bernoulli
Bernoulli's picture

Yes absolutely! The pricing of these things is seriously in favor of bears. Ok, I don't have much success to prove it (currently I'm kind of bleeding), but hopefully soon.

Let's say the Nasdaq tanks 20-30% in one week. How much south do - for example - "momentum stocks" go?

I'd guess something like minus 40%-50%?!? But maybe also minus 60%? Or minus 70%? Who knows? I wouldn't dare to say it is more likely that they stop at minus 40% than at minus 70%. But somehow, magically and amazingly, the people selling those out of the money puts believe there is some kind of huge difference. Otherwise, why would they EVER take such an insane downside risk? This to me is the most unbelievable thing in the "markets". Almost like a gift of god.

Take the example of PCLN (read now: The Priceline Group!):

On my most basic online bank trading tool, I could buy today (once the markets open) PCLN MAY14 750P for 1 dollar, multiplier 100, expiring on 17 May 2014 (more than 5 weeks from now). Buy a two of these Puts, pay 200 bucks and sit back and relax (ok, ok, there are some fees, but they are so ridiculously unimportant for this "business case", that I am not even going to spend another minute on that).

If you believe the market will tank (or "just" the momo's will tank), PCLN will also tank. They will even tank more. FOR SURE!

I would even say: if the Nasdaq loses 20% in the next 5 weeks, PCLN will lose at least 40%. Maybe 50%.

Currently, PCLN is trading for 1'187.54 USD. 750 strike would be minus 36.8%.

 

So here is your business case in an easy 1-2-3 guide:

1) Find some indestructible optimist that will sell you those two put options for 200 USD online (He: "free money!" "I will never lose a fucking penny with these, because they are so far out of the money!" "Ha, ha, I feel so great because I do such smart trades"; you: "Thank you very much. It was great doing business with you")

2) Buy some popcorn and beer and sit back and relax in front of your screen

3) Market tanks. Panic. Awesome. PCLN minus 40%: Your two options are now worth 8'000 USD; go and sell those two options and party (or wait for minus 50% and get 30'000 USD or minus 60% for 54'000 USD, etc.; you decide!); the most important thing: Your downside is/was 200 USD! IMHO this is a nice gamble...

Unrealistic? Stocks never fall that fast? This never happened?

Wait and see....

The only thing to be scared of is really if they close the markets down ("out of order because of panic"). This would be the biggest rip off ever and would make me a bit upset...

 

Fri, 04/11/2014 - 18:13 | 4649280 MeelionDollerBogus
MeelionDollerBogus's picture

I think you're missing a detail. Both volume & open interest are known. If enough open interest is on the wrong side, why not print just prior to expiry to cause the maximum number of expiries, then let the price go the other way 1 day too late to be worth anything?
When the market is 'rigged' it means 'completely run by fraud'

Fri, 04/11/2014 - 18:23 | 4649306 MeelionDollerBogus
MeelionDollerBogus's picture

I think you're missing a detail. Both volume & open interest are known. If enough open interest is on the wrong side, why not print just prior to expiry to cause the maximum number of expiries, then let the price go the other way 1 day too late to be worth anything?
When the market is 'rigged' it means 'completely run by fraud'
Look at the 10 year chart for PCLN and same for the S&P index.
See the dip in 2008 for both. Guess what. PCLN didn't dip to lows before the 2004 prices and S&P did.
http://www.freestockcharts.com : scatterplot this before you presume there's a correlation.
Until you have an equation describing a time-window and R2 value you are just flipping a coin.
You could just hold HVU which is -11x power to the S&P500 and since it's not an option there is no expiry time to bet against.

Tue, 04/08/2014 - 20:04 | 4637512 Four chan
Four chan's picture

who needs hft's when you can openly steal from your own stupid clients, in house,

and short against all your long calls? they never lose one trading day for a reason,

they are completely dishonest and have bought every person who could regulate their theft.

Tue, 04/08/2014 - 23:58 | 4637905 Soul Glow
Soul Glow's picture

You obviously don't understand HTF then.  Imagine shorting your clients and then leveraging the short and then hypothecating the short then rehypothicating the short then flipping the short....

Wed, 04/09/2014 - 00:12 | 4638195 Tall Tom
Tall Tom's picture

Just got done watching the movie. Not exactly Mc Molotov. The new hole was caused by a collapsed mast. The repair to the initial damage held. Look at the location.

 

However our economy will sink as fast as that boat. There will be no rescue.

 

Drowning is an ocean of debt...drowning.

Wed, 04/09/2014 - 02:15 | 4638372 kurt
kurt's picture

He left the ample life vest on the back of his boat as it was sinking. He could have reinforced the patch job from INSIDE the boat. Even those backrests could have been wedged against the patch to stop it from moving and flexing. Surely he had tape. He could have taped the hell out of it. Was that ALL the resin? Why'd he wait so long to get the water jug out? How stupid was he building the fire so high in a fucking rubber boat? Why did he leave that hatch boards out and the tarp off the hatch when he was on deck. Why did he take so long to get the safety straps on his body in a heaving ship? Most lost at sea see multiple ships he should have know that and expected to be passed up a few times instead of getting to be such a wussie.

Wed, 04/09/2014 - 07:17 | 4638607 Offthebeach
Offthebeach's picture

Youtube

summer cruise 1964

Thats sailing.

Tue, 04/08/2014 - 20:03 | 4637494 Thought Processor
Thought Processor's picture

 

 

Lots of skeletons in the Dark Pool closets.  And any investigations into the HFT world will inevitably lead to the Dark Pools.

 

Hmmmmmm........................

 

My theory is that they are using the Dark Pools to balance the trades out en mass somehow thereby making the market easier to push up.  They'd be able to soak up any broad based 'investor' outflows and then have confidence that the on balance 'input' of liquidity from QE would then automatically push the markets upward.  It's a play on top of the QE play that, if you could pull off would pretty much guarantee mamoth profits on a daily basis especially if you are running the HFT's also.  You could also divide each 'book' up by primary broker.  It's doable, and is / was likely being done.

Of course then the only reason to stop this is if people were catching on (it's market manipulation on a grand scale) or the QE is really ending and the unwind cometh (In which case they've already lined up the short option trades in the dark pools).

Both spell one thing for the markets in general.  Down in a hurry.

Food for thought.

 

Tue, 04/08/2014 - 20:38 | 4637585 new game
new game's picture

great thought, but with qe waning this is the time to close the boiler room operation, look forthright and move on.

makes perfect sense. time for gs to find a new mark...

Tue, 04/08/2014 - 21:20 | 4637699 NotApplicable
NotApplicable's picture

Goldman just orchestrated the creation of a monopoly on Market 2.0. The final shoe falls. I'm extremely impressed.

Checkmate.

Tue, 04/08/2014 - 22:58 | 4638015 mccvilb
mccvilb's picture

Gotta love the Squid. I could see them exiting the scene stage left ever since the Rolling Stone articles branded them with the letter A. They've needed to create a new image for themselves for awhile. Now to find some sucker willing to buy a couple of office buildings in lower Manhattan and NJ that may be underwater soon.

Wed, 04/09/2014 - 02:07 | 4638356 SameAsItEverWas
SameAsItEverWas's picture

You got something there!  SEC regs have it illegal to do wash sales, i.e. go long and short the same position simultaneously.

 

 

Fri, 04/11/2014 - 17:55 | 4649213 MeelionDollerBogus
MeelionDollerBogus's picture

I'll buy that for a dollar1.

1one 1988 dollar would be equal to more than $4.50 in 2014 purchasing power from inflation

Tue, 04/08/2014 - 20:00 | 4637504 EggSlayer
EggSlayer's picture

what a great movie

Tue, 04/08/2014 - 23:08 | 4638053 palmereldritch
palmereldritch's picture

It's been done in the Grifters as well.  And like in the original movie, the long con is finished and it's time to shut the operation down.

https://www.youtube.com/watch?v=Rlwhv7m3CSI

Fri, 04/11/2014 - 17:48 | 4649198 MeelionDollerBogus
Tue, 04/08/2014 - 20:31 | 4637579 Squid-puppets a...
Squid-puppets a-go-go's picture

you know that point in pirate movies where the kraken releases its grip on the ship and goes under the waves again. and you know its not dead so its only a matter of time before it resurfaces to continue its destruction?

thats this moment

Fri, 04/11/2014 - 17:43 | 4649175 MeelionDollerBogus
MeelionDollerBogus's picture

LOL. Too funny in being so wrong.
When the FEMA camps are formed overnight around major population centers to displace people from homes and loot all property held within, that's when the kraken strikes.
Then the day the troops all pull back and the people think they can go free, that's when the kraken is hiding in the water.
Then the nerve gas bombs drop from drones.
THAT is when the kraken has resurfaced to show you up close & personal it has Goldman Sachs tattooed in gold on every tentacle. And demolish everything.
The nerve gas, naturally, will be blamed on drones 'hacked'  by Russia and/or Iran.

Tue, 04/08/2014 - 20:54 | 4637623 Deathrips
Deathrips's picture

Theres this guy cliff that is expecting some big news tonight.

http://halfpasthuman.com/

...head politicians have done it again and doubled down on stupid. We expect BTC, gold, and then silver to start reacting to [shocking] geo-political events on Tuesday, April 8, 2014, late in day Pacific Coast Time.

 

Lets see if it happens...if not its all good. cliffs cool.

 

RIPS

 

Tue, 04/08/2014 - 21:06 | 4637660 Ralph Spoilsport
Ralph Spoilsport's picture

Cliff lost a lot of credibility when the Global Coastal Event didn't happen when he predicted. He's also had a lot of bad breaks recently in his personal life. But yeah, Cliff is cool.

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